Gulf Investment Corporation Sukuk - RAM Ratings Credit Rationale

Transcription

1. s February 2011 GULF INVESTMENT CORPORATION GSC    Proposed RM3.5 billion Sukuk Wakalah bi Istithmar Programme RM600 million Senior Unsecured Bonds (2008/2013) RM400 million Senior Unsecured Bonds (2008/2023) The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.
2. CREDIT RATING RATIONALE FINANCIAL INSTITUTION RATINGS FEBRUARY 2011 Analysts : Joanne Kek (603) 7628 1163 joanne@ram.com.my Sophia Lee (603) 7628 1189 sophia@ram.com.my Principal Activity: Provision of wholesale financial services Financial Institution Ratings: Long-term: AAA [Reaffirmed] Short-term: P1 [Reaffirmed] Instruments: i) Proposed RM3.5 billion Sukuk Wakalah bi Istithmar Programme ii) RM600 million Senior Unsecured Bonds (2008/2013) iii) RM400 million Senior Unsecured Bonds (2008/2023) Ratings: i) AAA [Assigned] ii) AAA [Reaffirmed] iii) AAA [Reaffirmed] Rating Outlook: Stable Last Rating Action: 27 May 2010 Coupon Rates: i) Determined at issuance ii) 3.98% iii) 4.52% Maturity Dates: i) Determined at issuance ii) 5 February 2013 iii) 6 February 2023 GULF INVESTMENT CORPORATION GSC – Initial Rating and Rating Update RAM Ratings has assigned a long-term rating of AAA to Gulf Investment Corporation GSC’s (“GIC or “the Corporation”) Proposed RM3.5 billion Sukuk Wakalah bi Istithmar Programme. Concurrently, RAM Ratings has reaffirmed GIC’s respective long- and short-term financial institution ratings at AAA and P1, while also reaffirming the AAA ratings of the Corporation’s RM600 million Senior Unsecured Bonds (2008/2013) and RM400 million Senior Unsecured Bonds (2008/2023). All the long-term ratings have a stable outlook. The proceeds from the issuance of the Proposed RM3.5 billion Sukuk Wakalah bi Istithmar Programme will be ultimately channelled towards GIC’s investments in Shariahcompliant ventures. GIC’s ratings remain supported by its unique position within the Gulf Corporation Council (“GCC”) region, and the strong support from its shareholders. The latter was most recently highlighted by a USD1.1 billion capital injection; the GCC central banks had also continued placing deposits in GIC during the financial crisis in 2009. With its shareholders comprising the governments of Kuwait, Saudi Arabia, the United Arab Emirates, Qatar, Bahrain and Oman, GIC’s mandate is to support the development of private enterprises and economic growth within the GCC region. Given its strategic role, the Corporation enjoys immunity and exceptions in terms of regional regulatory norms, including exemptions from asset nationalisation, currency controls and taxes. For the first 9 months of FYE 31 December 2010 (“9M FY Dec 2010”), GIC reported a net profit of USD129 million, surpassing the USD91 million of FY Dec 2009. Driven by the more encouraging economic outlook on the GCC, the performance of GIC’s key principal investments (particularly those in metal- and petrochemicals-related industries) have improved. In 9M FY Dec 2010, the Corporation recorded a larger USD116 million share of profits from its subsidiaries and associates (FY Dec 2009: USD9 million). The Corporation’s dividend receipts for this year are expected to remain similar to previous-year levels, given the developmental stage of its key principal investments. In 9M FY Dec 2010, GIC posted USD9.9 million of dividend income, vis-à-vis USD12.5 million in FY Dec 2009. The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations, transfer and convertibility risks, repatriation risk, currency risk or any other risk apart from credit risk.
