Standard & Poor’s Ratings Services affirmed its long- and short-term foreign and local currency issuer credit ratings on Mubadala Development Co. PJSC (Mubadala) at ‘AA/A-1+’. The outlook is stable.
The ratings on Mubadala, the Abu Dhabi government’s principal agent for diversifying the local economy away from hydrocarbon revenues, are based on an equalization with the ratings on the Emirate of Abu Dhabi (AA/Stable/A-1+). This reflects Standard & Poor’s view of an “almost certain” likelihood of extraordinary government support for Mubadala in the event of financial distress.
In accordance with our criteria for rating government-related entities (GREs), our view of an “almost certain” likelihood of extraordinary government support is based on our assessment of Mubadala’s: Critical role for the government and the economy of Abu Dhabi as the government’s key vehicle for business development and diversification of the economy; and
“Integral” link with the government, its 100% owner.
“Mubadala plays a critical role for Abu Dhabi’s economy by entering into strategic partnerships and investments across multiple sectors, with the stated goal of helping to diversify Abu Dhabi’s economy, strengthen its growth potential, and help the government to meet its socioeconomic targets as set out in its long-term plan “Abu Dhabi Vision 2030.” The operations of Mubadala and its subsidiaries encompass a wide range of activities, including semiconductors, energy, aluminum production, aerospace, education, financial services, health care, infrastructure, and real estate,” S&P in a statement said.
Mubadala’s link to the government of Abu Dhabi is integral, in our view. The chairman of the company is Sheikh Mohamed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi. Five of the seven board members are members of the Abu Dhabi Executive Council, the highest body in government. Members include H.E. Hamad Al Hurr Al Suwaidi, Chairman of the Department of Finance, who helps to ensure regular communication with, and oversight by, the emirate’s fiscal authority.
The government’s commitment to Mubadala is further underlined by a strong track record of ongoing government support. Since it began operations in 2004, Mubadala has received regular, sizable equity injections from the government to fund acquisitions and investments, as well as support such as land grants and project sourcing. At the end of 2011, cumulative government contributions amounted to United Arab Emirates (UAE) Dh 109.9 billion.
“We assess Mubadala’s stand-alone credit profile (SACP) as ‘bb’ based on our view of its “fair” business risk profile and “significant” financial risk profile. We believe that Mubadala’s SACP is constrained by considerable risks in project execution, investment, and operations arising from its rapid expansion into new business areas where it has limited experience,” S&P in a statement said.
The stable outlook reflects that on the Emirate of Abu Dhabi, and our expectation that we will continue to equalize the ratings on Mubadala with those on Abu Dhabi, owing to the “almost certain” likelihood of extraordinary government support. This reflects our view that Mubadala’s role for the government will remain critical and that its links with the government will not weaken. Changes to the ratings on Abu Dhabi will result in an equivalent change in the ratings on Mubadala. If we were to lower our assessment of the likelihood of extraordinary government support by one category to “extremely high,” which we currently do not foresee, we would lower the long-term rating on Mubadala by two notches.