Al Imtiaz Investment K S C Public : Credit Rating Disclosure

Date: 07/07/2022

Ref: 128/BK/CAD/2022

Boursa Kuwait Company

Kuwait

Subject: Alimtiaz Investment Group Credit Rating Issued by Capital Intelligence

With reference to the above subject and the requirements of the fourth chapter of module ten (Disclosure and Transparency) of the Executive bylaws of Law No 7 of 2010 regarding the establishment of the Capital Markets Authority and regulating securities activities and their amendments, and regarding disclosure of material information.

Please find enclosed Alimtiaz Investment Group Company disclosure of credit rating form, according to the statement published by Capital Intelligence on 07/07/2022.

Sincerely,

Nawaf H Marafi

Group Chief Executive Officer

Board Member

Disclosure of Credit Rating Form

	Date			07/07/2022
	Name of listed Company			ALIMTIAZ INVESTEMNT GROUP COMPANY
	Entity who issues the			Capital Intelligence Ratings (CI Ratings or CI)
	rating
	Rating category			ξ	Long-Term	BBB
			ξ	Short-Term	A3
				ξ Rating Scale (A): Strong financial fundamentals and very favorable non-financial
					considerations. Operating environment may be unstable but institution's market
					position and/or financial strength more than compensate.
				ξ Rating Scale (BBB): Basically, sound overall; slight weaknesses in financial or
	Rating implications				other factors could be remedied fairly easily. May be limited by unstable
				operating environment.
				Capital Intelligence appends "+" and "-" signs to financial strength ratings in the
				categories from "AA" to "C" to indicate that the strength of a particular institution is,
				respectively, slightly greater or less than that of similarly rated peers.
	Rating effect on the			Confirmation of the rating category at "BBB" reflects the credit rating agency's
			confidence in the continuation of future performance as stated in the executive
	status of the company
			summary below.
	Outlook			The Outlook on the ratings has however been changed from Negative to Stable.

Translation of the press release or executive summary

Capital Intelligence Ratings (CI Ratings or CI) has raised the Outlook on the Long-TermForeign Currency Rating (LT FCR) of Alimtiaz Investment Group Company K.S.C.P. (AIIG) to Stable from Negative. At the same time, the Company's LT FCR and Short-TermForeign Currency Rating (ST FCR) have been affirmed at 'BBB' and 'A3, respectively.

The revision of the Outlook on the LT FCR to Negative in 2021 reflected the impact of Covid-19 on the performance and prospects of AIIG's operating subsidiaries and associates - and in particular the large consequent loss booked in 2020. At that time the main credit challenge was the effect of Covid-19 on the operating environments in the markets in which AIIG operates. This impacted all operating subsidiaries and associated companies in terms of both day-to-day operations and asset valuations - with the consequent need to take significant impairments, particularly on investment properties - although such losses were non-cash items.

The overall situation has since stabilised. The Covid-19 situation in Kuwait is much improved and operating conditions are back to normal; almost all health-related restrictions have been lifted. The Group has returned to profit at both the parent and consolidated levels. Although total equity remains below the level at end-2020, so is the level of debt; leverage and total debt to total equity ratios continue to be satisfactory with the latter on a downward trend. It should however be pointed out that changes to balance sheet composition (and in particular the sale of a subsidiary to an associate) has removed a portion of borrowings from the consolidated balance sheet. The ratings and outlook are therefore supported by the satisfactory level of debt and the still sound capital base. Other credit strengths are the increasingly diversified business model, the improved coverage ratio for short-term debt obligations, and the high quality of the management team.

The most important credit challenge is now profitability; restoring this is a major priority and the return to profit in 2021 is only the first step. However, management has a strong track record in both managing the performance of companies that it owns, as well as buying and selling companies - although there is always a period of restructuring for acquired assets in order to improve business model and profitability. Q1 22 saw a net profit that was similar to that of Q1 21. However comparisons are not 'like for like' as Q1 21 included profits from discontinued operations. Without these, a loss would have been posted. Although management expect earnings for this year to be similar to those of FY 21, the risk remains that the past pattern of earnings volatility may return.

Prior to Covid-19, AIIG had turned to a programme of growth. This started in 2018 and was to involve a mixture of new investments, geographical diversification at some subsidiaries and organic growth. While the basic strategy remained in place, execution was delayed to some extent, although two small new investments were made. The Group is in the process of its normal five-yearly strategy review using external consultants. This is expected to be finalised in H2 22. Priorities are likely to include an increased focus on capital efficiency and better cash management; surplus cash at subsidiary level would be used to pay down debt and/or up streamed to the parent. CI understands that the new strategy will include some reductions in currently majority shareholdings in subsidiaries and selective disposals; again releasing cash to fund new investments. Management has stated that leverage and debt-to-equity ratios are expected to remain low.

AIIG operates an investment holding company model. However, such a model does introduce some volatility in revenues and earnings as while there are always likely to be disposals taking place, the size and value will change from year to year. As long as profits are still being made, this variability should not automatically be regarded as being a negative factor; but when operating profits are scarce, the volatility is enhanced. However, the effects on cash flow will need to be closely monitored.

The business model is such that the bulk of debt should continue to be carried at the operational level by subsidiaries and associates, rather than through the parent borrowing and then down streaming funds to the operating entities. Leverage should therefore remain low at the parent level unless there are large acquisitions. Leverage is likely to be higher but still moderate at the consolidated level given the still high capital base. Management intends to broaden both sector and geographical diversity in order to further reduce the already reasonably low concentration risk.

Rating Outlook

The Stable Outlook indicates that AIIG's ratings are unlikely to be altered over the next 12 months. There is however a degree of uncertainty involved given that the shape of the new strategy is not yet clearly defined.

Rating Dynamics: Upside Scenario

The upside scenario would involve an upgrade in the Outlook. This is however seen as being unlikely at this point given (a) the already quite high rating level for a non-bank and (b) the fact that execution of the new strategy is a program that will stretch over a number of years.

Rating Dynamics: Downside Scenario

The most likely downside scenario would be a lowering of the Outlook to Negative. Possible factors leading to such an outcome would include financial performance over the next 12 months being significantly poorer than currently expected and/or a need to take further substantial revaluation losses through OCI.

Credit Ratings

Corporate Ratings

	Long-Term	Short-Term	Outlook
	BBB	A3	Stable

Nawaf H Marafi

Group Chief Executive Officer

Board Member