SOVEREIGN DEBT RESTRUCTURING | MASTERCLASS

A deep dive masterclass on sovereign debt restructuring, to be conducted virtually by Asian high yield bond expert Florian Schmidt.

30 June 2022 (Thu), 5pm Singapore/HK time

Kuwait Projects Company (Holding) K.S.C.P. (KIPCO) has been downgraded to Ba2 from Ba1 with a negative outlook based on insufficient market value leverage (MVL). Concurrently, it’s Probability of Default Rating (PDR) has been lowered to Ba2-PD from Ba1-PD. The provisional ratings assigned to the $3bn notes under the Euro Medium Term Note (EMTN) program issued by Kuwait Projects Co SPC Ltd. have been lowered to (P)Ba2 from (P)Ba1 and the ratings of the bonds due in 2023, 2026 and 2027 have been downgraded to Ba2 from Ba1. The rating action comes after KIPCO announced plans to raise KWD 80mn ($266mn) through a rights issue on Aug 4 as this amount is considered to be insufficient to improve the company’s MVL significantly. The MVL as of June 2021 stands at 48.5% and with the additional capital, this will improve to 40%-45%, still higher than the guidance of 40% required for the Ba1 rating. The company is also expected to generate negative free cash flow (FCF) in 2021 due to lower dividend income in 2021. The challenges to the company come from the high asset concentration in the financial services industry which makes up more than 50% of KIPCO’s investment portfolio value as well as the company’s geographical concentration. The capital reinvestment strategy of the company also results in lower up-streamed dividends from its subsidiaries. The interest coverage ratio was also negative as of June 2021. Moody’s, however, acknowledged the dominant market position of the company in the ‘financial services and pay TV industries’ within the MENA region and the support it receives by its majority owners, Al-Futtooh Holding (AFH), which has links to Kuwait’s royal family. The total debt of the company as of June 2021 stood at $2.2bn. Its cash in hand of $589mn as of June along with the upcoming rights issue is considered sufficient to cover its $500mn 5% 2023s due in March 2023.

Moody’s Julien Haddad said, “Today’s rating action reflects the view, that despite the rights issue which KIPCO recently announced, the company’s market value leverage will remain elevated above what is required for the Ba1 CFR.” and added that, “The rating action also reflects KIPCO’s continued cash burn and weak interest coverage on the back of a substantial decrease in dividend income in 2021.”

Kuwait Projects 5% 2023s4.229% 2026s and 4.5% 2027s were down 0.16, 0.11 and 0.36 to trade at 102, 98.25 and 97.75 respectively.

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