SOVEREIGN AND SUPRANATIONAL

ISSUER IN-DEPTH23 November 2017

RATINGS

Gulf Investment CorporationRating Outlook

Long-term Issuer A2 STA

Short-term Issuer P-1 --

TABLE OF CONTENTSOVERVIEW AND OUTLOOK 1Organizational structure and strategy 2CREDIT PROFILE 5Capital adequacy: Medium 5Liquidity: Medium 10Strength of member support: Low 15Rating range 18Comparatives 19DATA AND REFERENCES 20

Contacts

Thaddeus Best +44.20.7772.1088Analystthaddeus.best@moodys.com

Christian de Guzman +65.6398.8327VP-Sr Credit Officerchristian.deguzman@moodys.com

Matt Robinson +44.20.7772.5635Associate ManagingDirectormatt.robinson@moodys.com

Yves Lemay +44.20.7772.5512MD-Sovereign Riskyves.lemay@moodys.com

Alastair Wilson +44.20.7772.1372MD-Global SovereignRiskalastair.wilson@moodys.com

Gulf Investment Corporation G.S.C. – A2stableAnnual credit analysis

OVERVIEW AND OUTLOOKThe credit profile of Gulf Investment Corporation G.S.C. (GIC, A2 stable) benefits from solidcapital adequacy and liquidity positions and support from its highly rated shareholders, andhas gradually improved as a result of lower market exposure and continued deleveraging.An absence of callable capital and a focus on equity investment constrain the profile, but anincrease in paid-in capital, which was completed in 2009, demonstrates a strong propensityfor support.

GIC's business model has evolved since 2008, with a greater emphasis on development-related activities through its Principal Investments portfolio. In contrast to other multilateraldevelopment banks (MDBs), its equity investments are more susceptible to incomevolatility, though a strong and growing capital buffer and recent track record of profitabilitymitigate this risk. Although GIC has resumed dividend payments, divestments and ongoingdeleveraging point to lower profitability in the coming years.

The sectoral diversification of GIC's businesses partly mitigates the risks associated withthe geographic concentration of its activities. Healthy liquidity reflects a comfortable termto maturity, a stock of discounted liquid assets over one and a half times the amount oftotal debt outstanding, and access to a diversified investor base. Following considerabledeleveraging, GIC's debt to equity ratio more than halved between 2012 and 2016, from110.6% to just 49.7%.

The stable outlook reflects our expectation that GIC's capital buffers and liquidity positionwill be sustained. Upward rating pressure could result from evidence of stronger support,including the reintroduction of callable capital, or a sustained improvement in the volatilityof earnings. Downward rating pressure may result from significant investment losses thaterode capital adequacy or a sustained weakening of shareholders' capacity to support GIC.

This credit analysis elaborates on GIC's credit profile in terms of capital adequacy, liquidityand strength of member support, the three main analytic factors in Moody’s SupranationalRating Methodology.

MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

Organizational structure and strategyPrivate sector arm of the GCC, with a mandate to develop capital markets

GIC is a leading financial institution that provides a range of financial services to promote private enterprise and support economicgrowth in the six Gulf Cooperation Council (GCC) countries: Bahrain (B1 negative), Kuwait (Aa2 stable), Oman (Baa2 negative), Qatar(Aa3 negative), Saudi Arabia (A1 stable) and the United Arab Emirates (Aa2 stable). As of 31 December 2016, it reported a consolidatedasset base of $4.6 billion.

The six GCC countries established GIC in 1983 as a regional financial institution to play a leading role in stimulating private enterpriseand project funding for economic and social development. GIC is incorporated in Kuwait and owned equally by all six GCC countries(Exhibit 1). Its main activities consist of investment in projects and equity participations, which are divided into four sections: FinancialServices and Utilities; Manufacturing Industries; Diversified GCC Projects; and Light Industry Projects.

GIC's special status as the only financial institution established under the auspices of the GCC, as well as its public policy mandate,strengthens its visibility to shareholders while also substantiating our use of our MDB rating methodology. Each shareholder has tworepresentatives on the company's board of directors.

Part of the company's mandate is to introduce financial innovations to Gulf countries. For example, GIC in 2003 established the firstGCC-based mutual fund. In 2008, it co-founded the largest GCC-based specialist reinsurer, Gulf Re. Also in 2008, GIC became thefirst GCC institution to introduce a Wakalah structure meeting the Shariah-compliance criteria of both the Gulf states and Malaysia.However, this aspect of its role has become less prominent as regional financial markets have developed.

Relative to the specific risks of its market and private equity activities, GIC's risk management structure is well developed and comparesfavourably with other MDBs. The company's risk management committee, which comprises members of the board of directors andinvited senior management, defines broad risk appetite limits. An independent risk management division, which reports directly to theCEO, formalises an enterprise risk management framework, which includes policies, procedures and limits.

Exhibit 1

GIC’s shareholding structure31 December 2016, % total

Kuwait (Aa2)16%

Qatar (Aa3)16%

United Arab Emirates (Aa2)17%

Saudi Arabia (A1)17%

Oman (Baa2)17%

Bahrain (B1)17%

Source: GIC

GIC's businesses are conducted through two groups: Principal Investments, and Global Markets.

» Principal Investments

This group, which in 2015 accounted for 57% of the company’s net operating income, comprises the core business activities ofGIC. These activities include equity participations and investment in commercial projects involving mainly greenfield investments,privatisations and the provision of growth capital.

GIC directly invests in utility projects involving power, telecommunications and other infrastructure, as well as chemicals and metals.As of 31 December 2016, Principal Investments reported consolidated assets of $1.6 billion, compared with $2.3 billion in 2014.

