OREANDA-NEWS. Fitch Ratings has downgraded Bahrain Mumtalakat Holding Co's (Mumtalakat) Long-term Issuer Default Rating (IDR) to 'BBB-' from 'BBB' and downgraded senior unsecured rating to 'BBB-' from 'BBB' . The Outlook is Stable. The rating action also affects Mumtalakat's USD750m 5% notes, due 30 June 2015, MYR300m notes due 2017, Sukuk certificates issued under Mumtalakat Sukuk Holding Company, and the issuer's EMTN programme. Fitch has affirmed Mumtalakat's Short-term IDR at 'F3'.

The downgrade follows the rating action on Bahrain's sovereign ratings (see 'Fitch Downgrades Bahrain to 'BBB-'; Outlook Stable' dated 5 June 2015 on www.fitchratings.com). In line with Fitch's "Parent and Subsidiary Rating Linkage" methodology, Mumtalakat's ratings are aligned with the Kingdom of Bahrain's (BBB-/Stable/F3), reflecting their strong relationship.

Any further sovereign downgrade or revision of the sovereign Outlook to Negative would result in Fitch reassessing the current alignment of the parent and subsidiary's ratings. This may result in notching down Mumtalakat's rating from the sovereign's rating, reflecting the reassessment of the sovereign's capacity to provide support under an adverse scenario.

KEY RATING DRIVERS
State Support
Mumtalakat's ratings factor in implicit state support, although this is subject to change given the political uncertainty in Bahrain. Mumtalakat is 100%-owned by the Bahrain state and the government's investment arm. It was established in June 2006 as an independent holding company for the government's non-oil and gas assets. The viability of Mumtalakat's business model is dependent on continued strong linkages with the sovereign, its strategic importance as a holding company for the government's non-oil and gas assets, and its low leverage relative to Bahrain's financial capacity.

State Development Strategy
Mumtalakat is an active investor in diverse industry sectors spanning over 35 commercial enterprises, nationally and internationally.

State Funding
Mumtalakat has received government shares since its inception in state-owned enterprises, as well as funds and free land to manage and operate its subsidiaries. Although government support falls short of an explicit debt guarantee, Fitch considers Mumtalakat's high profile and strategic role to mean that support would be provided, if needed.

RATING SENSITIVITIES
Future developments that may, individually or collectively, lead to positive or negative rating actions include:
- A change in Bahrain's sovereign ratings, would likely lead to a change in Mumtalakat's ratings.
- Any adverse change in the implied support of, commitment from, and ownership by the Bahrain government.
- Substantial new debt on behalf of Mumtalakat subsidiaries or further guarantee of subsidiaries' debt.

For the sovereign rating of Bahrain, Fitch outlined the following sensitivities in its rating action commentary of 5 June 2015:
The main factors that individually, or collectively, could lead to negative rating action are:
- A rise in government debt/GDP above our current forecasts, for example owing to an inadequate policy response or a sustained period of oil prices below out current forecasts.
- Severe deterioration of the domestic security situation.

The main factors that, individually or collectively, could lead to positive rating action are:
- Significant fiscal measures which reduce the budget deficit and are consistent with the stabilisation and then decline of the government debt-to-GDP ratio in the medium term.
- A broadly accepted political solution that eases political unrest.
- A recovery in oil prices that improves public finances.