Moody's publishes updated analysis report on TAQA

According to the report, the company's Aa2 ratings remain firmly supported by its close association with the government of Abu Dhabi and its role in building an international energy operating company on behalf of the government, despite rising leverage on the back of recent acquisitions. The outlook remains stable.

"When we first rated TAQA in October 2006, it was the holding company for Abu Dhabi's power and water projects. Today, it has nearly doubled its assets and revenues through international acquisitions under the strategic guidance of the Abu Dhabi government", says Philipp Lotter, lead analyst for TAQA and Senior Credit Officer at Moody's Middle East Limited in Dubai (DIFC).

"This has come at the expense of significant financial leverage, which constrains the company's fundamental credit profile, though offset by high government support. Accordingly, TAQA's ratings are tied to Abu Dhabi's sovereign ratings", Lotter adds.

Moody's report identifies that TAQA has made a total of seven acquisitions over the last 18 months for in excess of $10bn, making it the largest rated borrower from the Gulf Co-operation Council (GCC) region.

This has also broadened its footprint into new energy markets in Europe, India, Africa and North America, with non-UAE revenues now constituting 43% of total 2007 revenues. Whilst commensurate with its strategy, these acquisitions have added to TAQA's business risk, although this is somewhat mitigated by the good track record to date in integrating its acquisitions and retaining key staff.

The report also highlights TAQA's rising leverage as a constraining rating factor, and provides certain financial parameters that -- if achieved -- could result in improvements to its fundamental credit profile, including extending some of its short term debt facilities and thus improving liquidity. Moody's views TAQA as a highly strategic enterprise to Abu Dhabi's government and its long-term policy of diversifying its economy.

Accordingly, TAQA plays a key role as the government's international investment company in the energy sector, and as a flagship model multinational company from Abu Dhabi. This provides the company with significant ratings uplift, as Moody's assumes that the government would provide exceptional support to TAQA under any unforeseen circumstances. The report therefore highlights that TAQA's ratings remain tied to Abu Dhabi's Aa2 sovereign ratings, assuming that its strategic status is preserved and the government's ownership in TAQA remains at its current 75%.

TAQA was established in 2005 as the government-controlled entity tasked with holding the majority of the Abu Dhabi state's power generation and water desalination plants, and to establish Abu Dhabi's footprint in the energy sector internationally. The company is 75.1% indirectly owned by the government of Abu Dhabi.