Moody's Investors Service has today assigned long-term local and foreign currency issuer ratings of Aa2 to Mubadala Development Company PJSC (Mubadala), the corporate economic development arm of the Government of Abu Dhabi. The outlook for these ratings is stable. This is the first time that Moody's has assigned ratings to Mubadala.
"Despite having the legal status of a joint stock company, Mubadala's ownership structure, day-to-day management and strategic mandate resemble
that of a government development agency," says Tristan Cooper, Vice President -- Senior Analyst in the Sovereign Risk Group at Moody's Middle East Limited based in Dubai (DIFC). "Accordingly, Moody's views Mubadala as a quasi-sovereign issuer," Cooper adds.
With total assets in excess of USD 10 billion, Mubadala's most prominent investments include a 51% stake in Dolphin Energy, which produces and transports natural gas via pipeline from Qatar's North Field to the United Arab Emirates (UAE); a 50% stake in Emirates Aluminium Company (EMAL), which is presently building the world's largest aluminium smelter with an initial capacity of 700,000 tonnes per annum by 2010; and Masdar (Abu Dhabi Future Energy Company), a large-scale development centred around renewable energy that will include the world's first carbon-neutral city.
In addition to large-scale economic development projects, the company holds a growing portfolio of international financial investments, which include small stakes in Ferrari, The Carlyle Group and AMD. Mubadala has also been granted by the Government substantial plots of real estate in Abu Dhabi for future development.
"Abu Dhabi owns a number of entities whose primary role is to invest fiscal surpluses abroad, thus providing capital diversification to Abu Dhabi's economy," says Philipp Lotter, Senior Vice President in the Corporate Finance Group at Moody's Middle East Limited based in Dubai (DIFC). "By contrast, Mubadala's core mandate is to diversify Abu Dhabi's domestic economy by developing and facilitating new industries, thus giving it a predominantly domestic focus," Lotter adds.
Given Mubadala's development mandate, which often results in a longer-term view towards certain investments, and its status of being fully embedded in and integrated with the Government's economic policy, Moody's believes that a disaggregation of Mubadala's underlying corporate credit risk factors from its sovereign risk factors is artificial, as one is intricately linked to the other. Accordingly, Moody's views Mubadala as a quasi-sovereign issuer, rather than a sovereign-related issuer, whose ratings are directly aligned with the Aa2 ratings of the Abu Dhabi Government.
According to Moody's, important factors for Mubadala's ratings are the long-term stability both in Mubadala's ownership structure and in its government mandate, given the current early development nature of its business and financial profiles, which rely substantially on government funding and oversight. Although not anticipated, any gradual de-linkage of Mubadala from the Government would therefore result in a greater emphasis on stand-alone credit features, which are currently considerably weaker than the Aa2 assigned rating, but would be expected to change over the course of the years.
Mubadala is directly financed by the Government, which has provided substantial equity injections for all of the company's major investment projects. Mubadala's annual business plan is largely funded by the Government, and any substantial investments beyond the business plan have been approved and financed by the Government, and in some cases also government-initiated. Whilst some of Mubadala's projects have been financed by non-recourse debt, Moody's believes that government funds will continue to play a material role in the company's funding mix going forward.
Future investments are likely to continue to focus on Mubadala's core industries. Moody's expects Mubadala to accelerate its growth over the coming years from its current asset base of over USD10 billion, both from ongoing projects, as well as new acquisitions and ventures, with many originating from a recent framework agreement with General Electric (GE). Mubadala's main aerospace subsidiary, Abu Dhabi Aircraft Technologies, has also just entered into a major agreement with EADS, the maker of Airbus, for a range of services, maintenance and component production.
Mubadala Development Company PJSC (Mubadala) was established in 2002 by a Decree from the Emir of Abu Dhabi with the primary task of developing Abu Dhabi's economy from a largely hydrocarbon based to a diversified economy. It is 100%-owned by the Abu Dhabi Government (rated Aa2/Stable).