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The GCC should be the principal location of investee companies, though their activities can extend to other regions. For example, GICinvested in Wataniya Telecom Algeria, an Algerian telecom company founded by Kuwaiti group Wanatniya, now part of Qatari groupOoredoo Q.P. S.C. (A2 stable).

The Principal Investments portfolio is divided into associates (defined as a company over which GIC exerts significant influence),equity participations (typically smaller stakes amounting to less than 20% of ownership), subsidiary companies and quoted projects.Investments in associates represent the largest share of the Principal Investments portfolio, accounting for 72% of the total as ofDecember 2016. The remaining 28% is divided relatively evenly between subsidiaries, equity participations and quoted projects.

Exhibit 2

Principal Investments portfolio primarily consists of investments in associatesPrincipal Investments portfolio by type (%), June 2017

Subsidiary Companies13%

Associated Companies72%

Equity Participations7%

Quoted Projects8%

Source: GIC

A plan put in place in H2 2013 to reposition the portfolio around four guiding principles has been the main driver behind the reductionin the Principal Investments portfolio. The four guiding principles are:

» Reduce concentration risk in the portfolio

» Shed small, mature or non-strategic assets

» Take advantage of high valuations

» Accumulate cash with a view to redeployment at a later date

Several investments have matured and not been replaced with new projects over the past two years, causing the portfolio to shrink.

One of GIC's main investments was the National Titanium Dioxide Manufacturing Company (Cristal). The company was established inJeddah, Saudi Arabia, in 1998, and is currently the world's third largest titanium dioxide producer.

Since the plan's inception, GIC has reduced the concentration of the Principal Investments portfolio by almost $600 million. Cristal,which was previously its largest holding, saw its stake sold down to 20% as of December 2016 from 33% in December 2013. Foulath, aholding company for GIC investments in steel in Bahrain and Saudi Arabia, is now its largest holding by amount. The company accountsfor around 25% of the Principal Investments portfolio, down marginally from 27% in 2015.

» Global Markets

The Global Markets group adds a continued and diversified stream of revenue and reduces concentration risks associated with volatileand illiquid Principal Investments. Its investments have been trimmed due to a renewed focus on its core function and strategy of de-risking asset portfolios.

The group's financial performance has become more stable, contributing positively to profits since 2009. Due to its special status, GICcan access all GCC stock exchanges as a local investor and is not constrained by foreign ownership limits in place on these exchanges.

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The Global Markets group has several divisions:

– Debt Capital Markets: This division comprises GIC’s activities related to fixed- and floating income investments inmarketable debt securities, including international corporate securities, structured finance, mortgage-backed securities,sovereign debt securities, Islamic bonds and asset-backed securities. Most of the portfolio consists of securities issued byinvestment-grade governments and government-related entities.

– GCC Equities and Managed Funds: These divisions comprise GIC’s activities involving the management of GCC equities andalternative investment portfolios, including Islamic funds, private equity and hedge funds.

– Treasury: This division transacts business in derivatives and cash money markets on behalf of GIC, mainly for liquiditymanagement purposes. It also manages short-term interest rates and foreign exchange using off-balance sheet treasuryapplications.

– Corporate and Other: This division includes all items not directly attributable to any of the above divisions. Other operationsincorporate operations, risk management and financial control.

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CREDIT PROFILEOur determination of a supranational’s rating is based on three rating factors: capital adequacy, liquidity and strength of membersupport. For MDBs, the first two factors combine to form the assessment of intrinsic financial strength, which provides a preliminaryrating range. Strength of member support can provide uplift to the preliminary rating range. For more information, please see ourSupranational Rating Methodology.

Capital adequacy: Medium

We assess GIC’s capital adequacy as “Medium”. The assessment balances strong capital and leverage positions against potentiallyvolatile asset quality related to its equity investments. Other MDBs with a score of “Medium” for this factor include GuarantCo (A1stable) and the Islamic Corporation for the Development of the Private Sector (ICD, Aa3 stable).

Deleveraging of balance sheet continues

GIC is primarily a “strategic investor” with an eye towards developing the private sector in the GCC states. The past seven years havebeen characterised by de-risking and deleveraging, with a renewed focus on Principal Investments. In 2008, on approving a call on theentire stock of unpaid capital, the board of directors decided to revisit GIC’s business model, reduce its exposure to international (non-GCC) investments, and focus on its core mandate of GCC direct and private equity investments.

Given the development of the financial sector and consequent financial deepening in the GCC since its inception in 1983, GIC hasopted to wind down its asset management arm, which along with others established the first GCC-based mutual fund in 2003. GIChas also significantly reduced portfolio concentration in the largest three investments on its balance sheet, which have fallen by almost$600 million.

As a result, total assets declined from a record $9.2 billion in 2007 to $4.6 billion in 2016. Most of the deleveraging has come fromthe Global Markets group. GIC’s pool of interest-bearing assets, including highly liquid, marketable bonds, bank placements and cash,declined by 67% to $1.9 billion between the end of 2007 and December 2016 (see Exhibit 2), falling from just under 70% of thebalance sheet to 45%. GIC intends to continue to de-risk the balance sheet over the coming years, funded through further reductionsof Global Markets' assets.

