Abu Dhabi government set to cover Ipic debt

12 July 2016

Ratings agency sees continuing extraordinary support

The government of Abu Dhabi will continue to provide extraordinary support to sovereign wealth fund International Petroleum Investment Company (Ipic) through its merger with Mubadala Development Company, according to the US’ Standard & Poor’s (S&P).

Ipic owed $27.5bn at the end of 2015, and also guarantees billions of debt for troubled Malaysian sovereign wealth fund 1MDB.

Ipic is fully owned by the Abu Dhabi government, with Sheikh Mansour bin Zayed al-Nahyan as chairman and Energy Minister Suhail Mohammed al-Mazrouei as managing director.

This represents an integral link with the government, and S&P therefore confirmed Ipic’s rating at AA/A-1+ stable, in line with the sovereign.

“We think there’s an almost certain likelihood that the Abu Dhabi government would provide timely and sufficient extraordinary support to Ipic in the event of financial distress,” states S&P. “Ipic’s commercial debt liabilities will be honored in full, regardless of how the government structures the merged entity.”

Abu Dhabi Crown Prince Mohamed bin Zayed al-Nahyan issued a decree to merge Ipic and Mubadala in June. A joint committee will study how to merge the two investment funds.

Mubadala also had AED41.7bn of debt as of December 2015, with a debt-to-equity ratio of 24 per cent.

In S&P’s view, Ipic also plays a critical role in carrying out Abu Dhabi’s long term diversification policies, through its investments in downstream hydrocarbon activities in the UAE. It invests globally with the aim of securing markets for Abu Dhabi’s oil exports.

Ipic is also expected to operate commercially, but made a $2.7bn loss in 2015, due to impairments. Its assets fell 12.1 per cent to $58bn.

Ipic is currently pursuing a $6.5bn arbitration against 1MDB over missing payments. 1MDB said on 11 July that it had agreed to the request for arbitration. 

Two former senior Ipic officials had their accounts frozen in the UAE in April 2016. Billions of dollars of payments were allegedly misdirected to companies in the Cayman Islands with similar names to Ipic subsidiaries.

Thanks to Abu Dhabi’s high levels of foreign reserves, S&P sees it as capable of supporting Ipic through the merger transition.

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