3. Lead Arrangers : i) The Royal Bank of Scotland Berhad, Maybank Investment Bank Berhad ii) & iii) The Royal Bank of Scotland Berhad, RHB Investment Bank Berhad and Standard Chartered Bank (Malaysia) Berhad Trustee: i) - iii) Deutsche Trustee Services Berhad Table 1: GIC’s key principal investments Ownership Principal investments The National Titanium Dioxide Co, Ltd (CRISTAL) Gulf Industrial Investment Co Bituminous Products Company Limited Gulf Re Holdings Ltd Al Dur Power & Water Co National Industrialisation Co Book value of investment (USD million) (as at endSeptember 2010) end-June 2009 end-Dec 2009 end-Sept 2010 33% 183.06 218.68 297.75 50% 124.93 118.51 188.67 100% 98.20 105.90 114.55 50% 25% 7.9% 101.01 0.17 * 188.62 102.95 132.19 272.17 104.06 132.19 321.88 * As at end-June 2009, GIC held a 50%-stake in Al Dur Power & Water Co. Elsewhere, the credit quality of the Corporation’s debt securities remains satisfactory, with approximately 70% carrying international ratings of A and above. Meanwhile, the size of GIC’s investments in structured-finance securities issued by special-purpose vehicles has been decreasing; these amounted to USD346 million as at end-September 2010 (end-December 2009: USD765 million). GIC’s liquidity position is viewed to be healthy. The Corporation repaid USD700 million of debts in 1H FY Dec 2010. As at end-September 2010, GIC’s cash balances and available-for-sale securities amounted to USD633 million and USD2.5 billion respectively; juxtaposed against USD565 million of its debt repayments due in FY Dec 2011, these are viewed to be adequate (there is no scheduled debt redemption in FY Dec 2012). RAM Ratings has a positive view of the Corporation’s efforts to reduce its reliance on short-term borrowings; improvements first became apparent in FY Dec 2009, and continue to be observed in its funding profile as at end-September 2010. We opine that liquidity support from GIC’s shareholders should be readily extended, if required. Backed by the accretion of profits and revaluation gains on its equity investments, GIC’s tier-1 and overall risk-weighted capital-adequacy ratios (“RWCARs”) increased to 30.23% as at end-September 2010 (end-December 2009: 27.7%). Meanwhile, the deleveraging of its balance sheet had eased its 1 leverage ratio to 2.8 times as at the same date (end-December 2009: 3.5 times). Going forward, GIC intends to expand its portfolio of equity investments in the healthcare, irrigation and agriculture sectors. While these will push up its RWCARs and leverage ratios, the management has a near-term minimum RWCAR ratio of 20% and maximum leverage ratio of 4 times, these are viewed to be prudent. 1 Measured as the proportion of total assets to shareholders’ funds. Gulf Investment Corporation GSC 2
4.  Details of the Proposed Issue Figure 1: Part A – At issuance of the Sukuk Wakalah bi Istithmar 2 GIC, the Issuer, appoints GIC as the Investment Wakeel to manage Sukuk Assets 3 Sukukholders appoint GIC as Wakeel for Collection through a Wakalah Arrangement for the collection of Sukuk proceeds. Sukukholders also appoint GIC as manager to manage Sukuk proceeds. GIC Issuer, Wakeel for Collection & Investment Wakeel SPV 1 49% of net issue proceeds Commodity Murabahah financing arrangement. Proceeds invested in Shariahcompliant ventures. Sukukholders Profit payments will stem from deferred payments under the Commodity Murabahah financing arrangement. Split of net issue proceeds 100% 1 100% SPV 2 51% of net issue proceeds Principal redemption will stem from the Commodity Murabahah financing arrangement and/or the Wakalah ventures. Sub-Wakalah investment arrangement. Proceeds invested in Shariahcompliant Wakalah ventures. GIC’s obligations under the Sukuk Wakalah bi Istithmar rank pari passu with its present and future unsecured and unsubordinated obligations. Each issuance of Sukuk Wakalah bi Istithmar will involve GIC playing roles of Issuer, Wakeel for Collection and Investment Wakeel. At the issuance date: 1. GIC enters into a Wakalah arrangement with the Sukukholders who will appoint GIC as the Wakeel for Collection to collect the Sukuk proceeds. Sukukholders also appoint GIC as manager to manage Sukuk proceeds. 2. GIC as Issuer then appoints GIC to act as Investment Wakeel to manage Sukuk assets. 3. GIC, as Investment Wakeel, will invest the net proceeds in the following manner: 49% with SPV 1, through a Commodity Murabahah financing arrangement. 51% with SPV 2, through a Sub-Wakalah investment arrangement. These proceeds will be ultimately invested in Shariah compliant ventures. Gulf Investment Corporation GSC 3
