Abu Dhabi National Energy Company, known as Taqa, is seeking to raise US$3 billion to refinance some of its maturing debt, according to banks involved in the deal.
The company, which primarily focuses on energy investments outside of the UAE, has been struggling under the weight of a heavy debt load at a time when its asset base has been weakened by write-offs related to bad investments and lower oil and gas prices. Moody’s Investors Service, which this week downgraded Taqa’s “baseline credit assessment”, noted that Taqa was “thinly capitalised relative to its reported debt of Dh74.4 billion and relative to its cash flows”.
The Moody’s analyst Julien Haddad said that about Dh2.2bn of Taqa’s outstanding bank loans were maturing in the next 12 months. More than $2bn worth of bonds will also come due before the end of 2017.
But despite its weakening underlying credit rating, Taqa has the implied backing of the Abu Dhabi government, whose entities own most Taqa’s shares. About $8.4bn of Taqa debt is rated A3, which is investment grade and the same designation given to the emirate.
Ali Soner Guney, a fixed income fund manager at National Bank of Abu Dhabi, said Taqa can get favourable rates in the market because of the government backing, the relative rarity of Abu Dhabi sovereign debt in the market and an abundance of investment money looking for such solid investments.
Nevertheless, Taqa’s recent financial woes means that it does pay more than other Abu Dhabi government-related entities, such as International Petroleum Investment (Ipic) or Mubadala Development.
For example, Taqa bonds maturing in six years have yields of between 0.37 per cent and 1.59 per cent more than Ipic bonds with a similar maturity.
Taqa has lined up a syndicate of eight banks for its $3bn loan, according to bank sources.
It is looking to improve upon outstanding loans that pay 0.75 per cent to 1 per cent above the benchmark London interbank offered rate.
Bank of Tokyo-Mitsubishi and National Bank of Abu Dhabi are leading the syndicate.
In its assessment this week, Moody’s explained why the government backing for Taqa was crucial to its investment rating. “The government in the past transferred power-generating assets to Taqa, converted a non-interest paying shareholder loan into equity and is the assumed party in a recent transaction that effectively prevented Taqa from materially eroding its equity base,” it said.
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