ABU DHABI ( Dow Jones)--Abu Dhabi may soon find it has to pay more to finance its $100 billion investment drive as the oil (more)
Sunday, Dec 13, 2009
ABU DHABI ( Dow Jones)--Abu Dhabi may soon find it has to pay more to finance its $100 billion investment drive as the oil-rich emirate comes under increased scrutiny from investors questioning the terms of support between Arab Gulf governments and their companies.
"The Dubai World Dubai World situation has called the concept of implied government support into question, and ratings agencies will review companies in the U.A.E.--and probably in the region--for standalone ratings," said Abdul Kadir Hussain, chief executive of Dubai-based Mashreq Capital.
Moody's Investor Services last week placed the debt ratings of six highp-rofile Abu Dhabi government investment firms on review for possible downgrade, citing a need to "revalidate and possibly reconsider" assumptions of government support in Abu Dhabi and Dubai after Dubai World Dubai World 's call for restructuring.
Dubai government-owned Dubai World Dubai World is talking to creditors about restructuring $26 billion of debt, which includes a $3.52 billion Islamic bond issued by its property arm Nakheel that is due Dec. 14.
"If Dubai World Dubai World defaults, it will be close to impossible for U.A.E.-based government related entities to access funding from international financial institutions," Hani Sabra, an associate at Eurasia Group, the New York-based political risk consultancy said in a note earlier this week.
Among companies placed on review by Moody's are Abu Dhabi National Energy Co. Abu Dhabi National Energy Co. , or Taqa Taqa , Mubadala Development Co. Mubadala Development Co. , International Petroleum Investment Co. International Petroleum Investment Co. , or IPIC IPIC , and Tourism Development and Investment Co. Tourism Development and Investment Co. , or TDIC TDIC .
The firms oversee some of the emirate's most prized projects and assets, ranging from stakes in carmakers and chemical companies to a Formula One track and the region's longest submarine gas pipeline. Abu Dhabi plans to spend at least $100 billion in coming years on further diversifying the local economy by investing in key sectors such as chemicals, steel, aluminum, aviation and tourism.
"It will be more expensive, at least in the short term, for these companies to go out and borrow on a stand-alone basis. They will clearly have to start factoring in potentially an additional cost of borrowing," Hussain said.
GUARANTEES
Companies fully-owned by the Abu Dhabi government raised about $9 billion in bonds and loans on international markets this year, with the government itself raising $3 billion in April as part of a $10 billion sovereign bond program, according to Fitch Ratings. Fitch rates Mubadala Mubadala , IPIC IPIC and TDIC TDIC equivalent to Abu Dhabi's sovereign 'AA' stable rating.
"Abu Dhabi hasn't issued guarantees to any of these entities but it has delineated much more clearly than Dubai which entities it considers as 'core'," Fitch analysts Charles Seville and Richard Fox said in a note last week.
With one of the strongest rated balance sheets and about 8% of the world's oil reserves, Abu Dhabi is better placed to support its state-owned companies, Fitch said. The emirate has sovereign external assets of over 200% of gross domestic product, compared to public-sector debt of 17% to GDP, according to the agency.
TDIC TDIC , which has a project portfolio worth at least $33 billion, said Moody's action addressed "a broader class of 'government related issuers' which may not have government linkages comparable to those of TDIC TDIC ."
Moody's latest move may still turn up the pressure on the Abu Dhabi government to help resolve Dubai's debt woes. Abu Dhabi has largely remained silent on the issue.
"With each passing day, Abu Dhabi is also likely getting warier of the impact the crisis is having on the U.A.E. as a whole," Eurasia's Sabra said.
Abu Dhabi's stock market has already shed some 10% of its value since Dubai World Dubai World 's Nov. 25 announcement.
"The possibility of key government entities such as Mubadala Mubadala having their ratings cut may exacerbate the need for the Abu Dhabi authorities to step in with the appropriate action to prevent a wholesale downgrade of their highp-rofile companies," said one banker.
-By Nour Malas, Dow Jones Newswires, +97150 2890223 nour.malas@dowjones.com
Copyright (c) 2009 Dow Jones & Co.
(END) Dow Jones Newswires
13-12-09 1250GMT