5. Figure 2 : Part B – SPV 1’s Commodity Murabahah financing arrangement 1 GIC Transfer of commodity BROKER A Issuer & Investment Wakeel 2 Transfer of commodity 3 VENDOR B Transfer of commodity GIC, as Issuer guarantees financial obligations of SPV 1 under the Commodity Murabahah financing arrangement to GIC, the Investment Wakeel. GIC, as Issuer, will step in to make good any shortfall in SPV 1’s payment obligations. Payment to GIC at a disclosed sale price on a deferred payment basis (Deferred Sale Price). Deferred Sale Price will be equivalent to the total principal and profit payable to the Sukukholders. Principal and profit payments will stem from the Deferred Sale Price under the Commodity Murabahah financing arrangement. SPV 1 4 SHARIAH-COMPLIANT VENTURES Global Markets or Principal Investments Musawamah contract & undertaking GIC as Investment Wakeel will undertake to enter into a Musawamah contract to purchase SPV 1’s Shariah compliant commodity upon the dissolution of the Sukuk. This undertaking will be enforced at the maturity date, where the Musawamah sale price will be benchmarked upon the residual value of SPV 2’s Shariah-compliant Wakalah ventures. At maturity, the Musawamah sale price (due to SPV 1) will be set off against the Deferred Sale Price (due from SPV 1 under the Commodity Murabahah financing arrangement) to ensure that Sukukholders do not receive anything more than the agreed Sukuk principal and profit amount. The Commodity Murabahah financing arrangement will involve the following: 1. GIC, as Investment Wakeel, will purchase the Shariah-compliant commodity at its spot price. 2. GIC then sells the commodity to SPV 1 at a disclosed sale price, payable on a deferred payment basis (the Deferred Sale Price). The Deferred Sale Price will be equivalent to the total principal and profit payable to the Sukukholders. GIC will also undertake to purchase SPV 1’s Shariah-compliant commodity upon the dissolution of the Sukuk, at a price to be benchmarked against the aggregate market value of the Shariah-compliant Wakalah ventures managed by SPV 2. 3. Thereafter, SPV 1 sells the commodity to a vendor. 4. Proceeds from the sale of the commodity are invested in Shariah-compliant ventures. 5. Profit payments of the Sukuk Wakalah bi Istithmar will stem from the deferred payments payable by SPV 1 to GIC under the Commodity Murabahah financing arrangement. GIC, as Issuer, will guarantee the obligations of SPV 1 under the Commodity Murabahah financing arrangement to GIC, the Investment Wakeel. The Issuer will step in to make good any shortfall in SPV 1’s payment obligations. Gulf Investment Corporation GSC 4
6. Figure 3 : Part C – SPV 2’s Sub-Wakalah arrangement GIC Issuer & Investment Wakeel 1 GIC, as Investment Wakeel appoints SPV 2 as investment subagent through a Wakalah arrangement to manage 51% of net issue proceeds 3 2% of the net profits of the ventures will be paid to the Sukukholders through GIC, the Investment Wakeel. The balance 98% of net profits will be waived by the Sukukholders to SPV 2 as incentive fees. SPV 2 2 SHARIAH-COMPLIANT VENTURES Global Markets or Principal Investments SPV 2 will receive 51% of the net issue proceeds; these will be invested in Shariah-compliant ventures through a sub-Wakalah arrangement. 1. GIC, the Investment Wakeel will appoint SPV 2 as investment sub-agent to manage 51% of the net issue proceeds. 2. SPV 2 will invest the net issue proceeds in Shariah-compliant Wakalah ventures. 3. 2% of the net profits of the ventures will be paid to the Sukukholders through GIC, the Investment Wakeel, while the balance 98% of net profits will be waived by the Sukukholders to SPV 2 as incentive fees. At maturity, a Musawamah transaction will take place between GIC as Investment Wakeel and SPV 1. SPV 1 will sell the Shariah compliant commodity to the Investment Wakeel at the Musawamah Sale Price, which will be benchmarked against the residual value of SPV 2’s Shariah-compliant Wakalah ventures. The Musawamah sale price (due to SPV 1) will be set off against the Deferred Sale Price (due from SPV 1 under the Commodity Murabahah financing arrangement) to ensure that Sukukholders do not receive anything more than the agreed Sukuk principal and profit amount. For further details on the ratings of GIC, please refer to the rationale published by RAM Ratings on 27 May 2010. Gulf Investment Corporation GSC 5
