Fitch Ratings has affirmed Abu Dhabi-based International Petroleum Investment Company PJSC’s (IPIC) long-term local and foreign currency issuer default ratings (IDR) at AA and Short-term IDR at F1+. IPIC’s and IPIC GMTN limited’s foreign currency senior unsecured debt ratings have also been affirmed at AA. The outlook for the long-term IDRs is stable, in line with the outlook for the Emirate of Abu Dhabi (AA/stable/F1+).
IPIC’s ratings are aligned with Abu Dhabi’s sovereign ratings under Fitch’s parent and subsidiary rating linkage methodology. Fitch considers IPIC to be a strategic asset to the government in its role as an investment vehicle for the state in the domestic and foreign hydrocarbon and petrochemical sectors. Any change to Abu Dhabi’s sovereign ratings is highly likely to result in a similar change to IPIC’s ratings.
Negative rating action could occur if IPIC fails to maintain a ratio of total portfolio value to total net borrowings of more than 1.5x at the IPIC parent company level. The ratio was 1.9x as of December 2011. Fitch currently views this coverage ratio as being satisfactory for an investment-grade (IG) rating given IPIC’s profile, but low versus IG investment holding companies in general.
The ratings could change if IPIC embarks on a fundamental deviation from its core energy investment mandate with or without the support or involvement of the government. A material deviation away from core investments in energy-related sectors that is greater than 20% of the total group portfolio value would lead Fitch to re-evaluate the ratings.
IPIC’s standalone credit profile, based on its relatively weak credit ratios compared with other investment holding companies, is assessed in the ‘BB’ rating category. In 2011, IPIC’s parent level debt almost doubled to $19.2billion mainly due to the Compania Espanola De Petroleos, S.A. (CEPSA) acquisition. This resulted in a weakening of the company’s total portfolio value to total net borrowings ratio to 1.9x in 2011 from 2.7x in 2010. IPIC’s parent company dividend and interest income to interest expense ratio was a low 1.3x in 2011.
IPIC’s debt accounted for 9% of Abu Dhabi’s GDP in 2011. IPIC’s 95%-owned subsidiary, Aabar Investments PJS, investing in the non-hydrocarbon sectors, had debt of $9.7billion at YE11 or 4% of Abu Dhabi’s GDP. Aabar’s debt is non-recourse to IPIC.
Fitch believes IPIC’s liquidity is presently limited, and estimates there is around $1.3bilion of available cash at the parent company level versus 2012 debt maturities of $1.5billion (excluding about $1.4billion of on deman borrowings that can be called by lenders at any time). IPIC’s debt maturities of $3.1billion in 2013 remain challenging despite early repayment in May 2012 of Dh1.89billion (Dh0.5b) of two outstanding facilities which were each maturing in 2013. IPIC also refinanced certain parent-level bank syndicate credit facilities in March 2012. An onerous repayment schedule could put negative pressure on the company’s liquidity.
Fitch understands that most of IPIC’s short-term debt is related to the Abu Dhabi Crude Oil Pipeline (ADCOP) project (related debt of $2.9b). IPIC intends to repay a material portion of this debt maturing over 2012 and 2013 by realising value of the ADCOP project, either through government or commercial channels. IPIC has invested approximately $4billion in the project, which became operational in July 2012.
IPIC’s state-owned enterprise status means it enjoys ready market access. Fitch expects it to be able to refinance its obligations on international capital markets. International and domestic bank relationships also appear strong.
IPIC was established in 1984 as the emirate’s flagship hydrocarbon development company. In 1986, IPIC became wholly-owned by the Government of Abu Dhabi. IPIC’s mandate is to invest in the hydrocarbons and related sectors both domestically and outside Abu Dhabi. Other parts of this mandate include managing key domestic projects that are considered important to national security and fulfilling a quasi-diplomatic role by acting as the government’s emissary by focusing on investments that are geared toward building and solidifying state-to-state relations.