RATINGS RATIONALE
Investcorp Bank B.S.C.'s long-term deposit rating of Ba2 is constrained by (1) its moderate, albeit improving, capitalisation levels (with the illiquid risk assets-to-adjusted tangible common equity ratio at 2.8x as at end-June 2012); (2) relatively high, albeit declining, concentrations to private equity investments (with the top five investments estimated at around 0.8x adjusted tangible common equity as at June 2012); and (3) the inherent volatility in the company's earnings profile.
Investcorp Bank B.S.C.'s long-term deposit rating is supported by the company's (1) solid position as a provider of international alternative investments in the Gulf Cooperation Council; and (2) good liquidity and improved funding profile.
The negative outlook assigned to Investcorp Bank B.S.C.'s ratings is based on the challenging operating environment for alternative asset management institutions, which weighs on the company's earnings generation capacity, and poses risks to its investment portfolio. A successful execution of the company's plan to further strengthen its capitalisation ratio and reduce its illiquid risk assets (by reducing its hedge fund holdings, disposing private equity businesses and reducing the level of investments in future acquisitions) may counterbalance the current operating environment risks. In the meantime, however, current operating conditions pose risks to the successful execution of the company's strategy and, in particular, its ability to dispose of its private equity businesses.
Investcorp's Ba2 long-term deposit rating reflects the company's intrinsic financial strength and does not incorporate any ratings uplift based on external support.
Moody's has withdrawn Investcorp S.A.'s Ba2/Not Prime deposit ratings and standalone D bank financial strength rating, as there are no deposits outstanding. Investcorp S.A. does not have a banking license and is registered as an exempted company in the Cayman Islands.
WHAT COULD CHANGE THE RATING UP/DOWN
As indicated by the negative outlook, Moody's does not expect any upward rating pressure over the near term. A successful execution of the company's plan to further strengthen its capitalisation ratio and reduce its balance sheet co-investment portfolio may lead to a stable outlook on the company's ratings.
Negative rating pressure may result from a failure by Investcorp Bank B.S.C. to further reduce its investment concentrations, improve its capitalisation metrics or grow its assets under management. In addition, negative rating pressure may result from a weaker financial position driven by (1) continued weakness in private equity origination and placement activities that would further constrain the company's profitability; and/or (2) further material investment losses that would lead to an erosion in the company's capital position.
PRINCIPAL METHODOLOGIES
Moody's has used "Moody's Global Rating Methodology for Asset Management Firms", dated October 2007, as the principal methodology for rating Investcorp and its subsidiaries. Moody's makes certain adjustments to the Asset Management methodology to better capture the illiquid risk assets held on its balance sheet (please see Moody's credit opinion on the company for further discussion of specific adjustments). Moody's also used "Moody's Consolidated Global Bank Rating Methodology", dated June 2012.
Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.
Investcorp Bank B.S.C. is a shareholding company incorporated in Bahrain and licensed as a wholesale bank by the Central Bank of Bahrain. Investcorp S.A. is registered as an exempted company in the Cayman Islands. Investcorp Capital Limited, based in the Cayman Islands, was specifically set up to issue debt for Investcorp Bank B.S.C. Investcorp Bank B.S.C. reported total consolidated assets of USD2.7 billion as of 30 June 2012 under audited IFRS.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.
Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.
Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.
Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.
Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.
Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.
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