7.  Corporate Information – Gulf Investment Corporation GSC Date of Incorporation: November 1983 Commencement of Business: November 1983 Major Shareholders (as at 31 December 2009): Owned by Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates Directors: HE Dr Zakaria Ahmed Hejres Chairman of the Board of Directors and Member of the Audit and RiskManagement Committees Chief Executive Officer – Al Watan for Publishing & Distribution (Bahrain) Member of the Audit and Risk Management Committees Chairman of Bahrain Islamic Bank (Bahrain) Member of the Executive and Risk-Management Committees Director of Revenues Development Department, Ministry of Finance (UAE) Member of the Audit Committee Acting Executive Director of Budget and Revenue, Ministry of Finance (UAE) Member of the Audit Committee Advisor in the Diwan of H.H. the Prime Minister of the State of Kuwait Chairman of the Risk Management Committee and Member of the Executive Committee Executive Director – General Reserve Sector – KIA. Chairman of the Audit Committee Chief Operator Officer, Saudi Arabian Investment Co. (Saudi Arabia) Chairman of the Executive Committee and Member of the Risk Management Committee Chief Executive Officer & MD, Nomura Saudi Arabia Member of the Executive Committee Secretary General, Ministry of Finance (Oman) Member of the Audit and Risk Management Committees Chief Executive Officer, Oman Arab Bank (Oman) Member of the Executive Committee Deputy Governor, Qatar Central Bank (Qatar) Member of the Audit and Risk Management Committees Executive Board Member, Qatar Investment Authority (Qatar) HE Mr Khalid A. Al-Bassam HE Mr Faisal Al-Mansouri HE Mr Saeed Rashid Al-Yateem HE Mr Faisal M. Al-Hajji Bou Khadour HE Mr Bader Ajeel Al-Ajeel HE Turki Bin Ibrahim Al-Malek HE Mr Khaled S. Al-Khattaf HE Mr Darwish bin Ismail bin Ali AlBulushi HE Mr Abdul Kader Askalan HE Sheikh Fahad bin Faisal Al-Thani HE Dr Hussain Ali Al-Abdulla Auditor: Ernst & Young Listing: Not listed Key Management: Mr Hisham Abdulrazzaq Al-Razzuqi Mr Rashid bin Rasheed Mr Arun Ratra Mr Shafic Ali Mr Khaled Al Qadeeri Mr Mohammad Al Melhem Mr Talal Al-Tawari Mr Malek Al-Ajeel Mr Sebastian Vadakumcherry Mr Tarek El Rohayem Mr Hani Al-Shakhs Mr Hazem Al Rafie Mr Khaled Bukhamseen Mr Martin Joy Mr Qais Al-Shatti Mr Shawki Khalaf Dr Sulayman Al Qudsi Capital History: Chief Executive Officer & General Manager Deputy General Manager & Head of Finance & Administration Head of Global Markets Group Head of Utilities & Financial Services Head of Manufacturing Projects Head of GCC Diversified Projects Head of GCC Equities Head of Business Development Head of Risk Management Head of GCC Research Head of Information Technology Head of Financial Control Head of Internal Audit Head of Treasury, Acting Head of Debt Capital Markets Head of Communication & Public Relations Head of Operations Head of Economics Year Remarks 2007 2008 2009 Share capital Capital injection Capital injection Gulf Investment Corporation GSC Amount (USD million) 1,000 550 550 Cumulative Total (USD million) 1,000 1,550 2,100 6
8. FINANCIAL SUMMARY Gulf Investment Corporation GSC – Group unaudited BALANCE SHEET (USD million) 31-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 30-Sep-10 ASSETS Cash & Money At Call Deposits & Placements With Financial Institutions Securities Purchased Under Resale Agreements Securities Securities Held For Trading Securities Available-For-Sale Securities Held-To-Maturity Net Loans & Advances Investments in Subsidiaries/Associates Other Assets Property, Plant & Equipment TOTAL ASSETS 82.00 570.00 14.00 19.00 623.00 186.00 34.00 1,030.00 0.00 35.00 1,030.00 0.00 5.00 628.00 0.00 630.00 4,687.00 583.00 17.00 0.00 1,510.00 20.00 8,113.00 628.00 5,399.00 547.00 40.00 0.00 1,707.00 26.00 9,175.00 1,093.00 3,850.00 39.00 110.00 808.00 221.00 26.00 7,211.00 601.00 3,127.00 2.00 85.00 1,009.00 186.00 38.00 6,113.00 601.00 2,478.00 1.00 74.00 1,709.00 252.00 13.00 5,761.00 LIABILITIES Customer Deposits Demand Savings Fixed Negotiable Instruments of Deposits Interbank Deposits Bills & Acceptances Payable Securities Sold Under Repurchase Agreements Other Borrowing Subordinated Debt & Hybrid Capital Other Liabilities TOTAL LIABILITIES Paid-up Capital Minority Interest Share Premium & Other Reserves Statutory General Reserve Retained Profits/(Accumulated Losses) TOTAL SHAREHOLDERS' FUNDS TOTAL LIABILITIES & SHAREHOLDERS' FUNDS 0.00 0.00 910.00 0.00 1,222.00 0.00 1,836.00 2,046.00 0.00 188.00 6,202.00 750.00 0.00 310.00 267.00 584.00 1,911.00 8,113.00 0.00 0.00 1,333.00 0.00 1,471.00 0.00 2,372.00 1,820.00 0.00 221.00 7,217.00 1,000.00 0.00 365.00 292.00 301.00 1,958.00 9,175.00 0.00 0.00 2,482.00 0.00 414.00 0.00 1,270.00 2,071.00 0.00 312.00 6,549.00 1,550.00 0.00 (424.00) 292.00 (756.00) 662.00 7,211.00 0.00 0.00 1,237.00 0.00 123.00 0.00 1,211.00 1,587.00 0.00 205.00 4,363.00 2,100.00 0.00 35.00 301.00 (686.00) 1,750.00 6,113.00 0.00 0.00 1,571.00 0.00 0.00 0.00 876.00 1,089.00 0.00 192.00 3,728.00 2,100.00 0.00 491.00 NA (558.00) 2,033.00 5,761.00 COMMITMENTS & CONTINGENCIES TIER 1 CAPITAL CAPITAL BASE 4,181.00 1,461.95 1,544.39 4,818.00 1,557.40 1,557.40 4,131.00 622.40 622.40 2,888.00 1,683.60 1,683.60 3,108.00 1,950.00 1,950.00 Gulf Investment Corporation GSC 7
9. FINANCIAL SUMMARY Gulf Investment Corporation GSC – Group unaudited INCOME STATEMENT (USD million) Interest Income Less: Accretion Of Discount/(Amortisation Of Premium) Less: Net Interest Income Suspended Less: Interest Expense Net Interest Income Non-Interest Income Gross Income Less: Personnel Expenses Less: Other Operating Expenses Less: Provisions & Impairment Losses Less: Non-Recurring Items Share of results of Associated Companies Pre-Tax Profit/(Loss) Less: Taxation Net Profit/(Loss) Less: Minority Interests Less: Transfer To Statutory Reserves Less: Transfer To Other Reserves Less: Dividend Post-Appropriation Profit/(Loss) 31-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 254.30 0.00 0.00 (279.90) (25.60) 576.00 550.40 (34.30) (21.90) 105.90 0.00 0.00 600.10 0.00 600.10 0.00 (60.00) (60.00) (177.30) 302.80 308.00 0.00 0.00 (333.00) (25.00) 473.00 448.00 (39.00) (13.00) (143.00) 0.00 0.00 253.00 0.00 253.00 0.00 (25.00) (275.00) (236.00) (283.00) 249.00 0.00 0.00 (262.00) (13.00) (96.00) (109.00) (27.00) (21.00) (957.00) 0.00 118.00 (996.00) 0.00 (996.00) 0.00 0.00 0.00 (61.00) (1,057.00) 84.00 0.00 0.00 (85.00) (1.00) 149.00 148.00 (33.00) (13.00) (16.00) 0.00 5.00 91.00 0.00 91.00 0.00 0.00 (21.00) 0.00 70.00 30-Sep-10 9 months 42.00 0.00 0.00 (37.00) 5.00 54.00 59.00 (22.00) (11.00) (13.00) 0.00 116.00 ^ 129.00 0.00 129.00 0.00 0.00 0.00 0.00 129.00 ^ The RM116 million classified as “Share of results of Associated Companies” in 9M FY Dec 2010 refers to GIC’s share of profits of both its subsidiary and associated companies. Extracted from GIC’s 9M FY Dec 2010 management accounts. Gulf Investment Corporation GSC 8
10. FINANCIAL RATIOS Gulf Investment Corporation GSC – Group unaudited KEY FINANCIAL RATIOS (%) PROFITABILITY Net Interest Margin Non-Interest Income Margin Cost To Income Cost Over Total Average Assets Return On Assets Return On Equity Dividend Payout ASSET QUALITY Gross NPLs Ratio Net NPLs Ratio 3-months Past Due Ratio Net NPLs To Total Assets Specific Loan Loss Provisions For Current Period Gross NPLs Coverage Loan Loss Reserve Coverage General Loan Loss Reserve Coverage LIQUIDITY & FUNDING Liquid Asset Ratio Interbank Deposits To Total Interest Bearing Funds Customer Deposits To Total Interest Bearing Funds Loans To Deposits Ratio Loans To Stable Funds Ratio CAPITAL ADEQUACY Shareholders' Funds To Total Assets Tier 1 Risk Weighted Capital Adequacy Ratio Overall Risk Weighted Capital Adequacy Ratio Internal Rate Of Capital Generation 31-Dec-06 31-Dec-07 31-Dec-08 31-Dec-09 30-Sep-10 (0.33%) 7.40% 10.21% 0.72% 7.71% 33.78% 29.55% (0.29%) 5.47% 11.61% 0.60% 2.93% 13.08% 93.28% (0.16%) (1.17%) (44.04%) 0.59% (12.16%) (76.03%) (6.12%) (0.02%) 2.24% 31.08% 0.69% 1.37% 7.55% 0.00% 0.11% 1.21% 55.93% 0.74% 2.90% 9.09% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% NA 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% NA 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% NA 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% NA 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% NA 0.00% 0.00% 83.48% 20.32% 15.13% 1.87% 0.25% 73.84% 21.03% 19.05% 3.00% 0.54% 132.36% 6.64% 39.79% 4.43% 1.95% 170.21% 2.96% 29.75% 6.87% 1.79% 133.96% 0.00% 44.43% 4.71% 1.92% 23.55% 20.57% 21.73% 23.80% 21.34% 18.58% 18.58% 0.88% 9.18% 8.65% 8.65% (80.69%) 28.63% 27.74% 27.74% 7.55% * * * * * 35.29% 30.23% 30.23% 9.09% * Note : * annualised Gulf Investment Corporation GSC 9
