TEXT-Fitch affirms Mubadala Development Company PJSC at 'AA'

Thu Oct 18, 2012 6:20am EDT

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(The following statement was released by the rating agency)

Oct 18 - Fitch Ratings has affirmed Mubadala Development Company PJSC's (Mubadala) Long-term Issuer Default Rating (IDR) and senior unsecured rating at 'AA'. The Abu Dhabi-based diversified development and investment group's Short-term IDR has been affirmed at 'F1+'. The Outlook for the Long-term IDR is Stable. Mubadala Development Company - GMTN B.V.'s (MDC) global medium-term note (GMTN) programme and notes outstanding and MDC's euro commercial paper programme (ECP) has also been affirmed at 'AA' and 'F1+' respectively.

The agency continues to apply its parent and subsidiary rating linkage methodology in rating Mubadala, as it believes that a strong relationship exists between the company and the Emirate of Abu Dhabi (Abu Dhabi; 'AA'/Stable). As such, Mubadala's rating is aligned with Abu Dhabi's sovereign rating.

Mubadala has a proven track record of government support directly through substantial capital increases and through deeply subordinated shareholder loans. In March 2010, the Department of Finance made a strong statement of support for its flagship state-owned enterprises (SOEs). It mentioned "full and unconditional" support for the SOEs rated by Fitch, namely of Mubadala, Tourism Development & Investment Company (TDIC), and International Petroleum Investment Company PSJC (IPIC), which are aligned with Abu Dhabi's sovereign rating. The government went so far as to say that "it is impossible to differentiate between the government and any of these three entities in terms of credit risk."

In December 2011 Abu Dhabi announced a second support package for Aldar in the form of asset purchases and debt relief worth around AED16.8bn (USD4.6bn). Aldar is not wholly state owned or a majority-owned government-related entity. This confirms Abu Dhabi's willingness and ability to support strategically important companies in which it has a stake. In March 2011, Mubadala subscribed USD762.2m for new mandatory convertible securities issued by Aldar. USD573.3m of these mandatory convertible securities were converted in December 2011.

As at 30 June 2012, the company had received shareholder contributions from the government totalling AED127.7bn. A change in Abu Dhabi's ratings would result in a change of Mubadala's ratings. Also any change in Mubadala's implied support, commitment from, and ownership by the government could have negative rating implications for Mubadala. The company anticipates that it will continue to make significant capital and investment expenditures in future years. Mubadala intends to fund its future capital and investment expenditures and its financial obligations through capital contributions from the government, cash from operations, and borrowings from third parties. Fitch notes that Mubadala's internally generated cash flow continue to be limited, and accordingly is currently reliant on the government for a major part of its funding.

Mubadala's 100% state ownership status is mandated by law and unlikely to change. It can only be dissolved after 2052, 50 years from its formation, by Emiri decree, or if its mandate is deemed complete. Established in 2002 through Emiri Decree No. 12, Mubadala is Abu Dhabi's primary business development company. It has a mandate from the government to drive economic diversification to improve social development and build wealth for future generations. Mubadala's mission, as set forth by the government, is to achieve commercial returns while advancing the government's broader policy aims, including building Abu Dhabi's new economy, and improving the quality of life for the people of Abu Dhabi. Five members of the Abu Dhabi Executive Council sit on the company's board, the most prominent of whom is the Chairman, His Highness Sheikh Mohammed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi.

MDC has been established as a special purpose vehicle for the sole purpose of issuing notes under the GMTN programme. The GMTN programme's rating is in line with Mubadala's IDR and senior unsecured rating of 'AA'. The notes are unconditionally and irrevocably guaranteed by Mubadala. The obligations under the guarantee will be Mubadala's direct, unconditional, unsubordinated and unsecured obligations and will rank equally with all other unsecured obligations.

WHAT COULD TRIGGER A RATING ACTION?

Positive: Future developments that may, individually or collectively, lead to positive rating action include

A positive change in Abu Dhabi's ratings would result in a change of Mubadala's ratings.

Negative: Future developments that may, individually or collectively, lead to negative rating action include

A change in Abu Dhabi's ratings and or in the implied support, commitment from, and ownership by, the state of Abu Dhabi would prompt a review of the ratings.

A significant change in Mubadala's operational structure, and any potential floating of key operating assets would also prompt a review of the ratings.

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