International rating agency Fitch Ratings has downgraded Bahrain's BMB Investment Bank's ratings as follows: Long-term foreign currency rating to 'CCC' from 'B+', Short-term foreign currency rating to 'C' from 'B', and Individual rating to 'E' from 'D/E'. The Support rating remains at '5'. The ratings have been placed on Rating Watch Evolving.
The lower ratings reflect a marked deterioration in the bank's funding position, due to an outflow of liquidity in recent weeks and the need to re-finance a $75 million medium-term syndicated facility that matures on December 23, 2002.
While management is confident the bank has sufficient liquidity to meet its obligations up to this date, its ability to re-finance the syndicated facility is likely to be contingent on the bank obtaining additional funding from external sources. Management is currently in negotiation with the bank's shareholders and the authorities in Bahrain to secure this support.
The weakness of the bank's liquidity position had been stressed by Fitch Ratings in October 2001. The outflow of liquid funds over recent weeks was a result of a worsening of the market's perception of the bank caused by heightened political risks in the region, the unsettled economic environment, a lack of private equity exit opportunities and the imminent maturity of the syndicated facility.
Similar pressures on another Bahrain bank—Bahrain International Bank (BIB)—further undermined the market's confidence in the offshore investment banking sector generally.
BMB's core business activity—investing in and marketing private equity opportunities—has yet to generate a reliable income stream.
In particular, unfavorable market conditions constrain the bank's ability to establish a regular pattern of divestments. The disposal of the bond, listed equity and equity fund portfolios to support the bank's liquidity reduces any potential earnings from these sources.
The Rating Watch Evolving denotes that the direction of the next rating change will be determined by the outcome of the negotiations to raise additional funding and by the response of the syndicate banks to the re-financing proposal. — (menareport.com)
© 2002 Mena Report (www.menareport.com)
