Fitch Ratings has assigned Mubadala GE Capital Ltd (MGEC) Long- and Short-term Issuer Default Ratings (IDR) of ‘A’ and ‘F1’, respectively. The Outlook is Stable.
KEY RATING DRIVERS – IDRS
The IDRs reflect Fitch’s view of a strong capacity and propensity to support MGEC from its 50:50 co-owners, Mubadala Development Company PJSC (Mubadala; AA/Outlook Stable) and GE Capital Corporation (GECC), in case of need. As a result, MGEC’s IDRs are notched down by three levels from Mubadala’s Long-term IDR. Fitch’s view of GECC’s creditworthiness has also been strongly factored into MGEC’s Long-term IDR.
Mubadala is an investment and development company 100% owned by the Abu Dhabi government, established via Emiri decree with a mandate to diversify the Abu Dhabi economy, and active across multiple industries and geographies. Its own Long-term IDR is equalised with that of Abu Dhabi, reflecting in turn a high expectation of support being available for it from the government. GECC is a global leader in financial services, with a continued focus on core commercial finance business, in which it has a long and successful track record. Fitch’s view of the creditworthiness of GECC includes an acknowledgement that its business generates strong and resilient earnings.
Fitch regards MGEC as strategically important to both Mubadala and GECC. MGEC allows Mubadala to widen its activities to invest in commercial finance alongside an industry leader that is GECC, bringing with it staff development opportunities in financial services and prospectively diversifying its business portfolio with a new steady income stream. For GECC, MGEC brings a reliable commercial funding partner, enhancing its offering to borrowers, as well as its presence and profile in the UAE. This strategic importance is demonstrated by high-ranking members of both shareholder organisations serving on MGEC’s Board of Directors, by the redeployment of shareholder staff to senior management positions within MGEC, and by both shareholders’ names being prominently reflected in the joint venture’s own branding.
The standalone creditworthiness of MGEC is viewed by Fitch as significantly weaker than the support-driven Long-term IDRs, reflecting its still fairly short track record, limited size and asset diversification, and an appetite for leverage that may potentially be inconsistent with an ‘A’ rating, without factoring in support. However, a standalone assessment on MGEC is of limited value, in view of the role that it plays for both shareholders, with which it is highly integrated.
The Stable Outlook reflects Fitch’s expectation of a continued ability and propensity on the part of the shareholders to support MGEC for the foreseeable future.
RATING SENSITIVITIES – IDRS
Although not expected by Fitch, should either shareholder seek to dispose of its investment in MGEC, or evidence emerge of a disagreement between them as to the joint venture’s future strategy, or should there be any other developments that may cast doubt on the willingness or ability of one or both shareholders to provide support to MGEC, the ratings may be adversely affected.
Negative rating action may also be taken if MGEC becomes loss-making, thereby not delivering the return on investment envisaged by the shareholders, to the extent that this would impact the propensity of the shareholders to provide support, in case of need.
Positive rating action would most likely be driven by an improvement in Fitch’s assessment of the creditworthiness of the shareholders or by evidence of an even higher propensity of the shareholders to support MGEC, in case of need, than what has already been incorporated into MGEC’s ratings. Consistent profitable growth within MGEC, such as to render it a more significant proportion of the shareholders’ overall businesses could also be beneficial to ratings in the long term.