DIFC, March 04, 2010 -- Moody's Investors Service has today taken a number of rating actions
on its seven government-related issuers (GRIs) owned by the Abu
Dhabi and United Arab Emirates (UAE) governments, thereby concluding
its review for downgrade initiated on 9th December 2009.
All seven companies saw their ratings downgraded, some by several
notches. Ratings affected by today's announcement include
- Mubadala Development Company (Mubadala): Aa3 / Prime-1,
stable outlook, from Aa2 / Prime-1
- International Petroleum Investment Company (IPIC): Aa3
/ Prime-1, stable outlook, from Aa2 / Prime-1
- Tourism Development & Investment Company (TDIC): A1
, stable outlook, from Aa2
- Abu Dhabi National Energy Company (TAQA) to A3 / Prime-2,
stable outlook, from Aa2 / Prime-1
- Emirates Telecommunications Company (Etisalat) to Aa3,
stable outlook, from Aa2
- Dolphin Energy (Dolphin) to A1, stable outlook, from
- Aldar Properties (Aldar) to Ba1, negative outlook,
For a more detailed analysis of the individual companies affected by today's
rating action, please refer to their respective Credit Opinions
which will be published shortly on moodys.com.
As regards the ratings of Mubadala, IPIC and TDIC, which remain
within close proximity of Abu Dhabi's sovereign rating, Moody's
has concluded that these organisations are vehicles of government policy,
and are embedded in a framework of government funding and oversight that
enables them to achieve ratings close to the ratings of the sovereign
itself. All three entities remain heavily funded directly by the
government in addition to their own capital market and bank borrowing
activities. Indeed, the government has historically provided
the funding requirements of these entities that were not raised in the
debt markets, which is a business model expected to be followed
for the foreseeable future, and in the case of IPIC has a track
record of 25 years. This is both in regards to coverage of ongoing
and future investment requirements -- the majority of which originate
at government level -- and refinancing of existing debt as it falls
Furthermore, the government has formally assured Moody's that
it fully and unconditionally stands behind these entities for any debt
-- both principal repayments and debt servicing -- on a timely
basis in the event that the company were unable to provide for itself,
a policy that is also expected to remain in place for the foreseeable
Whilst this commitment is substantial and will continue to result in Moody's
considering it appropriate to reflect this support in meaningful uplifts
to the ratings of all three entities, Moody's has decided
to introduce a moderate distinction between their ratings and that of
the sovereign given that no explicit formal agreement exists obligating
the government to support them under all circumstances. This has
therefore resulted in the one notch downgrade in the ratings of Mubadala
and IPIC to Aa3 and a two notch downgrade in the ratings of TDIC to A1.
The distinction in the rating of TDIC relative to Mubadala and IPIC reflects
TDIC's weaker fundamental creditworthiness given its high exposure
to large-scale real estate projects that are in earlier stages
of development, albeit of very high strategic value. Going
forward, the ratings of all three companies are expected to continue
to move within one (Mubadala, IPIC) and two (TDIC) notches of the
Whilst the Abu Dhabi government also expressed strong statements of support
to TAQA, Dolphin and Aldar, Moody's has decided to introduce
a greater level of distinction between the ratings of these companies
and those of the government, thus resulting in downgrades.
TAQA, whose baseline credit assessment (BCA) -- the measure
of its fundamental creditworthiness excluding any exceptional support
from the government -- was unchanged at Ba1, continues to enjoy
high support according to Moody's methodology. However,
due to the lack of ongoing and regular funding from the government and
a greater commercial orientation of its business activities -- including
now substantial foreign engagement -- the government support factored
into its rating was lowered from the previously highest level.
Accordingly ratings have been lowered to A3. Whilst exceptional
and timely support remains high, we believe it cannot be regarded
as absolute. Moody's believes, and indeed ratings assume,
that TAQA's fundamental creditworthiness will strengthen over the
medium term, as the company focuses on de-leveraging its
balance sheet and consolidating its business profile rather than engaging
in further large-scale acquisitions. Moody's has also
withdrawn its provisional (P)Aa2 ratings on three proposed guaranteed
bonds at TAQA North. These bonds were never issued.
