National Central Cooling 'BBB-' long-term issuer rating and Tabreed debt ratings on watch neg

At the same time, it also placed on CreditWatch with negative implications our 'BBB-' debt rating on the senior secured sukuk certificates due 2011 issued by Tabreed 06 Financing Corp. and our 'BB' debt rating on the subordinated convertible sukuk certificates due 2011 issued by Tabreed 08 Financing Corp.

"The CreditWatch placement follows Tabreed's announcement of its intention to implement a new business model under which the company may create a new asset holding company and divest existing and future assets into joint ventures," said Standard & Poor's credit analyst Karim Nassif.

In addition, the company has presented revised financial forecasts that anticipate, among other things, a significant increase in the future capital expenditure program.

At present, uncertainty remains regarding the form, scale, and timing of the implementation of the new business structure. Still unclear are the funding and level of any Tabreed investments in joint ventures as well as which assets would be transferred and at what value. We consider that there could be a negative impact on short-term cash flow, partly reflecting increased capital expenditure, or higher levels of outstanding debt than previously considered within the rating category, which could adversely affect the company's ability to generate positive free cash flows by 2010.

Furthermore, we would need to consider the potential reduction in the credit quality of the cash flows available to Tabreed if, for example, it became dependent on dividend distributions from joint ventures to service its debt. On the other hand, the potential realization of significant sales proceeds may create some upside to the company's future financial profile, but it is difficult to consider this at this stage.

To resolve the CreditWatch status, Standard & Poor's will meet with management over the next several weeks to discuss the likely development of the new business model and to gain a greater understanding of the revised forecasts and the reasons for changes to the base case presented previously.

In March 2008, Mubadala Development Co. (a wholly owned investment vehicle of the Abu Dhabi state) increased its equity ownership in Tabreed to 14% from less than 10% and has also increased its influence on the company's board. Our current ratings approach is to consider Tabreed on a stand-alone basis; no notching for government support is applied to the rating, although we continue to monitor the development and relationship between Mubadala and Tabreed and any impact this would have in terms of government support for Tabreed.