11. FINANCIAL RATIOS Gulf Investment Corporation GSC – Group KEY FINANCIAL RATIOS PROFITABILITY Net Interest Margin Non-Interest Income Margin Cost To Income Cost Over Total Average Assets Return On Assets Return On Equity Dividend Payout ASSET QUALITY Gross NPLs Ratio Net NPLs Ratio 3-months Past Due Ratio Specific Loan Loss Provisions For Current Period Gross NPLs Coverage Loan Loss Reserve Coverage General Loan Loss Reserve Coverage LIQUIDITY & FUNDING Liquid Asset Ratio Loans To Deposits Ratio Loans To Stable Funds Ratio Short-Term Funds Liquid Assets Total Interest Bearing Funds CAPITAL ADEQUACY Internal Rate Of Capital Generation FORMULAE Net Interest Income / Average Total Assets Non-Interest Income / Average Total Assets (Personnel & Other Operating Expenses) / Gross Income (Personnel & Other Operating Expenses) / Average Total Assets Pre-Tax Profit/(Loss) / Average Total Assets Pre-Tax Profit/(Loss) / Average Shareholders' Funds Dividends / Net Profit/(Loss) (Total Non-Performing Loans - Interest-Income-In-Suspense) / (Gross Loans - Interest-Income-In-Suspense) (Total Non-Performing Loans - Specific Loan Loss Reserves - Interest-Income-In-Suspense) / (Gross Loans - Specific Loan Loss Reserves - Interest-Income-In-Suspense) 3-months Past Due Loans /(Gross Loans - Interest-Income-In-Suspense) Specific Loan Loss Provisions For The Period / Average Gross Loans General & Specific Loan Loss Reserves (B/S) / (Total Non-Performing Loans - Interest-Income-In-Suspense) General & Specific Loan Loss Reserves (B/S) / (Gross Loans - Interest-Income-In-Suspense) General Loan Loss Reserves / (Gross Loans - Specific Loan Loss Reserves - Interest-Income-In-Suspense) Liquid Assets / Customer Deposits & Short-Term Funds Net Loans / Customer Deposits Net Loans / (Shareholders' Funds + Total Interest Bearing Funds + General Loan Loss Reserves - Interbank Funding - Property, Plant & Equipment - Investments in Subsidiaries/Associates) Interbank Deposits + Bills & Acceptances + Securities Sold Under Repos Cash & Short-Term Funds + Securities Purchased Under Repos + Deposits & Placements With Financial Institutions + Quoted Securities (Excluding Securities Held-To-Maturity) Customer Deposits + Interbank + Bills & Acceptances + Securities Sold Under Repos + Borrowing + Supplementary Capital (Net Profit/(Loss) + Extraordinary Income - Dividend + General Loan Loss Provision) / Average Shareholders' Funds Gulf Investment Corporation GSC 10
12. CREDIT RATING DEFINITIONS Financial Institution Ratings A Financial Institution Rating ("FIR") is RAM Ratings' current opinion on the overall capacity of a financial institution to meet its financial obligations. The opinion is not specific to any particular financial obligation, as it does not take into account the expressed terms and conditions of any specific financial obligation. Long-Term Ratings AAA A financial institution rated AAA has a superior capacity to meet its financial obligations. This is the highest long-term FIR assigned by RAM Ratings. AA A financial institution rated AA has a strong capacity to meet its financial obligations. The financial institution is resilient against adverse changes in circumstances, economic conditions and/or operating environments. A A financial institution rated A has an adequate capacity to meet its financial obligations. The financial institution is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. BBB A financial institution rated BBB has a moderate capacity to meet its financial obligations. The financial institution is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. BB A financial institution rated BB has a weak capacity to meet its financial obligations. The financial institution is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments. B A financial institution rated B has a very weak capacity to meet its financial obligations. The financial institution has a limited ability to withstand adverse changes in circumstances, economic conditions and/or operating environments. C A financial institution rated C has a high likelihood of defaulting on its financial obligations. The financial institution is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaultingon its financial obligations. D A financial institution rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the financial institution that could jeopardise the payment of financial obligations. Short-Term Ratings P1 A financial institution rated P1 has a strong capacity to meet its short-term financial obligations. This is the highest shortterm FIR assigned by RAM Ratings. P2 A financial institution rated P2 has an adequate capacity to meet its short-term financial obligations. The financial institution is more susceptible to the effects of deteriorating circumstances than thosein the highest-rated category. P3 A financial institution rated P3 has a moderate capacity to meet its short-term financial obligations. The financial institution is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. NP A financial institution rated NP has a doubtful capacity to meet its short-term financial obligations. The financial institution faces major uncertainties that could compromise its capacity for payment of financial obligations. D A financial institution rated D is currently in default on either all or a substantial portion of its financial obligations, whether or not formally declared. The D rating may also reflect the filing of bankruptcy and/or other actions pertaining to the financial institution that could jeopardise the payment of financial obligations. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the financial institution ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the financial institution ranks at the lower end of its generic rating category. Gulf Investment Corporation GSC 11
