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The ratings agency affirmed 'AA' long-term and 'A-1+' short-term issuer credit ratings on Mubadala Development, which is Abu Dhabi's principal agent for diversifying the domestic economy away from hydrocarbon revenues. The outlook is stable.
The agency also affirmed its 'AA/A-1+' long- and short-term local and foreign currency issuer credit ratings on IPIC. The outlook is stable.
The S&P believed that there's an almost certain likelihood that the Abu Dhabi government would provide timely and sufficient extraordinary support to both IPIC and Mubadala Development in the event of financial distress.
On June 29, 2016, the government announced that it plans to merge Mubadala Development with the IPIC. A joint committee has been tasked to supervise the mega merger. The joint committee will be chaired by Shaikh Mansour bin Zayed Al Nahyan, the chairman of the board of directors of IPIC, Deputy Prime Minister of the UAE and Minister of Presidential Affairs. The vice-chairman of the committee will be Khaldoon Khalifa Al Mubarak, group CEO and managing director of Mubadala and member of the Executive Council.
"We understand that IPIC and Mubadala will continue to operate independently until the joint committee concludes its assignment, which could take up to six months. Both Mubadala and IPIC have outstanding commercial debt that will need to be taken into consideration in the merger process. It is currently unclear which, if either, of the current entities will continue to exist, or if a new holding company will emerge," S&P said.
"Because we equalise our long-term rating on Mubadala with that on the sovereign, our assessment of the company's stand-alone credit profile is not a rating driver," the agency said.
The likelihood of extraordinary government support is almost certain since the entity is a non-severable arm of the government and executes government policies.
Regardless of where Mubadala's commercial debt obligations finally reside, "we consider that the likelihood of the Abu Dhabi government providing extraordinary support to ensure their timely and full payment, in case of need, will remain almost certain."
It added: "The stable outlook on Mubadala reflects that Mubadala's commercial debt liabilities will be honoured in full, regardless of how the government decides to structure the merged entity. We expect to continue equalising the ratings on Mubadala with those on the emirate."
- haseeb@khaleejtimes.com
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