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Fitch Revises GFH Financial Group's Outlook to Positive; Affirms at 'B-'
October 4, 2016 / 3:27 PM / a year ago

Fitch Revises GFH Financial Group's Outlook to Positive; Affirms at 'B-'

(The following statement was released by the rating agency) LONDON, October 04 (Fitch) Fitch Ratings has revised Bahrain-based GFH Financial Group BSC's (GFH) Outlook to Positive from Stable, while affirming the group's Long-and Short-Term Issuer Default Ratings (IDR) at 'B-' and 'B', respectively. The Positive Outlook reflects the measures GFH's management have taken to strengthen the bank's balance sheet by paying down debt, reshaping the business model with a focus on income-generating investments, and consequent improvement (from a very low base) of profitability. Fitch also views Abu Dhabi Financial Group's acquisition of around 12% in GFH via its subsidiary, Integrated Capital PJSC, as a positive development. KEY RATING DRIVERS IDRS The IDRs reflect the substantial illiquid legacy real estate investments GFH still carries on its balance sheet, which do not yet generate income, the still-limited track record of consistent profit and cash flow generation and the still early stage of development of the bank's business model. While progress has been made on a number of these real estate projects, completion and eventual exit will take many years. Therefore, they could still represent challenges for GFH and constrain its financial profile for some years. The ratings also take into account the improvement in the funding profile of GFH, after paying down a substantial part of its secured debt, and the progress (though still limited) it has made in building a profitable and cash flow-generative business. The improved funding profile should provide GFH with some flexibility to work out its legacy asset exposures, although its capacity for continuing operation remains vulnerable to deterioration in the business and economic environments. Rating constraints include profitability and cash flow generation that, despite some improvement, remains weak and volatile and is unlikely to improve on a sustained basis until GFH has built up a longer track record of sustainable business. GFH is an Islamic investment bank, established in Bahrain in 1999 to focus on investments in the GCC and MENA region. Its strategy is to transform itself into a financial services group, with its subsidiary Khaleeji Commercial Bank (a Bahrain-based Islamic bank focused on real estate) a cornerstone of this approach. RATING SENSITIVITIES IDRS Upside to the ratings may result from continued positive momentum in the form of successful implementation of GFH's new strategy; evidence of solid and consistent profitability and more stable cash flows as part of a viable business model. A key consideration will be management's success in developing and exiting legacy real estate projects to the extent that they become a less significant component of the asset profile. A reversal of the progress made including a significant impairment of assets could put the ratings under pressure, although this is not Fitch's base case. Contact: Primary Analyst Laila Sadek Director +44 20 3530 1308 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst David Pierce Director +44 20 3530 1014 Committee Chairperson Eric Dupont Senior Director +33 1 4429 9131 Media Relations: Elaine Bailey, London, Tel: +44 203 530 1153, Email: Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1012623 Solicitation Status here Endorsement Policy here ail=31 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch's factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch's ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided "as is" without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. 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Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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