Fitch Ratings has affirmed Mubadala Development Company PJSC’s (Mubadala) long-term issuer default rating (IDR) and senior unsecured rating at AA. The Abu Dhabi-based diversified development and investment group’s Short-term IDR has been affirmed at ‘F1+’.
The outlook for the long-term IDR is stable. Mubadala Development Company -GMTN B.V.’s (MDC) global medium-term note (GMTN) programme with $3.932billion of notes outstanding and MDC’s euro commercial paper programme (ECP) has also been affirmed at ‘AA’ and ‘F1+’ respectively.
The agency continues to apply its parent and subsidiary rating linkage methodology in rating Mubadala, as it believes that a strong relationship exists between the company and the Emirate of Abu Dhabi (Abu Dhabi; ‘AA’/Stable). As such, Mubadala’s rating is aligned with Abu Dhabi’s sovereign rating.
“The Government of Abu Dhabi’s announcement of 13 January 2011 made a forceful statement of support for its flagship sovereign-owned entities, stating that ‘broad and ongoing support will be offered exclusively’, namely to Mubadala, International Petroleum Investment Company and Tourism Development & Investment Company, all of which are rated the same as the sovereign, and Taqa, which is not rated,” Bashar Al Natoor, Director in Fitch’s EMEA Corporates team in Dubai, said.
“However, ratings that factor in implicit state support will always be subject to the very real event risk of changes in political approach by the sovereign,” Al Natoor, added.
As of 31 December 2010, the company had received additional shareholder contributions from the government totalling Dh61.1billion and the government has approved further additional shareholder contributions of up to Dh37.8billion in 2011, of which Dh16.4billion had been received as at 30 June 2011. A change in Abu Dhabi’s ratings would result in a change of Mubadala’s ratings. Also any change in Mubadala’s implied support, commitment from, and ownership by the government could have negative rating implications for Mubadala.
On 16 February 2011 Mubadala announced that Advanced Technology Investment Company (ATIC; not rated) had become a wholly-owned business of Mubadala effective from 1 January 2011. The agency believes that the deal has no implications for Mubadala’s implied support, commitment from, and ownership by the state of Abu Dhabi.
ATIC’s contribution as at 30 June 2011 was Dh21 billion, which was accounted for as an additional shareholder contribution.
Mubadala anticipates that it will continue to make significant capital and investment expenditures in future years. Mubadlala intends to fund its future capital and investment expenditures and its financial obligations through capital contributions from the government and borrowings from third parties. Fitch notes that Mubadala’s internally generated cash flow continue to be limited, and accordingly is currently reliant on the government for a major part of its funding.
MDC has been established as a special purpose vehicle for the sole purpose of issuing notes under the GMTN programme. The GMTN programme’s rating is in line with Mubadala’s IDR and senior unsecured rating of ‘AA’. The notes are unconditionally and irrevocably guaranteed by Mubadala. The obligations under the guarantee will be Mubadala’s direct, unconditional, unsubordinated and unsecured obligations and will rank equally with all other unsecured obligations.
Mubadala’s 100% state ownership status is mandated by law and unlikely to change. It can only be dissolved after 2052, 50 years from its formation, by Emiri decree, or if its mandate is deemed complete. Established in 2002 through Emiri Decree No. 12, Mubadala is Abu Dhabi’s primary business development company. It has a mandate from the government to drive economic diversification to improve social development and build wealth for future generations. Mubadala’s mission, as set forth by the government, is to achieve commercial returns while advancing the government’s broader policy aims, including building Abu Dhabi’s new economy, and improving the quality of life for the people of Abu Dhabi. Five members of the Abu Dhabi Executive Council sit on the company’s board, the most prominent of whom is the Chairman His Highness Sheikh Mohammed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi.