PARIS (Standard & Poor's) Nov. 19, 2009--Standard & Poor's Ratings Services today said it downgraded its long- and short-term counterparty credit ratings on Kuwait-based wholesale institution Gulf Investment Corporation G.S.C. (GIC) to 'BBB-/A-3' from 'BBB/A-2'. The outlook is stable.

At the same time, we removed the ratings from CreditWatch with negative implications, where they had been placed on Feb. 9, 2009.

"The downgrade reflects our opinion that GIC's business and financial profiles of are no longer consistent with a stand-alone credit profile assessed in the investment-grade category," said Standard & Poor's credit analyst Paul-Henri Pruvost.

We acknowledge, however, that active deleveraging should contribute to a gradual stabilization of GIC's financial profile over the long term.

The ratings on GIC are constrained by high loan-to-value (LTV) ratios, strong reliance on short-term funding, rather high risks in its project investments and securities portfolios, and the somewhat illiquid nature of the majority of its project investments. Mitigating these factors are GIC's status as a government-related entity (GRE) under our criteria, strong ongoing funding support from shareholders, and adequate capitalization in our view.

We assess GIC's SACP at 'BB+', including ongoing funding support from shareholder states.

In accordance with our criteria for GREs, we think that there is a "moderate" likelihood that state shareholders would provide support to GIC in the event of financial distress. This is based on our assessment of GIC's "strong" link with its state shareholders, given their equal and full ownership; and "limited" role in the Gulf Cooperation Council regional economy.

"The stable outlook reflects our opinion that GIC's financial profile is set to remain in line with the ratings, and that it should not deteriorate from current levels," said Mr. Pruvost.

We expect GIC to address near-term funding maturities in a timely manner. We also expect GIC to maintain its LTV ratios around current levels; the ratings would come under pressure if it is unable to do so. Any weakening of the link between GIC and its shareholders would also be a negative rating factor. In addition, if credit risk in GIC's portfolio were to increase again, possibly resulting from rebalancing assets from low-risk fixed income investments to higher-risk project investments, we believe that GIC would need to strengthen its financial profile versus our current expectations to remain consistent with the ratings. We do not expect to raise GIC's SACP in the medium term.

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© Press Release 2009