Standard & Poor's Ratings Services said today it assigned its 'AA' senior unsecured debt rating to the Emirate of Abu Dhabi's (AA/Stable/A-1+) inaugural US$1 billion bond maturing in August 2012.
"The ratings on Abu Dhabi are supported by the government's very strong asset position, providing significant financial flexibility, and by the country's high level of stability and wealth underpinned by its rich resource endowment," said Standard & Poor's credit analyst Luc Marchand. "The ratings are constrained primarily by the geopolitical risks facing all sovereigns in the region."
With no direct debt prior to the current bond offering, the government net asset position is estimated by Standard & Poor's to be in excess of 200% of GDP in 2007, one the highest among rated sovereigns. On the back of rising oil and investment income, which dominate government revenues, the Emirate's budget has shown exceptionally large surpluses of up to 50% of GDP over the past few years and is expected to continue doing so in the medium term. Nevertheless, public finance data is less transparent in Abu Dhabi than in other 'AA' category sovereigns.
The country's high level of stability and wealth level is underpinned by its abundant oil and gas reserves with low production costs. Manufacturing and tourism will increasingly complement the dominant hydrocarbons sector, while the government downsizes and looks to the private sector to create jobs for Abu Dhabi nationals.
The ratings on Abu Dhabi remain constrained by its exposure to event risk such as a sharp escalation in hostilities between Iran and the West, or terrorist attacks. Event risk, however, is not expected to threaten political or social stability, and Abu Dhabi is capable of weathering related potential costs through existing government assets.
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