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Exhibit 3

Balance sheet de-risking continues...Asset composition, $ million

Exhibit 4

...funded by a gradual decline in Global Markets divisionsAsset composition, % total assets

0

1000

2000

3000

4000

5000

6000

7000

8000

9000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Securities Other Financial Assets

Derivative Assets Net Loans

Gross Equity Investments Investments In Other Entities

Source: GIC, Moody's Investors Service

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Securities Other Financial Assets

Derivative Assets Net Loans

Gross Equity Investments Investments In Other Entities

Source: GIC, Moody's Investors Service

At the same time, GIC's Principal Investments or equity stakes in associated companies, which peaked at $2.4 billion in 2013, havefallen to $1.5 billion due to a number of divestments. Following eight consecutive years of profits, GIC's accumulated loss is now zero,compared with $756 million in 2008, and the company resumed dividend payments in 2014.

GIC’s capital position has strengthened and is now in line with the highest rated MDBs

The substantial deleveraging that GIC has achieved to date has significantly improved its capital position. The company has a largeamount of shareholder’s equity relative to operating assets. Following operating losses in 2008 of around $1 billion, amounting toaround half its capital base in 2007, GIC received additional capital from members after making a call on its callable capital resources.Additional capital paid-in amounted to $1.2 billion, which was injected between 2008 and 2009.

Exhibit 5

Capital adequacy has recovered since 2008Shareholders equity, $ million

-2000

-1500

-1000

-500

0

500

1000

1500

2000

2500

3000

3500

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Paid-in capital Retained Earnings (Accumulated Loss)

Accumulated Income (Loss) Other Reserves

Other Equity Total Equity

Dividend payments resumed2008 call on callable capital

Source: GIC, Moody's Investors Service

Over the past three years, GIC’s capital base has represented an average 107% of operational assets (Exhibit 2), a very high level evenamong MDBs and similar to the Islamic Development Bank (IsDB, Aaa stable) and the Inter-American Investment Corporation (Aa1stable).

Although GIC – as with most MDBs – is not subject to prudential regulation by a national body, its internal guidelines impose aminimum 16% capital adequacy ratio, with a target of 20%-25%. The ratio stood at 38.8% in December 2016, but had declinedsharply to 20.5% as of June 2017. This was largely due to an additional $70.4 million investment in Foulath, which breached the 15% of

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capital materiality threshold. GIC calculates its capital adequacy ratio using a Basel II approach, which mandates that individual equityinvestments exceeding 15% of capital attract a 1,250% risk weighting.

Exhibit 6

GIC’s capital position has improved over time

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Asset Coverage Ratio* 75 69 25 71 72 73 74 77 98 114 108

Debt/Usable Equity 203 214 505 160 96 71 111 64 52 53 50

*Usable equity as % of loans + equity operations + expected loss on liquid assetsSource: GIC

GIC aims to materially expand the prominence rather than size of Principal Investments

Despite GIC's renewed focus on Principal Investments, the portfolio has also declined in size in recent years. To a large extent, thisreflects GIC's efforts to reduce concentration in the portfolio, while several large other investments have matured over the same period.

Although GIC aims to increase the share Principal Investments relative to Global Markets, we expect the rebalancing to continuethrough a continued reduction of Global Markets assets rather than a major expansion of Principal Investments' investments.

As of June 2017, GIC had investment commitments of $260 million spanning the second half of 2017 and 2019, though ongoingexisting transactions exceed this amount. Principal Investments operations raised $1,093 million in cash between 2014 and 2016, withonly around $244 million redeployed, adding to the assets managed by Global Markets. In the meantime, profitability is likely to belower.

Favourable leverage position following a significant reduction in debt burden

GIC's funding mix includes terms finance, repurchase agreements (repo) and deposits, which over the past five years have on averagerepresented 59%, 6% and 4% of the mix respectively. The use of deposits is not unusual among MDBs – other examples includeCorporacion Andina de Fomento (CAF, Aa3 stable), Central American Bank for Economic Integration (CABEI, A1 stable) and FondoLatinoamericano de Reservas (FLAR, Aa2 stable). However, these deposits usually come from shareholders and are not used to fundoperations.

In common with Arab Petroleum Investments Corp (APICORP, Aa3 stable), GIC shares the characteristics of commercial banks in thatit uses deposits to fund operations. The deposits have been sticky and generated primarily from the same sources as APICORP, namelycentral banks, sovereign wealth funds and GCC-based supranationals. However, they remain relatively short-dated, with an averagematurity of just 124 days, representing a potential liquidity risk.

GIC has reduced its leverage considerably since 2008, with debt to usable equity falling from 504% in 2008 to 49.7% in 2016, lowerthan APICORP but similar to ICD. It is also apparent when comparing total assets with shareholder equity: the ratio fell from 1,089%as of the end of 2008 to 181% in December 2016. Following the capital increase in 2008, GIC's return to profitability since 2009 hasstrengthened the capital base, which rose to $2.553 billion from $1.750 billion between 2009 and 2016.

Repos were used as bridge financing because debt issuance was delayed to early 2016, but had declined as a funding source as of theend of 2016. In general, issuance is guided by an asset/liability gap target determined yearly. GIC also has a 30% of total assets targetfor medium-term financing.

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Exhibit 7

GIC’s capital ratios are similar to other A-rated MDBsUsable equity/loans + equity operations

Exhibit 8

Leverage ratios will continue to improve relative to peersDebt/usable equity

0

20

40

60

80

100

120

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GIC BSTDB (A2 stable)

CABEI (A1 stable) GuarantCo (A1 stable)

Source: GIC

0

100

200

300

400

500

600

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GIC BSTDB (A2 stable)

CABEI (A1 stable) GuarantCo (A1 stable)

Source: GIC

Although volatile, asset performance has improved, while concentration is moderate

GIC displays some volatility in asset performance. Because the company's assets are relatively concentrated, its business model is morerisky than that of other MDBs making loans to public or private sector entities. However, GIC operates in a more benign environmentthan many MDBs.

