Abu Dhabi National Energy Company, known as Taqa, said that it lost Dh19 billion last year as it realised losses on oil and gas assets, the value of which has plummeted in the last few years.
The company emphasised that the huge charge it took against the assets was a “one-time non-cash charge and has no impact on Taqa’s ability to meet its obligations”, although it also moved to shore up its balance sheet by taking title of land granted to it by its major shareholder, the Abu Dhabi Water and Electricity Authority.
The huge loss reflects deterioration in the value of some of its assets, mainly in North America, but also in Europe and Iraq, that the company had forestalled recognising in previous accounting periods by arranging for “a related party” – which Taqa has not confirmed the identity of – to agree to buy them at above-market prices at some future date.
This “put option” had allowed Taqa, under accounting rules, to value the assets on its books at well above their market value. Taqa has not exercised the option and has instead recognised the loss.
The oil price slump of the past two years “has forced many oil and gas companies around the world to reconsider their business models”, said Saeed Al Dhaheri, who took over as Taqa’s chief operating officer last summer. He added that “support from our shareholder” has meant the company has avoided any recapitalisation or dilution as it has dealt with a huge debt load and shrinking assets.
After stripping out the Dh16.9bn post-tax charge for the asset value loss, the company reported that it lost Dh2.1bn last year on revenue that was down 17 per cent at Dh16bn. Again, the core power and water business - which includes assets in North and West Africa, North America and a near-monopoly in Abu Dhabi – was solid, but oil and gas revenue fell both from declining oil prices and lower production as the company has sharply cut capital expenditure.
The auditor Ernst & Young noted that as of the end of last year, Taqa’s accumulated losses amounted to Dh2.8bn, while current liabilities exceeded its current assets by Dh413 million.
The auditor said that its “going concern” assumption – that Taqa will be able to meet its liabilities – was based on management’s estimate of future cashflows.
Taqa reported that free cash flow last year was up 25 per cent at Dh7.3bn as the company continued to cut deeply into operating and capital expenditures.
During the past two years, the company has cut more than 1,000 jobs, helping to reduce costs by a total Dh13.2bn, and cut capital spending by Dh8.6bn.
To shore up the balance sheet after the huge writedown, Taqa has taken title of land on its eight power and water sites in Abu Dhabi, which assessors valued at Dhs 18.7bn.
But as Alexandre Ayoub, the head of emerging markets research at Waha Capital in Abu Dhabi pointed out on Taqa’s conference call for analysts, there is no indication as to how the land assets might be able to produce cash to help Taqa reduce its debt burden. He also notes that it replaces the put option Taqa had in place, which although on assets that had declined in value were at least producing cashflow.
“That put used to give a lot of comfort to rating agencies and bondholders,” he noted.
Moody’s and Standard & Poor’s rate Taqa at investment grade - A3/A - based on an implied government guarantee, but have “shadow” ratings that assess its debt as speculative.
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