13. CREDIT RATING DEFINITIONS Issue Ratings An Issue Rating is RAM Ratings ' current opinion on the creditworthiness of a particular debt issue . It reflects the overall capacity and willingness of an issuer to meet the financial obligations on a particular debt issue on a full and timely basis, taking into account its expressed terms and conditions . Long-Te rm Ra tings AAA An issue rated AAA has superior s afety for payment of financial obligations . This is the highest long-term Issue Rating assigned by RAM Ratings . AA An issue rated AA has high safety for payment of financial obligations . The is suer is resilient agains t adv erse changes in circumstances, economic conditions and/or operating env ironments . A An issue rated A has adequate safety for payment of financial obligations . The iss uer is more s us ceptible to advers e changes in circumstances , economic c onditions and/or operating environments than those in higher -rated c ategories . BBB An issue rated BBB has moderate s afety for pay ment of financ ial obligations . The is suer is more likely to be weak ened by adverse changes in circ umstanc es , economic conditions and/or operating environments than those in higher-rated categories . This is the lowest inves tment -grade c ategory. BB An issue rated BB has low safety for payment of financial obligations . The iss uer is highly v ulnerable to adv ers e changes in circumstances , ec onomic c onditions and/or operating environments . B An issue rated B has very low safety for payment of financial obligations . The iss uer has a limited advers e changes in circumstances , economic conditions and/or operating environments . C An issue rated C has a high lik elihood of default . The is suer is highly dependent on favourable changes in circ ums tances , economic conditions and/or operating environments, the lack of which would lik ely result in it defaulting on a particular debt issue . D An issue rated D is either c urrently in default or faces imminent default on its financial obligations, whether or not formally declared . The D rating may also reflect a distress ed exchange, the filing of bank ruptcy and/or other ac tions pertaining to the issuer that could jeopardis e the pay ment of a particular debt iss ue . ability to withstand Short-Te rm Ra tings P1 An issue rated P 1 has high safety for pay ment of financial obligations in the short term . This is the highes t short -term Issue Rating ass igned by RAM Ratings . P2 An iss ue rated P 2 has adequate safety for payment of financial obligations in the short term . The issuer is more susc eptible to the effec ts of deteriorating c ircumstances than those in the highest -rated category . P3 An issue rated P3 has moderate s afety for payment of financial obligations in the short term . The issuer is more lik ely to be weak ened by the effects of deteriorating c ircums tanc es than thos e in higher -rated categories . This is the lowest investment -grade category . NP An issue rated NP has doubtful s afety for pay ment of financial obligations in the short term . The iss uer faces major uncertainties that could c ompromise its c apacity for payment of a partic ular debt issue . D An issue rated D is either c urrently in default or faces imminent default on its financial obligations, whether or not formally declared . The D rating may also reflect a distress ed exchange, the filing of bank ruptcy and/or other ac tions pertaining to the issuer that could jeopardis e the pay ment of a particular debt iss ue . For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in eac h rating c ategory from AA to C. The subsc ript 1 indicates that the iss ue ranks at the higher end of its generic rating c ategory ; the subscript 2 indicates a mid-rank ing ; and the subscript 3 indicates that the iss ue ranks at the lower end of its generic rating c ategory . In addition, RAM Ratings applies the s uffixes (bg) or (s) to ratings whic h hav e been enhanc ed by a bank guarantee or other s upports, res pectiv ely . Gulf Investment Corporation GSC 12
