Monday 04, September 2017 by Georgina Enzer

Al Imtiaz Investment Group Company’s Ratings Affirmed

Capital Intelligence Ratings (CI Ratings or CI), the international credit rating agency, has affirmed the Long-Term Corporate Rating of Al Imtiaz Investment Group Company K.P.S.C. (AIG) at ‘BBB’, and the Short-Term Corporate Rating at ‘A3’.

The Outlook on the ratings is ‘Stable’. The ratings are supported by the continuing declining trend in both debt and leverage (with the parent company currently having zero net debt) the continued success of the disposal programme for non-core assets, the diversified business model, as well as the continuing growth in net profit at both the consolidated level and at the various subsidiaries and associated companies. Also supporting the ratings are the sound coverage ratio for short-term debt obligations and the removal of all encumbrances on assets.

The main factor constraining the ratings remains the potential deterioration in the operating environment due to the effects of what now looks like a prolonged period of low oil prices, although AIG is to some extent shielded in two of its main verticals (pharma and education) as these are priority sectors. GCC share markets have also suffered from lower oil prices and this may in turn impact the prices achieved on the remaining planned disposals of non-core assets. However with the parent effectively debt free and the subsidiaries and associates nearly all profitable, earnings at AIG are no longer dependent on such disposals and management therefore has the luxury of being able to wait for market conditions to improve, something that CI Ratings views as a positive. Financial flexibility has also been improved by the release of all previously pledged assets.

With a strong and stable senior management in place at the parent level, management upgrades have continued at key operating companies. The Group’s management has demonstrated its ability to achieve and exceed the goals of a five-year plan that is now in its fourth year. CI expects this ability to carry forward to the new strategic plan that is currently under development.

The last few years have largely been about restructuring the business both operationally and financially. Non-core assets have been shed, the book values of remaining assets have been adjusted through impairments and most importantly, debt has been cut sharply. With this process largely complete (although disposals will continue if opportunities arise), the focus is shifting to new investments. These may be into the existing subsidiaries and associates and/or other businesses in the same verticals. Strategies are also being developed for geographical diversification, as well as possible additions to the current four core sector verticals. However, any such investments will only take place if they will be cash generative from the beginning.

The gains generated by the partial disposal of the stake in Humansoft have almost guaranteed that this year will see a rise in net profit, especially as some of the gains were effectively used to make additional impairments on the available for sale portfolio. By so doing, the likelihood of both further impairment charges and/or losses on eventual disposal are considerably reduced. While these are both near-term positives, of perhaps more importance for the longer term is the improved performance by the associates and subsidiaries – and most of all that the parent is beginning to see increased dividend flows from the subsidiaries. These have been limited at best in the past. Now that the parent company is close to being debt free (and already has zero net debt), the previous burden of finance costs should reduce sharply in H2.

Past performance outlooks have tended to focus on the progress on asset sales and debt reduction From now on the focus will shift to operational performance by the associates and subsidiaries and in due course to new investments and perhaps new sectors and geographies.


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