GIC has recorded a loss only once in its 31-year history, in 2008, mostly due to losses in the Global Markets group: $475 million ofthe $996 million loss was attributed to mark-to-market valuations. GIC has since reinforced its securities investment guidelines andreduced the risks associated with such market exposure.

To measure the asset performance of the Principal Investments portfolio, we look at impairment provisions that have been approved inthe past year. Unlike the nonperforming loans of other MDBs, such provisions entail a level of judgement when determining the levelrequired, based on a “significant or prolonged decline in the fair value below its cost or where other objective evidence of impairmentexists”.

In the past seven years, provisions have averaged 1.4% of Principal Investments assets, down from 13.8% in 2008. While moderate, thelevel has been volatile in recent years, climbing to 3.3% in 2014 before declining to 0.6% in 2016.

GIC’s portfolio is relatively diversified, given the split in assets between securities investments and direct equity holdings, as wellas between sectors. Principal Investments assets are highly concentrated in the GCC (around 97% of assets). Its top 10 exposurescomprise 56% of assets, a moderate level among rated MDBs and down from higher levels following the divestment in Cristal.

Moreover, companies in GIC's Principal Investments portfolio often have global operations, despite being related to the GCC. Theportfolio is governed by controls linked to GIC's capital base, with no single industry or sector exceeding 20% of the base.

GIC’s concentration in a relatively narrow range of countries is in line with regional MDBs that also focus on a similarly limited set ofcountries. Its operating environment is also relatively favourable, given that GCC countries benefit from sound institutions and a highlevel of competitiveness.

Nevertheless, GCC countries are subject to the same vulnerabilities, particularly those related to hydrocarbon prices and geopoliticalrisks. For example, Bahrain accounts for around a third of the assets (Exhibit 9): a credit event affecting the government of Bahraincould have a negative impact on some of GIC's exposure to that country. However, GIC's private sector exposure to Bahrain is largelyto companies headquartered in the kingdom but which have regional or global operations. In addition, most of its Bahrain exposuresare dollar-denominated, meaning that the direct balance sheet impact stemming from a devaluation would be limited.

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Exhibit 9

Diversified portfolio by country, but concentrated in the MiddleEast and North AfricaConcentration of assets by country, 2016

Exhibit 10

Further divestment of Cristal stake has reduced exposure tochemicals sectorConcentration of assets by sector, 2016

Bahrain

36%

Kuwait

14%Oman

4%

Qatar

2%

Saudi Arabia

32%

UAE

11%

Non GCC

1%

Source: GIC

Metals & Mining24%

Chemicals23%

Telecommunication Services12%

Independent Power Producers & Energy Traders10%

Trading Companies & Distributors8%

Other23%

Source: GIC

Profitability is strong but moderating due to streamlined Principal Investments pipeline

Return on average assets has averaged 2.3% over the past three years, declining slightly in 2016 but still among the highest in our MDBuniverse, along with other private sector MDBs such as Africa Finance Corporation (AFC, A3 stable) and the European Investment Fund(EIF, Aaa stable).

This reflects high net gains from GIC's investments, from “share of results from associates” (Principal Investments assets) and dividends.In 2014, GIC’s shareholders decided to resume dividends for the first time since 2007. A cash dividend of $105 million was declared for2014 and 2015, representing around two-thirds of accumulated net income. This trend continued in 2016, with a further $105 milliondividend to shareholders.

We expect GIC’s financial performance to remain weaker than previous years in 2018, for two reasons. First, cash drawn from severallarge divestments in the Principal Investments portfolio has yet to be redeployed. Second, even though lower oil prices had animmediate impact on GCC equities, other assets are still being repriced. Lower commodity prices and a slowdown in Chinese demandhave affected metals and mining assets (28% of Principal Investments assets). However, although energy sector assets make up 25%of Principal Investments, some of GIC’s investee companies have benefited from lower input prices, given the energy intensity ofindustries such as chemicals and steel manufacturing.

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Liquidity: Medium

We assesses GIC’s liquidity as “Medium”, similar to International Investment Bank (IIB, Baa1 positive) and Eurasian Development Bank(EDB, Baa1 stable). Liquidity is supported by the large size of liquid assets relative to short-term liabilities, and low costs of funding.However, the degree to which GIC continues to rely on wholesale deposits and its relatively weak market-implied rating adverselyaffect our assessment.

Solid liquidity position due to high debt service coverage

GIC’s debt-service coverage ratio (DSCR, the sum of short-term debt and currently maturing long-term debt divided by discountedliquid assets) is strong relative to other MDBs. At 26.6% in 2016, is in line with International Finance Corporation (IFC, Aaa stable), theAFC and the BSTDB, among others.

GIC’s DSCR was higher in the past, at 45% in 2009. The sustained improvement reflects the gradual phasing out of repo funding, whichpeaked at $2.4 billion in 2007 and amounted to $321 million as of the end of 2015. The ratio increased slightly to 26.6% in 2016,largely due to GIC's $500 million medium-term notes issue falling due in November 2017. An additional $398 million of principalpayments from medium-term notes will fall due in 2018, which, all else being equal (and assuming no additional repo borrowing),would see the DSCR remain relatively close to its three-year average.

Exhibit 11

Term loans are still the main source of fundingSource of funds, $ million

Exhibit 12

Although sticky, deposit maturity is short-dated on averageAverage maturity of funding (years)

Deposits22%

Repo0%

Term Funding78%

Source: GIC

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

Deposits Term Funding

Source: GIC

Recourse to repo funding fell to zero as of June 2016, though this funding remains available as a contingent source of funding: GICmaintains 30% of its securities holdings as eligible for repo, with a minimum of $300 million, as part of contingency measures underits control frameworks. As of June 2017, 43.5% of the company's portfolio holdings were available for repo.

