Fitch: Major SOE ratings still benefit from Abu Dhabi support

In particular, this policy clarifies how and when Abu Dhabi will guarantee the debt of state-linked companies. As these four companies already benefit from a strong implicit government guarantee, re-affirmed last year, resort to an explicit guarantee is not envisaged.

Fitch continues to apply its parent and subsidiary rating linkage methodology in rating these entities, as we understand that the implicit state support from the Emirate of Abu Dhabi has not changed from that previously announced. Fitch does not rate the fourth of the emirate's largest SOEs, Abu Dhabi National Energy Company PJSC (TAQA).

It emerged this week that the Abu Dhabi authorities had approved a new public debt policy which, amongst other things, formalises the mechanism whereby government debt guarantees are issued. Explicit guarantees granted on a case-by-case basis will need approval from the Executive Council.

Fitch's discussions Tuesday with the Debt Management Office (DMO) indicate that the four largest SOEs still benefit from the full and unconditional support of the Abu Dhabi government. It is therefore not envisaged that they will issue with a guarantee.

This is in line with a March 2010 statement by the Department of Finance, and consistent with the Government of Abu Dhabi's 13 January 2011 statement of support for its flagship SOEs, which said that "broad and ongoing support will be offered exclusively" to Mubadala, IPIC, TDIC and TAQA.

Fitch's ratings of Mubadala, IPIC and TDIC are equalised with Abu Dhabi's sovereign rating of 'AA', with a Stable Outlook.

Abu Dhabi already supports its SOEs through the budget, using shareholder loans and equity injections. On aggregate, these peaked at 12.6% of GDP in 2009, when the government chose to increase budgetary allocations to the SOEs for various investment programmes - as part of its counter-cyclical spending programme. Budget support fell to 8.4% of GDP in 2010, but rose again to 10.9% of GDP in 2011, reaching a record high of $24bn.

Ongoing and budgeted support of this magnitude puts the amortisation needs of SOEs/GREs in context. The DMO shows these peaking at USD14bn-15bn in 2012-2013 (but not all of this is external amortisation).