S&P Downgrades Abu Dhabi's Taqa on Risks to State Support

  • Negative outlook reflects risk of ‘multiple-notch downgrade’
  • Land-rights transfer is ‘weaker mechanism for support’: S&P

Abu Dhabi National Energy Co. had its credit rating cut one level to A- by Standard & Poor’s, which cited what it sees as increased risks to state support for the utility known as Taqa.

Standard & Poor’s Global Ratings downgraded Taqa’s rating from A and revised the outlook for the company’s debt to “negative” from “stable,” it said Tuesday in a statement. S&P also cut its rating on the company’s senior unsecured debt one level to BBB+ from A-. “The downgrade reflects potential risks to our current assessment that Taqa has an extremely high likelihood of receiving support from the Abu Dhabi government,” S&P said.

Taqa has written off assets, sold businesses and cut jobs and spending after losing money due to acquisitions and lower crude prices over the past two years. The company reported a 2016 loss of 19 billion dirhams ($5.17 billion), after losing 1.8 billion dirhams in 2015. Taqa plans to sell some of its North American oil and natural gas assets to help raise cash for investment, Acting Chief Operating Officer Saeed Al Dhaheri said last week. 

Taqa was unchanged at 60 fils in Abu Dhabi on Wednesday after falling 3.2 percent on Tuesday. The shares have dropped 6.3 percent this year.

Put Option

The company, with power plants in Abu Dhabi, gas fields in Canada and a project to pump oil in Iraq, previously held a put option allowing it to sell some of its hydrocarbon assets at a fixed price to another government entity. That put option ended at the end of last year, Taqa said last month.

Its owner Abu Dhabi Water & Electricity Authority gave Taqa leasehold rights for land where the utility operates power plants, to help offset the 2016 loss. The change from a put arrangement is “a weaker mechanism for support to Taqa,” S&P said.

“Recent related-party transactions at Taqa, including removal of a favorable put arrangement, raise potential risks to our view of the level of government support,” S&P said. “The negative outlook reflects the risk of a multiple-notch downgrade if we revise down our assessment of the likelihood of government support.”

Taqa said there has been no change in the degree of government backing it receives. The transfer of land rights in December 2016 “demonstrated continued support from our majority shareholder, in line with a long track record of support in recent years,” Al Dhaheri said in a separate statement.

The company has a “a long track record of support,” including the transfer of majority ownership of eight independent water and power plants in 2005 and an equity injection in 2008, it said in the statement.

Taqa plans to refinance a $500 million bond due on Oct. 25, according to company officials, who asked not to be identified. The company is considering options, including a private placement, the officials said. Taqa doesn’t plan to increase its debt level, they said.

— With assistance by Arif Sharif

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