Standard & Poor's has taken three Abu Dhabi companies off review for credit ratings downgrades after earlier questioning their levels of Government support. The international ratings agency affirmed the "AA" ratings today of Mubadala Development, the International Petroleum Investment Company (IPIC) and the Tourism Development and Investment Company (TDIC) and gave them a stable outlook, citing their close government ties and strategic importance in the emirate's long-range development plans.
The companies, all of which are owned by the Government, had been placed on watch for a possible downgrade last month after the agency decided to rethink the way it evaluates the financial health of state-owned companies following the global financial crisis. S&P had also placed Aldar Properties on watch for a downgrade but it has not yet revealed the results of that review. "We anticipate that downgrades of between one and two notches may occur on these four entities within a month," S&P said at the time.
But the agency has decided to affirm the companies' ratings, putting them on par with ratings assigned to the Abu Dhabi Government. Mubadala is a strategic investment company that has stakes in a wide range of regional and international companies, including the car maker Ferrari, the US microchip maker American Micro Devices and Aldar. IPIC has investments in energy companies across the globe, and TDIC is one of the capital's largest property developers.
Credit ratings bestowed on companies and governments by the three major agencies - S&P, Moody's Investors Service and Fitch Ratings - are important because they influence investor perceptions and can affect interest rates on borrowings. "Although the government does not formally guarantee the [companies'] liabilities, we equalise the ratings on the three entities with those on the government of Abu Dhabi," S&P said.
"This assessment is based on what we believe is the companies' critical role for Abu Dhabi's official long-term development and economic diversification strategies and our view of an integral link with the Government. Accordingly, we consider that extraordinary government support in times of financial stress is almost certain." Moritz Kraemer, an S&P credit analyst, pointed to a statement made by the Abu Dhabi Department of Finance expressing the full backing of the Government for Mubadala, IPIC and TDIC as evidence of the companies' solid support. All three ratings agencies have downgraded companies in the UAE during the past two years as a response to strained investor appetite, shakier balance sheets and growing fears of debt defaults.
But most of the downgrades have been of companies based in Dubai, which is in the throes of a well-publicised battle with debt estimated by the IMF at US$109 billion (Dh400.36bn). Dubai World, one of the emirate's three large government-owned holding companies, is in the middle of a $24.8bn debt restructuring. afitch@thenational.ae