Moody's Investors Service has downgraded the Corporate Family (CFR) and Probability of Default Ratings (PDR) of Kuwait-based National Industries Group Holding S.A.K. (NIG) and the debt ratings on the USD 475 million sukuk issued by NIG Sukuk Limited to B1 from Ba3. The outlook remains negative.
NIG is a publicly listed investment holding company and one of the largest publicly traded companies in Kuwait. Its business includes strategic and financial stakes in companies across Kuwait and the GCC, focusing primarily on building materials, specialist engineering, petrochemicals, finance, real estate, oil & gas services and energy sectors.
The downgrade to B1 reflects the absence of tangible steps that Moody's had expected to be taken during 2009 to improve financial flexibility and to strengthen the debt capital structure. Firstly, although debt repayments throughout 2009 have been met cash on hand and short-term deposits were ca. KD 136.5 million (USD 475 mln) per the end of December 2009. This compares to ca. KD 222 million (USD 773 mln) per the end of March 2009. Despite lower net debt, market value leverage has largely oscillated around 50%
throughout the course of the four quarters in 2009 reflecting fluctuations in the underlying portfolio. Moody's at the time of the last rating action in April 2009 said that ratings could be downgraded if this metric were to remain weak at levels of around 45%.
Secondly, NIG's debt maturity profile is still geared towards the short-term and depends heavily on uncommitted bilateral credit lines. Our assumption has been that short-term debt would be termed out in a pronounced way during 2009.
Lastly, dividend income from key operating subsidiaries coupled with higher interest costs have failed to sufficiently cover interest payments. Accordingly, the estimated year-end interest cover ratio remains well below 1 time versus the expectation that interest cover would strengthen towards 2 times.
The negative outlook reflects the exposure to the roll-over of some larger credit facilities which fall due in the current quarter leaving NIG highly reliant on the continued support of its core banks from a liquidity and refinancing perspective. Should management choose to pursue tangible actions to strengthen its liquidity and financial profile, the outlook could be stabilised.