"The ratings on Mubadala, the Abu Dhabi government's principle vehicle for diversifying the local economy away from hydrocarbon revenues, are based on an equalization with the ratings of the Emirate of Abu Dhabi (AA/Stable/A-1+),"
said Standard & Poor's credit analyst Farouk Soussa.
"This reflects our view that, as per our enhanced criteria for rating government-related entities (GREs), the economic role played by Mubadala is 'critical' to the government of Abu Dhabi, and the link between the company and the government is 'integral' Thus, our assessment is that extraordinary support from the government of Abu Dhabi in the event of financial distress at Mubadala is 'almost certain'," he added.
"Mubadala's stand-alone credit risk profile is constrained by considerable risks in project execution, investment, and operational risks arising from the rapid rate of expansion, soft local real estate markets, and the risk of a protracted weak business environment in the Gulf Cooperation Council over the longer term," Mr. Soussa said.
This is balanced by the ample and stable access to equity capital from the government, other strong ongoing business support from the Abu Dhabi government (for example, land grants and project sourcing), and the benefits from an increasingly diversified and growing business portfolio.
Although Mubadala's cash flow generation is currently relatively weak and it faces significant funding needs as it implements its ambitious investment plan over the coming years, we do not expect the group to struggle to raise capital, thanks to its government shareholder. According to the company, the government has already approved up to UAE Dhs21bn to be paid to Mubadala in government contributions for 2009. This, combined with several successful capital markets transactions, will be more than sufficient to cover any cash flow deficits in our view.
"The stable outlook reflects the stable outlook on the ratings on the Emirate of Abu Dhabi, and our expectation that we will continue to equalize the ratings on Mubadala with that of the emirate," Mr. Soussa added. This reflects our view that Mubadala's role to the government will remain critical, and that the links with the government will not weaken. Changes in the rating on Abu Dhabi will result in an equivalent change to the ratings on Mubadala.