14. CREDIT RATING DEFINITIONS Issue Ratings - Debt-Based Sukuk An Issue Rating for a debt-based sukuk is RAM Ratings ' current opinion on the creditworthiness of a particular debt-based sukuk. It reflects the overall capacity and willingness of an issuer to meet the financial obligations on a particular debtbased sukuk on a full and timely basis, taking into account its expressed terms and conditions. RAM Ratings’ sukuk ratings are, however, not a measure of compliance with Shariah principles or the role, formation, practices, legitimacy and soundness of the Shariah advisors’ recommendations and decisions. Long-Term Ratings AAA A sukuk rated AAA has superior safety for payment of financial obligations. This is the highest long-term Issue Rating assigned by RAM Ratings to a debt-based sukuk. AA A sukuk rated AA has high safety for payment of financial obligations. The issuer is resilient against adverse changes in circumstances, economic conditions and/or operating environments. A A sukuk rated A has adequate safety for payment of financial obligations. The issuer is more susceptible to adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. BBB A sukuk rated BBB has moderate safety for payment of financial obligations. The issuer is more likely to be weakened by adverse changes in circumstances, economic conditions and/or operating environments than those in higher-rated categories. This is the lowest investment-grade category. BB A sukuk rated BB has low safety for payment of financial obligations. The issuer is highly vulnerable to adverse changes in circumstances, economic conditions and/or operating environments. B A sukuk rated B has very low safety for payment of financial obligations. The issuer has a limited ability to withstand adverse changes in circumstances, economic conditions and/or operating environments. C A sukuk rated C has a high likelihood of default. The issuer is highly dependent on favourable changes in circumstances, economic conditions and/or operating environments, the lack of which would likely result in it defaulting on a particular sukuk. D A sukuk rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular sukuk. Short-Term Ratings P1 A sukuk rated P1 has high safety for payment of financial obligations in the short term. This is the highest short-term Issue Rating assigned by RAM Ratings to a debt-based sukuk. P2 A sukuk rated P2 has adequate safety for payment of financial obligations in the short term. The issuer is more susceptible to the effects of deteriorating circumstances than those in the highest-rated category. P3 A sukuk rated P3 has moderate safety for payment of financial obligations in the short term. The issuer is more likely to be weakened by the effects of deteriorating circumstances than those in higher-rated categories. This is the lowest investment-grade category. NP A sukuk rated NP has doubtful safety for payment of financial obligations in the short term. The issuer faces major uncertainties that could compromise its capacity for payment of a particular sukuk. D A sukuk rated D is either currently in default or faces imminent default on its financial obligations, whether or not formally declared. The D rating may also reflect a distressed exchange, the filing of bankruptcy and/or other actions pertaining to the issuer that could jeopardise thepayment of a particular sukuk. For long-term ratings, RAM Ratings applies subscripts 1, 2 or 3 in each rating category from AA to C. The subscript 1 indicates that the issue ranks at the higher end of its generic rating category; the subscript 2 indicates a mid-ranking; and the subscript 3 indicates that the issue ranks at the lower end of its generic rating category. In addition, RAM Ratings applies the suffixes (bg) or (s) to ratings whic h have been enhanced by a bank guarantee or other supports, respectively. Gulf Investment Corporation GSC 13
15. Published by RAM Rating Services Berhad Reproduction or transmission in any form is prohibited except by permission from RAM Ratings . Copyright 2011 by RAM Ratings RAM Rating Services Berhad Suite 20.01, Level 20 The Gardens South Tower Mid Valley City, Lingkaran Syed Putra 59200 Kuala Lumpur Tel: (603) 7628 1000 / (603) 2299 1000 Fax: (603) 7620 8251 E-mail: ramratings@ram.com.my Website: http://www.ram.com.my RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications. Gulf Investment Corporation GSC 14