GIC does not have a commercial paper or other short-term issuance programme. It is also now a net placer of funds in the interbankmarket, boosting its capacity to meet its debt obligations.

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Although sticky, GIC’s reliance on deposits is a potential source of weakness

GIC uses short-term wholesale deposits to fund its treasury operations for the purposes of profit generation and liquidity. However,its reliance on these deposits declined in 2016 as the balance sheet shrunk. Total deposits fell to $570 million at the end of 2016 from$919 million in December 2015, representing a decline in total liabilities to 28% from 35%.

This represented a continuation of GIC's moves to gradually reduce its reliance on deposits, which amounted to up to 44% of liabilitiesin 2008, by issuing long-term debt. As of June 2017, deposits comprised just 27.4% of total funding. GIC's reliance on deposits is alsolower than Aa-rated APICORP and FLAR (Exhibit 8).

Exhibit 13

GIC is one of a small group of MDBs that take deposits

Deposits, % total liabilities (end 2016)

African Export-Import Bank (Afreximbank), Baa1 stable 3%

Corporacion Andina de Fomento (CAF), Aa3 stable 12%

Central American Bank for Economic Integration (CABEI), A1 stable 15%

Gulf Investment Corporation (GIC), A1 stable 28%

Arab Petroleum Investments Corp. (APICORP), Aa3 stable 37%

Fondo Latinoamericano de Reservas (FLAR), Aa2 stable 100%

Source: Respective financial statements, Moody's Investors Service

We view wholesale deposits as a source of funding that is vulnerable to fluctuations in market confidence, due to their greaterconcentration and correlation to economic cycles relative to retail deposits. Moreover, because MDBs tend to engage in medium tolong-term lending activity, relying on deposit funding can result in a balance sheet maturity mismatch, particularly if the deposits arenot long-term in maturity. Were we to include deposits in GIC's numerator, the debt service coverage ratio would rise to 56% as of theend of 2016 (Exhibit 14), in line with CAF and CABEI.

Nonetheless, GIC's deposits have proven a stable source of funding, with 100% of deposits being sourced from government-relatedentities such as member countries’ central banks, sovereign wealth funds, national oil companies and public pension/social securityfunds as of June 2017.

Deposits, whose terms typically range from three weeks to one year, are also seen as a more scalable source of funding that is moreappropriate, given GIC’s business model. According to the company, deposits from GCC governments, central banks and other regionalfinancial institutions have been regularly renewed over the past few years and benefit from a “safe haven” status. As of August 2017,the average maturity of deposits was 142 days.

Exhibit 14

GIC’s liquidity ratios have improved over time

0%

20%

40%

60%

80%

100%

120%

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GIC (A1 stable) GIC (including deposits) A-rated median

Source: GIC

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GIC's asset/liability structure is reinforced by a large portfolio of liquid securities

Management of the annually determined asset/liability gap guides funding decisions. GIC's asset/liability maturity structure is unusuallyshort among MDBs, with 52% of total assets due to mature within three months compared with 17% of total liabilities as of the end of2016 (Exhibit 15). This unusual maturity profile reflects the dual nature of the business: the Global Markets group's assets generally fallinto the shorter-term buckets, while equity participations from Principal Investments typically have investment horizons beyond fiveyears. The use of deposits in the funding structure also increases short-term liabilities, with all of the deposits falling due in one year orless.

Exhibit 15

Composition of GIC’s assets and liabilities by maturity$ million, % total

Assets 2014 2015 2016 Assets 2014 2015 2016

<3 months 2,660 2,721 2,381 <3 months 51% 53% 52%

3 months to 1 year 553 599 479 3 months to 1 year 11% 12% 10%

1 year to 5 years 472 400 141 1 year to 5 years 9% 8% 3%

Over 5 years 1,501 1,377 1,618 Over 5 years 29% 27% 35%

Total 5,186 5,097 4,619 Total 100% 100% 100%

Liabilities 2014 2015 2016 Liabilities 2014 2015 2016

<3 months 611 1,150 352 <3 months 25% 44% 17%

3 months to 1 year 585 654 796 3 months to 1 year 24% 25% 39%

1 year to 5 years 997 554 688 1 year to 5 years 41% 21% 33%

Over 5 years 243 242 230 Over 5 years 10% 9% 11%

Total 2,436 2,600 2,066 Total 100% 100% 100%

Net Gap <3 months 2,049 1571 2029 Net Gap 26% 9% 35%

3 months to 1 year -32 -55 -317 -13% -13% -28%

1 year to 5 years -525 -154 -547 -32% -13% -30%

Over 5 years 1,258 1135 1388 19% 18% 24%

Source: GIC

The nominal and relative amount of GIC’s treasury assets, which mostly comprise interest-bearing assets, is ample and has increased asa proportion of total assets over the past two years. Between 2015 and 2016, treasury assets averaged 45% of total assets, comparedwith 37% between 2013 and 2014. Treasury assets have also steadily increased as a proportion of total debt since 2012, to 153% in2016, mainly as a result of reduced borrowing. The credit quality of these assets is moderate and relatively stable in composition. Themedian credit rating of interest-bearing assets was A2 as of December 2016.

