Moody's: Unrest unlikely to impact Kuwait's strong ratings

Political unrest in Kuwait is unlikely to affect its strong credit fundamentals, ratings agency Moody's said yesterday, maintaining the Gulf state's Aa2 rating with a stable outlook. "The recent escalation in political protests in Kuwait is not, in our view, likely to affect the government’s very strong credit fundamentals," Moody's Investors Services said in a report. "We consider that Kuwait’s Aa2 rating can tolerate a degree of political event risk," it said. The protests so far are not Arab Spring-type events, given that they are not calling for the overthrow of Kuwait’s ruling Al-Sabah family, in power for over 250 years, but just the repeal of an amended electoral law, Moody's said. "In our view, a credit-negative situation could only develop if there were a severe turn for the worse in Kuwait’s political and social stability that would paralyze government fiscal operations or undermine domestic financial system stability," it said. "At this juncture, we consider such an outcome unlikely." More than 150 protesters and 24 policemen were hurt in three major opposition demonstrations over the past two weeks after the ruler unilaterally changed the electoral constituency law. The opposition claims the change is aimed at influencing the outcome of Dec. 1 snap elections in the government's favor. The opposition has decided to boycott the polls. Moody's said that Kuwait’s Al-Sabah ruling family is facing its "greatest political challenge yet," but said social upheaval such as occurred in Egypt, Syria, Yemen or Libya remained very low. "However, despite the political gridlock, the country’s fiscal situation remains very robust. Kuwait, along with dynamic Qatar, have the lowest fiscal break-even oil prices in the Middle East, in the mid-$40/barrel range," it said. Moody's estimated assets managed by Kuwait Investment Authority, the country's sovereign wealth fund, at $350 billion and per capita income at close to $50,000. Last month, the ratings agency Fitch warned that a surge in public unrest in Kuwait could threaten the Gulf state's solid sovereign rating. The Kuwaiti opposition plans a new protest on Nov. 11 to mark the 50th anniversary of the constitution and has formed a popular committee to coordinate boycotting the polls. Meanwhile, Moody's yesterday placed all ratings of Kuwait Finance House on review for downgrade over its high loan levels, asset quality and underperforming investments. "The bank's asset quality continues to face pressure, with problem loan levels remaining ... well above those of both local and global peers," Moody's said. Asset quality pressures are primarily driven by concentrated exposures to non-banking financial institutions, real estate and underperforming investments, it said. Moody's also said the move was taken because the coverage level of provisions to problem loans remains relatively low even though it weighs significantly on KFH's profitability. It said KFH has embarked on an extensive restructuring exercise to improve efficiency and the process is expected to take two years to reach a position of stability. Profits of KFH have been sliding since the global financial crisis in 2008 mainly because of its dealings with troubled investment firms. The Kuwaiti government owns 25 percent of KFH's stocks.