London: 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 ratings are aligned with those of its parent, the Government of the Emirate of Abu Dhabi (AA/Stable) under Fitch’s parent and subsidiary linkage methodology. This reflects our view that sovereign-owned IPIC is of strategic importance to the government in its role as an investment vehicle for the state, primarily in the domestic and foreign hydrocarbon and petrochemical sectors.
The members of IPIC’s board of directors are appointed by the government and the company owns and manages infrastructure projects and investments central to Abu Dhabi’s strategy in the energy sector. Those include the 1.5m bpd Abu Dhabi Crude Oil Pipeline (ADCOP) commissioned in 2012, and the 200kbpd Fujairah refinery expected to start up in 2019. Both aim to provide complementary benefits and flexibility to Abu Dhabi’s oil production. IPIC is also involved in the construction of the 230kbpd Duqm refinery in Oman, a 1.2bn SCF per day LNG terminal in Fujairah, and the Tacaamol project with an aromatics production capacity of 2.1mtpa.
Although the group’s debt does not benefit from state guarantees or cross-default clauses, tangible support has been offered in the past in the form of equity injections.
IPIC’s standalone credit profile maps to a rating in the ‘BB’ category based on Fitch’s “Rating Investment Holding Companies” criteria. This is supported by the implied average rating of the subordinated dividend income from its main investments, albeit with some concentration risk. The group fully owns CEPSA (primary source of dividends) and Nova Chemicals (BB+/Positive), and holds stakes in Borealis (73% indirect stake), OMV (A-/Stable, 24.9%), Cosmo Oil (20.8%) and EDP Portugal (BBB-/Stable, 4.1%).
Other positive factors include the dividend stream stability, and a clear and successful investment policy. Constraints on the standalone rating include the weak but improving leverage, coverage ratios and liquidity.
A change to the sovereign ratings of Abu Dhabi would be highly likely to result in a similar change to IPIC’s ratings, as their ratings are aligned under Fitch’s parent and subsidiary rating methodology. Sovereign rating action could occur due to a sustained period of sharply lower oil prices that materially erodes fiscal and external buffers, coupled with the crystallisation of significant contingent liabilities or due to a spillover from a regional geopolitical shock that impacts economic, social or political stability.
Negative rating action could occur if IPIC fails to maintain a ratio of total assets to total borrowings of more than 1.5x at the IPIC level. The ratio was around 2.4x as of 2013, up slightly from 2.1x in 2012. Fitch currently views this coverage ratio as being satisfactory for the current rating.
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 review the ratings
IPIC’s liquidity profile has improved substantially with the introduction of a USD2b unsecured revolving credit line maturing in 2019. In 1Q14, the company used the RCF to temporarily bridge USD170m and EUR505m debt approaching maturity. IPIC has received around USD4bn in advance payments for the sale of the ADCOP pipeline to ADNOC and thus far, the proceeds were used to pay down debt with an improvement in the dividend to gross interest ratio to 1.2x (0.9x in 2012) at the parent company level.