Kuwait Projects Company Holding (Kipco), whose subsidiaries include Bahrain-based United Gulf bank (UGB), has been downgraded by Moody's Investors Service.

The ratings agency has changed its outlook to on the company to negative from stable, reflecting deterioration in the credit quality of some of its core subsidiaries. However, it has affirmed the Baa1 long term and Prime-2 short term issuer ratings of Kipco.

Moody's has also assigned Baa1/ Prime-2 ratings to Kipco's existing $2 billion European Medium Term Note (EMTN) Programme. The outlook is also negative.

"Kipco has responded well to a challenging global and local market environment by strengthening liquidity and actively managing leverage in support of credit metrics," said Moody's vice-president and lead analyst for Kipco Philipp Lotter.

"However, Kipco exhibits a high concentration of dividend income from three subsidiaries which engage in banking and insurance activities.

"Our negative outlook reflects a moderately weaker credit trend at two of these subsidiaries, notably Burgan Bank, whose rating was recently downgraded by Moody's in response to the weakening credit and market conditions in Kuwait over the past 12 months."

Kipco's debt-to-market value leverage was 16 per cent at year-end last year and 19 per cent for the first half of this year comfortably within Moody's 25 per cent ceiling for the rating

"Moody's takes comfort from the fact that Kipco has actively managed its market value leverage by selling around $200 million of core and non-core assets during turbulent market conditions in support of its credit profile," the report said.

"It has also strengthened its liquidity over the past 12 months by repaying debt and extending debt maturities.

"The company now has no debt maturing before November 2010, and good additional coverage from $383m of cash and $172m of undrawn committed credit facilities.

"Ratings remain partially constrained by the credit quality of the underlying assets, given that Burgan Bank and UGB have Bank Financial Strength Ratings (BFSR) equivalent to Baa3 and Ba1, respectively, and both ratings are on negative outlook, reflecting still uncertain conditions in the region's banking sector.

"Kipco's four core subsidiaries, which in addition to Burgan Bank and UGB, also include Gulf Insurance Company and satellite TV broadcaster Showtime and Orbit, currently constitute approximately 78 per cent of the company's asset base and represent 64 per cent of Kipco's cash flows, which also includes additional income from interest and securities," it adds.

"Whilst Moody's assesses Kipco purely on its stand-alone credit characteristics, we acknowledge that Kipco's creditworthiness is strengthened by a supportive long term strategic shareholder, Al Futtooh Holding Company (AFI), which is the investment vehicle associated with the Kuwaiti ruling family."

AFI has been associated with the group since 1980, and has continued to increase its stake gradually from around 20 per cent at inception to now beyond 50 per cent, including participating in all rights issues of Kipco. – TradeArabia News Service