Capital Intelligence (CI), a credit-rating agency, said on Thursday that it has affirmed Gulf Finance House’s (GFH) long-term “BB” rating and short-term “B” rating.
The outlook for GFH’s ratings remains stable. The classification is supported by GFH’s satisfactory leverage and moderately improved diversification of the balance sheet and revenue streams in H1 2015 after the consolidation of Khaleeji Commercial Bank (KHCB).
The major rating constraints are GFH’s relatively small asset base, coupled with ongoing concentration risk, just-adequate liquidity, limited financial flexibility and the still-challenging investment environment exacerbated by the fall in oil prices.
GFH’s balance-sheet liquidity remains comparatively low, despite being just adequate, reflecting the limited share of cash and bank balances in total assets, in combination with the significant stock of unquoted investment securities.
On a positive note, GFH’s liquidity metrics and debt-service capacity have improved, albeit moderately. Regarding the considerable holdings of unquoted investments in the infrastructure sector, GFH’s strategy is to exit these investments principally by means of strategic sell-outs, the sale of underlying assets or through initial public offerings. GFH continues to have high-sector concentration risk – a legacy of its former business model, although this is expected to improve after the consolidation of KHCB.
Profitability remains rather volatile, given the reliance on deal flow, along with limited recurring revenue streams and underperforming investments. Looking ahead, however, income volatility is likely to diminish and income generation to strengthen from the KHCB consolidation.
