Mar 19 2013
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RAM Ratings reaffirms AA1 rating of TAQA's sukuk
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.
Meanwhile, TAQA 's foreign investments are vulnerable to potential regulatory changes as the power and O&G sectors are heavily regulated. The Middle East and North Africa also face persistent geopolitical risk; TAQA 's recent venture into Iraq heightens its exposure to such risk, and any political conflict could cause operational disruptions to its assets.
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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