IslamicFinance.de

Press Release

PARIS (Standard & Poor's) Jan. 28, 2009--Standard & Poor's Ratings Services said today that it has lowered its long- and short-term counterparty credit ratings on Bahrain-based Arcapita Bank B.S.C. to 'BB+/B' from 'BBB/A-2' and placed the long-term rating on CreditWatch with negative implications.

"The downgrade and CreditWatch placement reflect our opinion of Arcapita's weak liquidity profile amid an increasingly difficult operating environment," said Standard & Poor's credit analyst Mohamed Damak.

At the same time, we believe that the value of Arcapita's own investments--mainly in private equity and real estate--could decline in value given current market conditions (like other private equity firms). We view Arcapita's leverage as high. We understand that Arcapita made certain investments in 2008 that it was not able to fully place with customers that triggered a decline in liquidity and an increase in investment leverage (as measured by the ratio of total investments to total equity).

"Arcapita's capacity to implement its planned set of measures to reduce leverage and improve its liquidity position will be critical for the ratings in the short term," said Mr. Damak.

If Arcapita's liquidity profile and leverage do not improve materially in the near future, the ratings could be lowered further. We expect to resolve the CreditWatch status in the coming two months, following consideration of the above factors.

The ratings on Arcapita reflect its weak liquidity position, high leverage, narrow business diversification and deteriorated operating environment. Positive rating factors are the bank's wealthy Gulf-based client base, adequate capitalization, and good track record of financial performance and financial flexibility. The ratings reflect Arcapita's stand-alone creditworthiness and do not include any uplift for extraordinary external support.

Arcapita is an Islamic wholesale investment bank focusing on corporate, real estate, asset-based, and venture capital investments. With total assets of $4.6 billion on Sept. 30, 2008, Arcapita is relatively small and its business diversification narrow.