Moody's Investors Service, ("Moody's") has today placed under review for upgrade all the ratings of Abu Dhabi National Energy Company ("TAQA"). These include the company's A3 long-term issuer rating and P-2 short-term issuer rating.
The review follows the offer from Abu Dhabi Power Corporation PJSC (ADPower), TAQA's main direct shareholder, to transfer most of its water and electricity assets across the Emirate of Abu Dhabi to TAQA.
If successful, the transaction would greatly enhance TAQA's asset portfolio, adding transmission and distribution assets to its generation assets and creating a monopoly integrated utility in the emirate.
The transaction has the potential to close during the second half of 2020 and is subject to review and approval by TAQA's board of directors and shareholders, as well as by the Department of Energy and the Securities and Commodities Authority.
The review for upgrade reflects Moody's view that a successful transfer of the ADPower assets would reinforce the strategic importance of TAQA for the government of Abu Dhabi (Aa2 stable).
The additional assets would entrench TAQA's dominance over electricity generation and water desalination assets in Abu Dhabi and help mitigate longer-term uncertainties related to the expiry of certain purchase agreements.
TAQA would become a vertically integrated utility with total assets of around AED200 billion ($54 billion) and a diversified energy generation mix. Indirect government ownership would increase to 98.6% from 74.1%.
Together with an improvement in TAQA's standalone creditworthiness, this could lead to the upgrade of TAQA's A3 ratings and P-2 short-term rating by one or more notches.
The transfer would also be positive for TAQA's standalone creditworthiness and could lead to the upgrade of its b1 Baseline Credit Assessment (BCA).
While, the actual financial strength of the assets to be transferred is unknown at this stage, Moody's expects the new assets to have a positive impact on TAQA's financial profile.
The additional assets would improve the stability and predictability of TAQA's cash flow and dilute the company's exposure to its poorly performing oil and gas assets.
During the review, Moody's will focus on quantifying the impact of the transaction on TAQA's financial profile, as well as assessing any implications for the company's business, strategy and financial policies.
The review will also focus on assessing the importance of TAQA to the government also in the context of a recent change in the intermediate holding companies through which the company is indirectly owned by the government.
Moody's had noted prior to the review process that upward pressure could arise on TAQA's BCA if its financial profile improved such that (CFO pre-WC + interest)/interest became sustained above 3.0x; and RCF/debt sustained above 10%.
Moody’s views TAQA as a government-related issuer (GRI) that benefits from credit linkages with the Government of Abu Dhabi as expressed by a very high level of default dependence and support from the government.