TEXT-Fitch assigns IPIC's notes initial 'AA(EXP)'senior unsecured rtg

Mon Nov 26, 2012 6:21am EST

Nov 26 - Fitch Ratings has assigned IPIC GMTN Limited's upcoming notes issue an expected senior unsecured rating of 'AA(EXP)'. The notes are irrevocably and unconditionally guaranteed by the International Petroleum Investment Company (IPIC) PJSC ('AA'/Stable/'F1+'). Fitch will assign a final rating upon receipt of final documentation confirming information already received.

IPIC's ratings are aligned with Abu Dhabi's sovereign ratings under Fitch's parent and subsidiary rating linkage methodology. Fitch considers IPIC to be a strategic asset to the government in its role as an investment vehicle for the state in the domestic and foreign hydrocarbon and petrochemical sectors. Any change to Abu Dhabi's sovereign ratings is highly likely to result in a similar change to IPIC's ratings.

Separate negative rating action could occur if IPIC fails to maintain a ratio of total portfolio value to total net borrowings of more than 1.5x at the IPIC parent company level. Fitch estimates this coverage ratio was approximately 1.8x as of H112 and views the ratio as being low versus IG investment holding companies in general. Fitch anticipates that this ratio could improve to more than 2x if IPIC repays part of its short-term outstanding debt.

The ratings could also change if IPIC embarks on a fundamental deviation from its core energy investment mandate with or without the support or involvement of the government. A material deviation away from core investments in energy-related sectors that is greater than 20% of the total group portfolio value would lead Fitch to re-evaluate the ratings.

IPIC's standalone credit profile, based on its relatively weak credit ratios compared with other investment holding companies, is assessed in the 'BB' rating category. As of H112, IPIC's parent level debt amounted to USD18.6bn. The company's consolidated LTM-H112 liquidity ratio, defined by Fitch as interest income plus cash over interest expense, was 3.7x, which is down slightly compared to the 2011 figure of 4.4x, but still comfortable for the current rating.

IPIC was established in 1984 as the emirate's flagship energy investment company. IPIC is wholly-owned by the Government of Abu Dhabi. IPIC's mandate is to invest in the energy and related sectors both domestically and outside Abu Dhabi. Other parts of this mandate include managing key domestic projects that are considered important to national security and fulfilling a quasi-diplomatic role by acting as the government's emissary by focusing on investments that are geared toward building and solidifying state-to-state relations.

WHAT COULD TRIGGER A RATING ACTION?

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

action include:

- A positive change to the sovereign ratings of Abu Dhabi is highly likely to result in a similar change to IPIC's ratings, as their ratings are aligned under Fitch's parent and subsidiary rating methodology.

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

action include:

- A negative change to the sovereign ratings of Abu Dhabi is highly likely to result in a similar change to IPIC's ratings, as their ratings are aligned under Fitch's parent and subsidiary rating methodology.

- IPIC failing to maintain a ratio of total portfolio value to total net borrowings of more than 1.5x at the IPIC parent company level.

- IPIC embarking on a fundamental deviation from its core energy investment mandate with or without the support or involvement of the government.

- An onerous repayment schedule that puts downward pressure on the company's liquidity.

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