RPT-Fitch Affirms Mubadala Development Company PJSC at 'AA'; Outlook Stable

Thu Jul 24, 2014 6:15am EDT

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July 24 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has affirmed Mubadala Development Company PJSC's (Mubadala) Long-term Issuer Default Rating (IDR), senior unsecured rating at 'AA' and Short-term IDR at 'F1+'. The Outlook on the Long-term IDR is Stable. Mubadala Development Company -GMTN B.V.'s (MDC) global medium-term note (GMTN) programme and outstanding notes and MDC's euro commercial paper programme (ECP) have also been affirmed at 'AA' and 'F1+', respectively.

KEY RATING DRIVERS

State Support

Fitch applies its parent and subsidiary rating linkage methodology in rating Mubadala, concluding that there is a strong relationship between Mubadala and the Emirate of Abu Dhabi (AA/Stable/F1+), resulting in the ratings being aligned. Strong sovereign ties remain the primary rating driver for Mubadala.

Consistent State Funding

As of FYE 2013, the company had received shareholder contributions from the government totalling AED152.5bn.

Long-Term State Ownership

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.

State Development Strategy

Mubadala's mission is to achieve economic returns while advancing the government's long-term policy plans - the Abu Dhabi Economic Vision 2030. Abu Dhabi wants Mubadala to drive economic and social development to ensure an increase in wealth for future generations. Board membership includes five members of the Abu Dhabi executive council, including the chairman, Sheikh Mohammed Bin Zayed Al Nahyan, Crown Prince of Abu Dhabi.

Unaffected by Public Debt Policy

Explicit contingent liabilities are clearly delineated and the supervision of the borrowing plans of government-related enterprises (GREs) and state-owned enterprises (and consequently Mubadala's), has been tightened, with ultimate authority still residing in the Executive Council (the Emirate's highest government body). Abu Dhabi's ability to support its GREs and SOEs is not in question. Potential contingent liabilities, notably support for other emirates, is at Abu Dhabi's discretion and, as in 2009, is unlikely to be material compared with Abu Dhabi's assets, if required.

Fitch continues to apply its parent and subsidiary rating linkage methodology in rating these entities, as we understand that the implicit state support from the Emirate of Abu Dhabi has not changed. Fitch does not rate the fourth of the emirate's largest SOEs - Abu Dhabi National Energy Company PJSC (TAQA) (for more details, see 'Fitch: Major SOE Ratings Still Benefit from Abu Dhabi Support', dated 24 October 2012 at www.fitchratings.com).

RATING SENSITIVITIES

Mubadala's rating is currently equalised with that of Abu Dhabi. A negative rating action could result from a downgrade of the sovereign, any change in the implied support and commitment from, and ownership by the state of Abu Dhabi. A significant change in Mubadala's operational structure or any potential flotation of key operating assets would also prompt a review of the ratings. A positive rating action on Abu Dhabi, could lead to a positive rating action on the issuer.

For the sovereign rating of Abu Dhabi, Fitch outlined the following sensitivities in its rating action commentary of 21 February 2014: The main factors that, individually or collectively, could lead to positive rating action are:

- Addressing deficiencies in structural indicators and strengthening policymaking institutions, relative to peers, which would ultimately be conducive to reducing the economy's dependence on oil.

- An improvement in the transparency and availability of key data. The main factors that, individually or collectively, could lead to negative rating action are:

- A sustained period of sharply lower oil prices that materially erodes fiscal and external buffers, coupled with the crystallisation of significant contingent liabilities.

- Spill over from a regional geopolitical shock that impacts economic, social or political stability.

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