Exhibit 16

GIC has a large treasury portfolio

Note: Total debt includes repo agreementsSource: GIC

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Exhibit 17

Distribution of interest-bearing assets by rating

Aaa

1%Aa

18%

A

39%

Baa

31%

<Baa

11%

Source: GIC

As part of GIC's control framework, a broad liquidity policy calls for a minimum level of 60% of liquid assets that can be easilyconverted to meet liquidity needs for 30 days in a liquidity stress scenario. This liquidity coverage ratio increased from 195% in 2015 to211% at the end of 2016.

In addition, a minimum level of 126% is required for the ratio of liquid assets to volatile liabilities. This ratio uses readily realisableassets, which factor in conservative haircuts and discounts, as the numerator; the denominator is defined as liabilities maturing in lessthan 90 days. GIC comfortably meets each of these thresholds. The net liquid asset ratio improved to 551% as of December 2016 fromaround 207% in 2015.

Low cost of funding, based on existing debt

The average maturity of GIC’s debt is relatively long, supporting its liquidity profile. The maturity profile of term issuances is spread out,with an average term to maturity of 607 days as of December 2016. Including deposits, the average maturity of liabilities is around 457days (approximately one year and three months). There is a target for medium-term financing of 30% of total assets for the purposesof asset/liability management and maintaining market access.

GIC has continuously tapped markets in various geographies and currencies. $600 million of term finance was raised in the first quarterof 2016, including a private placement in US dollars, an Islamic private placement in US dollars, a private placement in Kuwaiti dinars,and a further issuance of five-year local currency notes in Malaysia.

Each non-US dollar issuance is hedged, with the result that exchange rate volatility does not directly affect GIC’s debt structure. Thecompany has had a conventional programme in Malaysia since 2008 and, as part of its development role, has developed a structure ofIslamic issues acceptable in both the GCC and Malaysia. Subsequent GCC issuers have duplicated the structure.

GIC’s funding costs are relatively low. As of 2016, we estimate that the weighted average interest rate on its borrowings was around2.6%, close to the 2.8% median for A-rated MDBs. However, credit default swap-implied ratings are low, averaging Ba2 in 2015 beforerising to Ba1 in 2016 and 2017, indicating that market access could be more difficult than for similarly rated peers in times of stress.

Liquidity risks are tilted to the downside, but increased GCC government debt is a boon

GIC actively manages its treasury assets, which generate a stable, diversified source of revenue. However, risks to its liquidity structureinclude future tightening in US Federal Reserve monetary policy and the deterioration in the fiscal outlook for GCC countries.

Lower and volatile oil prices have weakened the credit profiles of Gulf countries and resulted in large fiscal deficits in 2016, rangingfrom an estimated 3.0% of GDP in Kuwait to 14.6% in Bahrain and 15.0% in Oman. Liquidity conditions in the GCC have tightened, asgovernments primarily drew on foreign exchange reserves and government deposits in the banking system to finance fiscal deficits.

Futhermore, the outbreak of the Saudi Arabia-led diplomatic dispute with Qatar has increased fiscal and economic pressure on Qatar,which could spread to the wider GCC region if it is protracted.

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MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

In an environment of structurally lower oil prices and given low debt levels for all GCC countries except Bahrain, governments haveshifted their funding strategies towards more debt issuances, which is beneficial for GIC. Although GIC has not issued in 2017 to date,it was able to diversify its bond portfolio in 2016 with new issuances from the governments of Qatar, Bahrain, Abu Dhabi and Oman.Moreover, external debt issuance improves liquidity in GCC countries and can help foster the development of a sovereign yield curve,supporting private-sector international issuance in the country.

At this stage, we expect a limited impact on GIC’s depositor base, which mostly consists of government-related entities. Shareholdersand their related depositors in GIC still have considerable resources at their disposal, despite the recent decline stemming from the oilprice shock.

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Strength of member support: Low

We assess GIC’s strength of member support as “Low”, in line with CAF and FLAR. We note that, unlike the majority of similarly ratedMDBs, GIC does not benefit from contractual member support, though its shareholders have shown their propensity to support byproviding called-up capital in 2008-09, leading to a very strong capital position, as well as their continued placement of large depositsin GIC. Further downgrades to the sovereign ratings of major shareholders have reduced the weighted average shareholder ratingslightly, but it remains strong at A1.

GIC benefits from proven shareholder support, having called on callable capital

In 2008, shareholders were relatively quick to support GIC’s capital needs. GIC is unique among MDBs that we rate because it remainsthe only MDB that has called and redeemed the callable portion of its subscribed capital, following substantial losses during the globalfinancial crisis.

The capital called in 2008 was paid by shareholders throughout 2008 and early 2009. As a result, common or paid-in capital morethan doubled between 2007 and 2009, from $1.0 billion to $2.1 billion – equally shared by all GCC countries – and has remained atthat level since 2009 (Exhibit 18).

The call on capital, along with strong profitability and improved asset valuations after 2008, helped increase shareholder’s equity to$2.6 billion as of December 2016 from $2.0 billion in 2007.

Following the call on capital and because GIC's capital position was strengthened, shareholders did not restore the stock of callablecapital. As a result, and unlike most MDBs, GIC no longer benefits from contractual member support mechanisms. This limits the ratinguplift provided by member support according to our methodology for MDBs.

As a token of their support, shareholders opted to forego dividend payments for six consecutive years to rebuild GIC's capital base.Consequently, GIC now has a solid capital base. However, resumed dividend payments since 2014 have limited further improvementsin capital ratios arising from retained earnings.

We typically assess the profitability of an MDB in terms of the contribution that it makes to building or depleting the institution’scapital base. In GIC's case, a renewed expansion of its operations, combined with continued dividend payments, could erode its capitalposition. However, this is not our base case given GIC's strategy of optimising operations through deleveraging its balance sheet.

