Fitch affirms EMAL's Series A & B bonds 'A-' expected ratings

EMAL, a joint venture between Mubadala and Dubai Aluminium, is developing a 700,000 tonnes per annum aluminium smelter and an associated 2,000 MW power plant near Abu Dhabi.

Fitch has assessed the impact of recent significant project cost increases to be neutral to bondholders, as these costs will ultimately be funded from equity. Fitch believes the project's low average break even cost of $1,300/tonne of aluminium, combined with the financial strength of EMAL's two shareholders, justify the 'A-' (A minus) ratings.

Forecast project capital costs have increased from $5,634m to $6,095m, principally due to a combination of adverse foreign exchange movements, bringing forward the implementation of the operational team and certain increases in capital equipment costs. At the same time, the project is still on schedule for first metal production in April 2010 and commissioning of the final pot in December 2010. Good progress appears to have been made on the construction of the permanent port facilities.

Fitch has been informed by EMAL that the cost increases are likely to be met by drawing up to $200m of additional bank debt, as permitted in the financing structure of the project and by additional sponsor-backed funding. Total bank debt would then be reduced on the completion of phase one construction, as required in the financing structure, to ensure that the project retains an average break even cost of $1,300/tonne of aluminium, which is in the lowest quartile of aluminium producers globally.

Fitch will continue to monitor the EMAL project budget and the progress of the construction schedule. The revised presale report will shortly be available on the agency's subscription website.