KUALA LUMPUR, Feb 21 — RAM Ratings has assigned respective long-and short-term corporate credit ratings (CCRs) of AA3 and P1 to Al Bayan Holding Company (Al Bayan or "the Group"); the long-term rating has a stable outlook.

Al Bayan is a diversified holding company based in the Kingdom of Saudi Arabia (Saudi Arabia or "the Kingdom"). Its businesses include the supply of a large range of equipment and information technology products and services, the provision of communication networks, and the specialist construction of various types of public infrastructure. These businesses mainly service the Government of Saudi Arabia.

Al Bayan is also a significant provider of advertisement boards, high-quality printing services and cold logistics in the Kingdom. At the same time, the Group has smaller operations involving real estate, restaurants, security services and steel supply.

The CCRs are supported by Al Bayan's established businesses in Saudi Arabia. It has built up a solid track record spanning 3 decades on the delivery of government contracts, including important turnkey projects for various ministries such as defence, health, interior and education. The Group recently secured about SR2 billion of contracts for its relatively new specialist construction operations.

Meanwhile, Al Bayan's high-quality printing solutions are one of the most advanced in Saudi Arabia and the Middle East while its fleet of cold logistics is among the Kingdom's largest and most modern. Notably, AL Bayan's business diversity allows it to track different industry cycles and partially shields it from the volatility of any particular sector.

The CCRs are also supported by Al Bayan's favourable financial profile, underscored by its strong debt coverage and healthy capitalisation. In the past, the Group's funds from operations (FFO) debt coverage had never dipped below 0.3 times while its adjusted gearing ratio had never exceeded 0.8 times; these ratios stood at 0.3 times and 0.75 times, respectively, for 6M ended-June 2011.

Moving forward, we envisage Al Bayan's financial profile to remain favourable; based on secured contracts, its adjusted FFO debt cover is anticipated to improve to above 0.5 times while its adjusted gearing level is expected to stay below 0.75 times over the next 2 years.

The ratings are however moderated by Al Bayan's exposure to execution risk in its specialised construction and infrastructure works. Despite the relatively short track records of these businesses, they are expected to contribute significantly to its earnings from this year onwards. We opine that the Group may need more time to familiarise itself with the risks in managing and delivering such large projects.

In the meantime, we note that lumpy government contracts had caused some volatility in its revenue and earnings in the past. The contract-driven nature of its major operations also means that Al Bayan has to constantly bid for new contracts to replenish its order book.

On a macro level, we have a positive view of the strong government-led developments in Saudi Arabia, mainly focused on initiatives to diversify the Kingdom's oil-based economy and address its high unemployment rates. The consistently expanding government spending is estimated to hit SR680 billion in 2011. The private sector is viewed as the initial beneficiary of such development efforts. In addition, we observe that the private sector enjoys a favourable operating environment within Saudi Arabia, including low energy costs and no taxes or duties.

Nonetheless, the Kingdom's location within a region of frequent conflict and an evolving socio-political environment - as underlined by the recent wave of uprisings - is a threat to its overall stability. The impact of any direct or indirect unrest in the region would have negative consequences on the Kingdom's economy and political stability. All said, however, we note Saudi Arabia has thus far been largely spared from any severe political unrest. — Reuters