Taqa cuts ties with S&P over changes to rating method

Abu Dhabi National Energy Company (Taqa) Wednesday said it had severed ties with the ratings agency Standard & Poor's (S&P) because of changes in the way the agency evaluates the creditworthiness of government-related companies. The change led S&P to put Taqa and Nakilat, a gas shipping company based in Qatar, on watch for possible ratings downgrades.

Taqa, which is majority-owned by the Abu Dhabi Government and has 27.95 per cent of its shares listed on the Abu Dhabi Securities Exchange, still holds an "Aa2" rating from Moody's Investor Services, one of the agency's strongest marks. Ratings affect the ease with which firms can borrow money and sell equity in the stock markets. Companies with high ratings are seen by banks and investors as less risky, leading to lower interest rates when they want to borrow and more interest in their stock.

"Following our review of the new methodology published by S&P on June 30, we do not believe these criteria will result in a rating that will accurately reflect the creditworthiness of Taqa," Peter Barker-Homek, Taqa's chief executive, said. "The underlying fundamentals of our business have not changed." S&P changed its ratings methods this week for government-related entities (GRE), or companies that have strong government links and can expect sovereign support in dire circumstances, such as a loan default.

According to an S&P report, the new method puts stronger emphasis on stand-alone credit ratings, or the ratings GREs would receive without any assumption of government support. "Overall, we estimate that between 10 per cent and 20 per cent of rated GREs are likely to be affected by the revised criteria," the S&P report said. "We expect the effect to be positive or negative depending on the individual situation of each GRE, and to be generally within one or two notches from the current rating."

S&P had previously evaluated government support largely on a case-by-case basis, giving companies ratings that fell between their stand-alone ratings and those of the government. The new method, Taqa said, did not take into account the fact that the company still enjoyed firm support from the Government. S&P confirmed Taqa's rating in May, and the Government's sovereign ratings have not moved since then.

"Taqa has not changed but S&P has," the company said. Farouk Soussa, head of government ratings at S&P in Dubai, said: "We have carried out a review of all GREs in the GCC region to determine the likely impact of our updated methodology on the ratings. "This review indicated that two entities were affected, which we placed on credit watch pending a full review of the likelihood of government support.

"The credit watch indicates that there was a risk of downgrade, but this is not a foregone conclusion and depends on the outcome of our review. No other GREs in the GCC region are affected." The change comes amid several downgrades of Gulf companies by S&P and other major ratings agencies. S&P yesterday downgraded Oman United Insurance to "BBB minus", its lowest investment-grade rating. On Tuesday, S&P gave Kuwait Projects a negative ratings outlook.

Also on Tuesday, the agency downgraded the ratings of three Dubai government-linked companies - DP World, Jebel Ali Free Zone, and Dubai Multi Commodities Centre Authority - while affirming the ratings of DIFC Investments. A few companies in the GCC have had their ratings lowered in the past year, but with most of them it was because they defaulted on loans, leading agencies to give them the lowest ratings.

Global Investment House, a Kuwaiti investment firm, in April dropped its rating after it failed to make payments on loans. @Email:[e-mail]