RAM Ratings has reaffirmed the long-term rating of Abu Dhabi National Energy Company PJSC's ("TAQA") Sukuk Murabahah Programme of up to RM3.5 billion in nominal value (2012/2032) at AA1, with a stable outlook. TAQA is a state-held vehicle of the Government of Abu Dhabi ("GoAD"), with a mandate to own the majority of the critical power and water ("P&W") assets in Abu Dhabi. TAQA is also an international energy and oil and gas ("O&G") player.
Based on RAM's methodology on government-linked entities, the AA1 rating is primarily anchored by the very high likelihood of extraordinary support from the GoAD in the event of TAQA's financial distress, as implied by 2 public expressions of support for its debts by the Department of Finance. TAQA plays a highly strategic role as the primary producer of electricity and water in Abu Dhabi, with interest in over 95% of Abu Dhabi's P&W capacities. The GoAD has been demonstrating its support via the transfer of P&W assets and a capital infusion of AED2.7 billion in 2008.
TAQA derives stable cashflow and earnings from its P&W division, which contributed 49% of its operating profit in 9M FY Dec 2012. Its domestic P&W operations and most of its foreign power businesses earn fixed capacity payments based on availability. We note that TAQA's P&W assets have healthy operational track records.
On the other hand, TAQA has embarked on an unexpected, ambitious expansion scheme. Following this, TAQA's adjusted debt (which includes operating lease commitments and O&G asset retirement obligations) is projected to peak at around AED93 billion in the next 3 financial years. As such, its average adjusted gearing ratio and adjusted funds from operations debt coverage ratio are projected to deteriorate to 6.85 times and 0.15 times, respectively, between fiscal 2013 and 2015 (previous expectation: 6.67 and 0.16 times).
The performance of TAQA's O&G operations is influenced by the price volatility of crude oil and natural gas. TAQA also needs to consistently incur hefty capital expenditure to replenish its relatively limited reserves and finance its development projects. In 9M FY Dec 2012, the O&G division accounted for 51% of TAQA's operating profit, supported by favourable global crude-oil prices. We note that this was despite the deeper losses of its North American operations amid subdued prices of natural gas in that region.
Notably, TAQA has had a generous dividend program of about AED600 million of annual payout to its shareholders. Combining this with the distributions to the minority holders of its power and water assets in United Arab Emirates, a total of about AED1.0 billion of annual cash payment was distributed out of the consolidated entity since fiscal 2009. As such trend is expected to continue in the next 3 years, the Group's shareholders' funds is envisaged to remain stagnated, leading to a high gearing ratio on the back of a substantial debt load.
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