Moody's downgrades Shuaa with negative outlook
London, April 25, 2012
Moody's Investors Service has downgraded the long-term foreign and domestic currency issuer ratings of Dubai-based bank Shuaa Capital by one notch to B1 from Ba3 and assigned negative outlook to the ratings.
The non prime short-term rating is affirmed.
Moody's decision to downgrade Shuaa's ratings and place them on negative outlook reflects the investment bank's consistently negative profitability and uncertainties regarding the successful execution of its new business strategy in a difficult operating environment, the ratings agency said.
These downside pressures are moderated by the strong capital and liquidity positions of the institution that should allow time for Shuaa to implement its new business strategies and restore the company to profitability.
Shuaa has reported losses for four consecutive years with the reported net loss for the year ending December 31, 2011 at Dh294 million ($80.05 million), further reducing shareholders' equity (down by 47 per cent from Dh2.2 billion in 2008 to Dh1.2 billion in 2011).
These ongoing losses can be primarily attributed to reduced revenues from all business lines, multiple write downs of their investment book, coupled with a very high cost base, although this is being addressed with an ongoing downsizing programme that should reduce operating costs once completed - during the course of 2012, Moody’s said.
The agency added that it expect profitability to remain negative, or at best weak, for the near term with its commercial finance subsidiary continuing to contribute the bulk of Shuaa's stable operating income going forward.
On the asset management business, after some prior outflows, amounts under management have shown growth and have increased from $200 million to $231 million as of December 31, 2011. Shuaa faces many challenges in building a sizable and sustainable franchise given strong competition in the sector and the tough regional and global investment environment, Moody’s said.
As of end-2011 Shuaa's liquid assets comprised 41 per cent of total assets while shareholders' equity to total assets stood at around 73 per cent representing the main financial metrics that support its issuer rating at the upper end of the 'B' range.
The principal methodology used in this rating was Global Securities Industry Methodology published in December 2006.
Shuaa handles four core business lines: asset management, investment banking, brokerage, and lending.
As of December 31, 2011, Shuaa reported total consolidated assets of $437 million under IFRS. – TradeArabia News Service