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PROJECT FINANCE/PUBLIC-PRIVATE PARTNERSHIPS
Publication Date:
Sept. 28, 2007
Issuer Credit Rating:
AA-/Stable/A-1+
Primary Credit Analyst:
Jonathan Manley,
London,
(44) 20-7176-3952
Secondary Credit Analysts:
Karim Nassif,
London,
(44) 20-7176-3677
Luc Marchand,
London,
(44) 20-7176-7111
Lidia Polakovic,
London,
(44) 20-7176-3985
132 ■ NOVEMBER 2007
ABU DHABI NATIONAL ENERGY COMPANY PJSC
Rationale
On Sept. 28, 2007, Standard & Poor’s Ratings
Services affirmed its ‘AA-‘ long-term and ‘A-1+’
short-term corporate credit ratings on Abu Dhabi
National Energy Company PJSC (TAQA)
following TAQA’s announcement of its intention,
subject to various regulatory and administrative
approvals, to acquire Canada-based PrimeWest
Energy Trust for approximately C$5 billion,
funded primarily by debt.
The affirmation reflects our expectation of
ongoing implicit sovereign support for TAQA
given the company’s importance to the Emirate of
Abu Dhabi (AA/Stable/A-1+) and its status as a
government-related entity (GRE). The ratings
continue to be based on a “top-down” rating
approach, which takes the sovereign rating as the
starting point of the analysis, reflecting the
company’s position as a key entity in Abu Dhabi’s
economy and its importance as a national vehicle
for global investment and public policy.
Following the PrimeWest acquisition, up to onehalf
of the company’s forecast EBITDA will likely
be generated outside of the United Arab Emirates
(UAE). This is consistent with the company’s
originally stated investment policy to undertake
international infrastructure investments. Our
opinion remains that, in a financial stress
scenario, unlike the company’s UAE-based assets
that are, for example, critical to the provision of
water and power to the Emirate, non-UAE
activities may not receive the same level and
timeliness of sovereign financial support.
In respect of this specific acquisition, however,
Standard & Poor’s has analyzed the extent and
timing of support that could be forthcoming in
the event of a stress scenario. In this case, we
understand that it is the Emirate’s intention to
treat these non-UAE assets in the same manner as
those in the UAE. In addition, the Emirate’s
review of all acquisitions (including that proposed
for PrimeWest) and the proposed corporate
structure of the acquisition within the overall
TAQA group of companies further substantiate
the sovereign’s likely support for these assets. No
explicit guarantee has been provided, however.
Including the PrimeWest acquisition, TAQA has
committed nearly $10 billion in the acquisition of
various energy-related assets outside the UAE in
the past 12 months. The acquisitions have been
broadly consistent with the investment framework
originally set out by management, although both
the pace of the acquisitions and the level of
STANDARD & POOR’S EUROPEAN INFRASTRUCTURE FINANCE YEARBOOK
investment in Canadian assets have been greater
than originally planned. We estimate that the
investments acquired to date are likely to be of
low investment-grade/high speculative-grade
credit quality on a stand-alone basis. A key
challenge for TAQA remains the successful
integration and realization of anticipated returns
from these various acquisitions. As a result of this
debt-financed investment activity, TAQA’s
financial profile is very aggressive, characterized
by high leverage and relatively low interest
coverage levels. Standard & Poor’s will
increasingly focus on the credit quality of the
underlying investment portfolio and the strength
of the relationship with the sovereign as critical
elements driving the ratings. Investment in weaker
credit quality assets, for example, increases the
likelihood that sovereign financial support will be
called on. Standard & Poor’s will meet with
management and Emirate representatives in the
next month to discuss the future investment
strategy and the potential parameters and method
by which sovereign support can be given to
the company.
Liquidity
TAQA’s liquidity derives from its above-average
UAE dirham 6.239 billion ($1.7 billion; as at June
30, 2007, prior to the execution of recent
acquisitions) cash balance invested in various
short-term deposits. The company also has an
established $1 billion revolving credit facility
from a domestic bank.
Outlook
The stable outlook reflects Standard & Poor’s
expectation that there will be no major changes in
the implicit government support to the company
as a GRE. This implies that the state will support
TAQA in the event of financial distress should
existing or future investments not perform in line
with expectations. The outlook also assumes that
the company will execute its business plan
successfully and meet its financial forecasts.
The rating would be raised, or the outlook
revised to positive, if there is a similar change in
the rating or outlook on the sovereign, or in the
case of enhanced sovereign support. The rating
would be lowered, or the outlook revised to
negative, if there is any weakening of sovereign
support for the company or if the underlying
consolidated credit quality of the investment
portfolio reduces. ■