Moody’s downgrades Taqa on weakening finances

Moody's Investors Service has lowered its underlying credit rating of Abu Dhabi National Energy Company, known as Taqa, because of its weakening financial position.

The agency said it maintains a credit rating of A3 on Taqa, but only because of the implied backing of the Abu Dhabi Government, which owns a majority stake.

Moody’s said yesterday that it had lowered its “baseline credit assessment” for Taqa – the rating that would apply if the government did not implicitly stand behind Taqa’s debt – from ba2 to b2.

Debt with both “ba” and “b” ratings are considered to be “speculative”, according to Moody’s rating guidance – a rating that is referred to as “junk” in debt market parlance.

The downgrade means Taqa’s underlying credit risk moves from “substantial” to “high”, according to Moody’s.

The Moody’s analyst Declan O’Brien said the lower rating reflects Taqa’s high debt load at a time when oil and gas prices are lower and show no sign of recovering soon.

“With reported total equity of Dh8.1 billion as of March 31, 2015, Taqa is thinly capitalised relative to its reported debt of Dh74.4bn and relative to its cash flows,” Mr O’Brien said.

"Lower oil and gas prices … have substantially eroded the group's ability to bolster its profitability and operating cash flows – debt to capitalisation at 86.4 per cent remains weak."

Taqa has cut capital expenditures severely and taken out costs of Dh1.5bn, effective from 2017, but "in Moody's opinion [these moves] are not sufficient enough to offset the lower income from the sale of oil and gas", he said.

Taqa is majority owned by Abu Dhabi Water and Electricity Authority, with other government shareholders bringing the total state ownership to 76 per cent.

The remaining shares are publicly held by about 100,000 UAE shareholders.

Without the backing of its government shareholders – which has included writing off debt – the company would be facing a worse financial situation.

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