Standard & Poor's has revised its outlook on Saudi-based Saad Group and related entities, to negative from stable owing to its view of increased real estate exposure resulting in reduced liquidity and geographic diversity of its portfolio.

At the same time, the 'BBB+/A-2' corporate credit ratings were affirmed, according to a statement from Standard & Poor's.

"The outlook revision reflects our view of Saad Group's reduced portfolio liquidity and diversity, with real estate holdings in Saudi Arabia constituting a substantially larger portion of Saad Group's asset base than previously," the ratings agency said.

S&P said due in part to current economic conditions, it was applying more conservative metrics for Saad Group's ratings, by altering previous treatment of some of Saad Group's assets and liabilities.

"We also lowered our loan-to-value (LTV) threshold for the rating to 25 per cent from 30 per cent. In 2008, Saad Group's reported real estate holdings roughly doubled, reaching $8.4 billion from $4.3 billion in 2007.

This was largely due to increased investment property acquisitions and partly due to unrealized fair-value gains of $737 million during the year.

Despite the substantial appreciation in the value of Saad Group's real estate holdings over recent years, the increase in real estate holdings has, in our view, adversely affected the liquidity of Saad Group's portfolio.

It has also increased the concentration of Saad Group's assets in Saudi Arabia. Changes in portfolio liquidity and diversity, as well as the quality of holdings, are major rating drivers in our assessment of holding companies, it added.

"We consider Saad Group's overall investment performance to be strong relative to that of the sector."

"This is partly as a result of Saad Group avoiding most of the worst-performing individual investments, despite its bias toward the global banking sector, a UK housebuilder, and various alternative investments," the rating agency said.

Despite net losses of about $4.4 billion on financial investments ($6.5 billion excluding shareholders' protective options), the Saad Group's overall asset base increased to $30.6 billion by year-end 2008, from $28.8 billion in 2007.

This was mostly due to shareholder contributions of protective equity put options, worth about $2.4 billion at year-end 2008 and $1.2 billion in cash, among other contributions.

Saad Group also benefitted from the $737 million of unrealized fair value gains on its real estate portfolio during 2008, it pointed out.

"We revised our LTV calculation to include Saad Group's fixed-income securities, along with the associated liabilities incurred from Saad Group's repurchase agreements."

"Although we recognize the value of the protective equity options held by Saad Group, we choose to exclude the options from our ratio calculation as we already factor ownership support into the current ratings," it added.-TradeArabia News Service