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Exhibit 18

GIC's capital structure

2016

Subscribed capital ($ million) Paid-in capital ($ million) % of subscribed capital % paid-in capital

Kuwait (Aa2 stable) 350 350 17% 17%

Qatar (Aa3 negative) 350 350 17% 17%

United Arab Emirates (Aa2 stable) 350 350 17% 17%

Saudi Arabia (A1 stable) 350 350 17% 17%

Oman (Baa2 negative) 350 350 17% 17%

Bahrain (B1 negative) 350 350 17% 17%

Total 2100 2100 100% 100%

Source: GIC

Unique position as a GCC-owned institution underscores shareholders' high propensity to provide support, despitemoderate size

Members’ sense of ownership and reputational risk are key considerations in assessing the likelihood that shareholders will supportGIC in times of stress. GIC is the only financial institution established under the GCC's auspices, under an agreement that its memberssigned in 1982. To this day, it is the only entity incorporated as a GCC company. Moreover, its shareholders have explicitly committedto supporting its strategic role in the region.

Nevertheless, GIC is small relative to other regional MDBs. It is roughly the same size as APICORP, and nearly a quarter of the size ofthe IsDB, both of which benefit from contractual callable capital. Moreover, while GIC’s activities have contributed to the diversificationof economic activity in the GCC, projects supported by other regional MDBs have a wider geographic reach.

Despite recent downgrades, shareholders have considerable resources at their disposal

According to our sovereign ratings, the weighted median shareholder rating for GIC declined from Aa2 in 2015 to A1 as of December2016, largely driven by the significant drop in Bahrain's sovereign rating to Ba2 in May 2016 (the rating was subsequently downgradedagain in July 2017, to B1), as well as that of Oman. This is the same level as APICORP and slightly stronger than the Council of EuropeDevelopment Bank (Aa1 stable).

We do not envisage a change in GIC’s ownership structure in the near future. The downgrades of Bahrain, Oman and Qatar in 2017have not lowered the weighted shareholder rating any further, and the weighted shareholder rating would remain at A1 even if all threeratings were downgraded by an additional notch. As such, we regard the current weighted shareholder rating as reasonably resilient.

Consequently, the starting position of the shareholders is strong, and the weighted median rating of A1 is above around half thecurrently rated MDB universe. GIC's shareholders also maintain large reserves. Due to high oil prices in 2010-14, GCC countries haveaccumulated considerable resources in their sovereign wealth funds: we estimate that the region's combined financial assets stood at$2.0 trillion, or around 150% of regional GDP, as of the end of 2016. This figure will fall slightly to around 144% of GDP in 2017 due toa drawdown on assets to finance current account deficits in Bahrain, Oman and Saudi Arabia, but it remains substantial compared withglobal peers.

However, the underlying creditworthiness of sovereigns shareholders has deteriorated slightly since the start of the oil price shock.Despite a partial recovery in oil prices to over $55/bbl in the fourth quarter of 2017, balance of payments positions and fiscal deficitsacross the GCC remain materially weaker than pre-2015 levels. Meanwhile, the diplomatic dispute in the region continues to weakenQatar's sovereign profile while potentially creating longer-term risks for other regional states.

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MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

Exhibit 19

Deposits are sourced mainly from shareholdersDepositors by type, % total

0

100

200

300

400

500

600

700

800

900

1000

2015 2016

Deposits from central banks Deposits from other financial institutions Other deposits

Source: GIC, Moody's

Demonstrated shareholder support is further evidenced by the decision to direct deposits from government-related entities to GIC.Although deposits are contractually a less durable source of funding than paid-in capital, GIC’s deposits have been stable and wouldlikely serve as a contingent form of liquidity in addition to repo assets.

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MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

Rating rangeCombining the scores for individual factors provides an indicative rating range. While the information used to determine the grid mapping is mainly historical, our ratings incorporateexpectations around future metrics and risk developments that may differ from those that the rating range implies. Thus, the rating process is deliberative and not mechanical,meaning that it depends on peer comparisons and should leave room for exceptional risk factors to be taken into account that may result in an assigned rating outside the indicativerating range. For more information, please see our Supranational Rating Methodology.

Exhibit 20

Supranational rating metrics: Gulf Investment Corporation

Source: Moody's Investors Service

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MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

ComparativesThis section compares credit relevant information regarding GIC with other supranationals that Moody’s Investors Service rates. It focuses on a comparison with supranationals withinthe same rating range, and shows selected credit metrics and factor scores.

GIC's capital adequacy score is broadly in line with A-rated peers, though with lower leverage levels. Asset quality is somewhat weaker than the A-median but better than APICORP.Liquidity indicators are relatively weaker than other A-rated MDBs, particularly in terms of the market-implied indicators. Finally, GIC's score for shareholder support is low and belowmost other similarly rated peers due to the absence of callable capital. However, it is higher than the AFC, which has a much weaker weighted median shareholder rating.

