Fitch Ratings has upgraded Abu Dhabi National Energy Company PJSC's (TAQA) Long-Term Default Rating (IDR) and senior unsecured rating to 'AA' from 'AA-' and removed them from Under Criteria Observation (UCO). The Outlook on the IDR is Stable. A full list of rating actions is below.

The upgrade follows our reassessment of TAQA's links with Abu Dhabi (AA/Stable) under Fitch's updated Government-Related Entities (GRE) Rating Criteria. TAQA's ratings are now equalised with those of Abu Dhabi, as the new support score assumes 'Virtually Certain' support from the state, based on GRE Criteria definitions.

TAQA's Standalone Credit Profile (SCP) remains at 'bbb+', reflecting its dominant market position in Abu Dhabi. The vast majority of EBITDA is generated from regulated and quasi-regulated businesses, providing good revenue and cash flow visibility. We forecast negative free cash flow (FCF) in 2024-2027, due to high capex (majority discretionary) and dividends, eroding its headroom against our negative sensitivity for the SCP of 4.5x by 2026.


Ratings Equalised with Sovereign's: Under the revised criteria, we view decision-making and oversight, precedents of support and preservation of government policy role as 'Very Strong' and contagion risk as 'Strong'. This assessment results in a support score of 50 and TAQA's ratings being equalised with Abu Dhabi's.

Decision Making and Oversight: TAQA, which is 90.03% owned by Abu Dhabi's government through Abu Dhabi Developmental Holding Company PJSC (ADQ; AA/Stable), benefits from the government's strong oversight and strategic direction. TAQA's board has 11 members, and includes key government officials. TAQA's board chairman is also ADQ's CEO.

Through the board representation, ADQ provides oversight, control and monitoring of TAQA's strategic planning and finances. TAQA's board approves all major corporate decisions, including annual budgets, investments and M&A. Given its role as an integrated utility company, TAQA plays a pivotal role in developing highly strategic projects, also enabling Abu Dhabi to achieve its climate targets.

Precedent of Support: TAQA has a record of receiving government support in various forms including asset transfers, an equity injection and waiver of government loans (in 2014). In addition, TAQA has exclusive rights to participate in all future power and water generation projects in Abu Dhabi over the next 10 years with a minimum 40% equity stake.

Incentive to Support: We see no effective substitutes for TAQA given its role in the energy system of Abu Dhabi and we believe that a default would cause the loss of valuable assets for the government, providing the incentive for a rescue. The acquisition of Sustainable Water Solutions Holding Company (SWS) in 2024 and an equity stake in Abu Dhabi Future Energy Company PJSC (Masdar; A+/Stable) also reinforced TAQA's leading position as an integrated utility in Abu Dhabi. We see 'Strong' contagion risk as a TAQA default could affect the funding cost of other GREs.

Unchanged SCP: The SCP reflects TAQA's strong business risk profile with 46% and 38% of 2023 EBITDA generated from regulated and quasi-regulated businesses, respectively. It has a monopoly in the T&D in Abu Dhabi, and has a dominant position in power and water generation. TAQA has also an international power generation portfolio with a net capacity of (2.8GW). Exposure to the cyclical oil and gas (O&G) sector (21% of 2023 EBITDA) and core operations in a less developed regulatory framework compared with most western European ones affect its debt capacity on a standalone basis.

We expect the O&G contribution to total EBITDA to decrease to almost 9% by 2027 as a result of our forecast of lower oil prices, the absence of new expansion capex in the business plan, and the decommissioning of certain assets in the North Sea.

High Capex Drives Negative FCF: We forecast sharply higher capex mostly focused on T&D (51% of total capex), generation (29%), SWS (11%), and O&G (9%), for a total of AED58.2 billion in 2024-2027. We also expect TAQA to maintain a generous dividend policy. This will lead to cumulative negative FCF of AED21.3 billion in 2024-2027 and increase in net debt to AED93.5 billion in 2027 (from AED50.6 billion in 2023).

No Leverage Headroom: Our forecast includes a large amount of acquisitions and equity investments (mostly in Masdar) as TAQA increases spending to execute its 2030 plan. This, along with forecast negative FCF, will lift funds from operations (FFO) net leverage to 4.6x by 2027 (average 4.2x in 2024-2027), which is slightly above our negative rating sensitivity for its 'bbb+' SCP. Nevertheless, most of its capex and acquisitions remain largely uncommitted, giving TAQA flexibility over their implementation. TAQA's management has publicly committed to maintaining an investment-grade credit rating on standalone basis.

Ambitious 2030 Target: Following the acquisition of a stake in Masdar's renewable business, TAQA revised sharply upward its 2030 targets with a total investment plan of AED75 billion (AED40 billion on T&D and the remainder on generation), with more than 80% for energy transition. The target includes a net generation capacity of 50GW, with 50% from renewables, which will be executed through Masdar. We forecast total equity injections of AED12 billion from TAQA in Masdar in 2024-2027.

SWS Acquisition: In 2024, TAQA acquired SWS from Abu Dhabi Power Corporation for AED1.7 billion. SWS is responsible of wastewater networks (collection), treatment (through two plants), and reuse of water in Abu Dhabi. This fully regulated business is set to augment TAQA's regulated asset base (RAB) by AED16 billion and its regulated EBITDA by AED7 billion in 2024-2027. However, we expect some delays in collection of the full revenue amount from the Department of Finance in the initial period. Given TAQA's proven integration of newly acquired entities, we expect minimal integration risk associated with this transaction.


Tahmina Pinnington-Mannan
Director, Corporate Communications
Fitch Group, 30 North Colonnade, London E14 5GN