Fitch affirms Abu Dhabi's AA rating

26 September 2010

Rating anchored by strong balance sheet

Ratings agency Fitch has affirmed Abu Dhabi’s long-term foreign and local currency issuer default ratings (IDR) at AA respectively, with a stable outlook.

IDRs are a measure of an entity’s relative vulnerability to default on financial obligations.

“Abu Dhabi’s AA rating is anchored by one of the strongest balance sheets of any rated country,” cites the report issued by Fitch on 24 September.

The agency estimates foreign assets, including equity investments, stood at around $280bn at the end of 2009, just under 200 per cent of gross domestic product (GDP). Abu Dhabi has the third-highest per capita income of any rated sovereign, founded on a high per capita hydrocarbons endowment.

“The overall fiscal balance, including dividends from Abu Dhabi National Oil Company (Adnoc) and investment income from sovereign wealth fund Abu Dhabi Investment Authority (ADIA), will return to surplus this year,” cites a report issued by Fitch on 24 September.  

Revenue is currently running ahead of budget as oil prices exceed the government’s assumption of $60 per barrel.

“Financing flexibility and a strong balance sheet allowed Abu Dhabi to boost spending by one-third in 2009 even as revenue halved,” says Charles Seville, director in the sovereign and international public finance group at Fitch.

The government, including both estimated investment income on sovereign assets and the dividend from Adnoc, recorded a deficit for the first time since 1999.

One quarter of 2009’s spending increase stemmed from capital injections to Abu Dhabi banks and $5bn in Dubai-related lending in December 2009, of a total commitment of $10bn.

“Abu Dhabi banks’ strengthened capital position, (their capital adequacy ratio exceeds 20 per cent), will enhance their ability to deal with shocks to asset quality without the need for further sovereign support,” says the report.

“Dubai has meanwhile drawn a line around its core liabilities and its public sector companies have started to restructure their debts. This too reduces the need for future calls on Abu Dhabi’s help.”

As reported by MEED on 23 September, the real estate unit of Mubadala Development Company, an investment vehicle of the Abu Dhabi government, is conducting a major review of its projects and how it delivers them following changes to the senior management, which includes the departure of executive director John Thomas from Mubadala Real Estate & Hospitality (MREH).

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