Exhibit 21

GIC: Key peers

Year GIC AFC BSTDB CABEI APICORP GuarantCo A Median

Rating/Outlook A2/STA A3/STA A2/STA A1/STA Aa3/STA A1/STA --

Total Assets (US$ million) 2016 4,619 3,430 1,756 9,194 6,142 273 1,756

Factor 1 Medium Medium Medium Medium High Medium --

Usable Equity/Gross Loans Outstanding + Equity Operations (%)[1] 2016 108.4 86.8 63.2 41.9 47.7 56.0 63.2

Debt/Usable Equity (%)[1] 2016 49.7 132.0 114.6 199.0 126.6 0.0 49.7

Gross NPLs/Gross Loans Outstanding (%)[2] 2016 0.6 0.0 3.4 0.0 2.1 12.1 0.6

Factor 2 Medium High High Very High High High --

ST Debt + CMLTD/Liquid Assets (%)[3] 2016 26.4 16.9 26.9 30.1 27.3 0.0 16.9

Bond-Implied Ratings (Long-Term Average) 2010-2016 Ba2 Ba1 Ba1 A3 -- -- Baa3

Intrinsic Financial Strength (F1+F2) Medium High Medium High High High --

Factor 3 Low Very Low Medium Medium Very High Very Low --

Total Debt/Discounted Callable Capital (%)[4] 2016 -- -- 215.8 544.7 426.0 -- 215.8

Weighted Median Shareholder Rating (Year-End) 2016 Aa2 B2 Ba1 Ba2 A1 Aa1 Ba1

Rating Range (F1+F2+F3) A2-Baa1 Aa2-A1 A1-A3 Aa1-Aa3 Aaa-Aa2 Aa2-A1 --

[1] Usable equity is total shareholder's equity and excludes callable capital

[2] Non performing loans (In the absence of relevant data, the ratio refers to impairment losses/gross equity assets and loans)

[3] Short-term debt and currently-maturing long-term debt

[4] Callable capital pledge by members rated Baa3 or higher, discounted by Moody's 30-year expected loss rates associated with ratings.

Source: Moody’s Investors Service, Gulf Investment Corporation

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MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

DATA AND REFERENCESRating history

Exhibit 22

Source: Moody's Investors Service

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MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

Annual statistics

Exhibit 23

Gulf Investment Corporation2009 2010 2011 2012 2013 2014 2015 2016

Balance Sheet, USD Millions

Assets

Cash & Equivalents 1,065 654 596 956 408 313 373 379

Securities 2,395 1,924 1,624 1,888 1,593 1,687 2,080 1,583

Derivative Assets 0 19 18 25 1 3 2 1

Net Loans 85 74 74 0 0 85 0 0

Net Equity Investments 2,342 2,837 3,184 3,092 3,316 2,713 2,174 2,356

Other Assets 226 268 385 331 386 385 468 300

Total Assets 6,113 5,776 5,881 6,292 5,704 5,186 5,097 4,619

Liabilit ies

Borrowings 2,798 2,035 1,709 2,548 1,644 1,423 1,316 1,268

Derivative Liabilit ies 65 57 107 80 76 94 197 74

Other Liabilit ies 1,500 1,567 1,660 1,361 1,406 919 1,087 724

Total Liabilit ies 4,363 3,659 3,476 3,989 3,126 2,436 2,600 2,066

Equity

Subscribed Capital 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100

Less: Callable Capital 0 0 0 0 0 0 0 0

Equals: Paid-In Capital 2,100 2,100 2,100 2,100 2,100 2,100 2,100 2,100

Retained Earnings (Accumulated Loss) (211) (565) (420) (316) (184) (23) (9) 46

Accumulated Other Comprehensive Income (Loss) (139) 77 168 (65) 44 13 0 0

Reserves 0 505 541 567 599 639 400 401

Other 0 0 16 17 19 21 0 0

Total Equity 1,750 2,117 2,405 2,303 2,578 2,750 2,497 2,553

2009 2010 2011 2012 2013 2014 2015 2016

Income Statement, USD Millions

Net Interest Income -31 -20 1

Interest Income 84 43 41 42 38 38 50 58

Interest Expense 85 50 59 61 69 58 54 57

Net Non-Interest Income 179 253 393 406 354 219

Net Commissions/Fees Income 22 7 20 26 35 13 7 5

Income from Equity Investments 114 191 235 179 215 262 150 97

Other Income 43 55 138 201 194 172 197 117

Other Operating Expenses 193 256 238

Administrative, General, Staff 76 81 176 241 234 210 223 148

Other Expenses 11 14 17 15 14 14 15 15

Pre-Provision Income 182 131 203

Loan Loss Provisions (Release) 0 0 0 0 0 0 0 0

Net Income (Loss) 181 130 201

Other Accounting Adjustments and Comprehensive Income 447 216 91 -233 110 -31 -243 105

Comprehensive Income (Loss) 538 367 272 273 170 -133

Note: In the absence of relevant data, the ratio refers to impairment losses/gross equity assets and loans.Source: GIC, Moody's Investors Service

21 23 November 2017 Gulf Investment Corporation G.S.C. – A2 stable: Annual credit analysis

MOODY'S INVESTORS SERVICE SOVEREIGN AND SUPRANATIONAL

Moody’s related research

» Credit Opinion:

» Gulf Investment Corporation – A2 Stable: Regular update, 1 May 2017

» Sector In-Depth:

» Drawn-out stand off would be credit negative for all GCC members, but Qatar, Bahrain most at risk, 13 September 2017

» UAE, Abu Dhabi, Kuwait and Qatar: FAQ on Reform Progress and Outlook for Fiscal, Growth and External Metrics, 30 May 2017

» Rating Methodology:

» Multilateral Development Banks and Other Supranational Entities, 29 March 2017

To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. Allresearch may not be available to all clients.

Related websites and information sources

» Sovereign and supranational risk group web page

» Sovereign and supranational rating list

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22 23 November 2017 Gulf Investment Corporation G.S.C. – A2 stable: Annual credit analysis

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23 23 November 2017 Gulf Investment Corporation G.S.C. – A2 stable: Annual credit analysis

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24 23 November 2017 Gulf Investment Corporation G.S.C. – A2 stable: Annual credit analysis