The assumed support of Dolphin, whose BCA was unchanged at Baa1,
was also lowered marginally to reflect the company's commercial
-- albeit highly strategic -- business activities. Dolphin's
rating is now A1. Both Dolphin, which sources and transports
gas from Qatar by pipeline to the UAE, and TAQA, which majority
owns the bulk of Abu Dhabi's power and water production assets,
are viewed as very strategic.
The downgrade of Aldar's ratings to Ba1 also reflects a lowering
of the support which Moody's assumes will be forthcoming to the
company over time. Although various government entities have assigned
large public infrastructure projects to Aldar in the past, with
a significant step-up in 2009, Aldar's portfolio still
contains a significant portion of commercial projects, which will
require financing beyond 2011 and for which the support mechanisms are
less certain. This uncertainty, as well as the exposure to
the volatile real estate market, have been expressed in the negative
outlook, which relates to the company's stand-alone
fundamental profile. This is unchanged at B2.
The support factored into Etisalat's ratings from the federal government
was adjusted from high to medium, thus bringing it in line with
other regional and international telecommunications companies.
This has resulted in its ratings being lowered to Aa3. The company's
stand-alone profile, which remains unchanged at A2,
continues to reflect its fairly benign regulatory and competitive environment,
and its solid financial profile, although we expect some of its
financial flexibility to be used for acquisitions abroad in line with
its growth strategy.
Moody's takes strong comfort from the Abu Dhabi government's
recent initiatives to establish greater control and oversight of its GRIs.
The recent establishment of a Debt Management Office (DMO) as part of
the Department of Finance represents the institutional cornerstone of
this initiative, thus requiring all GRIs to obtain approval for
debt financing from the DMO prior to issuance. It will also allow
the government to introduce greater day-to-day oversight
over a GRIs financial condition, including forthcoming liquidity
requirements, as well as allowing it to intervene in a timely manner,
where required. Accordingly, Moody's believes that
most rated GRIs are likely to see greater equity contributions from the
government, particularly those whose financial profiles are currently
characterised by high leverage.
All ratings are now stable with the exception of Aldar, whose negative
outlook incorporates ongoing medium term risks affecting its stand-alone
profile inherent with the real estate sector. Accordingly,
Moody's expects the government framework that governs the entities
-- and particularly regarding those that are rated closest to the
sovereign -- to remain unchanged for the foreseeable future.
Moody's also expects the government to continue to strengthen its
oversight over its GRIs via the newly established DMO, and to ensure
that the balance sheets of those entities that are currently stretched
are rectified over time. This is particularly the case for TAQA,
where we are assuming a gradual de-leveraging over the medium term.
Ratings also assume that entities rated closest to sovereign level maintain
timely access to government liquidity, which is particularly relevant
for IPIC, which faces substantial debt refinancing requirements
over the short term.
Today's rating action completes Moody's review of all seven
companies, which were placed on review for downgrade on 9th December
2009. Aldar's last rating action was on 28th January 2010,
when Moody's lowered its ratings given a deterioration of its BCA.
The principal methodology used in rating all entities affected by today's
rating action was "The Application of Joint Default Analysis to Government
Related Issuers", published in April 2005, which determines
ratings on the basis of a company's baseline credit assessment,
as well as credit enhancement for exceptional government support.
Accordingly, ratings were assigned by evaluating factors we believe
are relevant to the baseline credit assessment of the issuers, such
as i) the business risk and competitive position of the companies versus
others within its industry, ii) the capital structure and financial
risk of the companies, iii) the projected performance of the companies
over the near to intermediate term, and iv) management's track record
and tolerance for risk. These attributes were compared against
other issuers both within and outside of the companies' core industries
and ratings are believed to be comparable to those of other issuers of
similar credit risk. Other methodologies and factors that may have
been considered in the process of rating this issuer can also be found
in the Rating Methodologies sub-directory on Moody's website.
Philipp L. Lotter
Senior Vice President
Moody's Middle East Ltd.
Moody's concludes review of Abu Dhabi / UAE government-related issuers (GRIs)
David G. Staples
Moody's Investors Service Ltd.
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