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  • 1. Moody’s Global Credit Analysis Corporate Finance September 2008 Table of Contents: Mubadala Development Rating Rationale 1 Corporate Profile Ownership & Mandate 2 2 Company PJSC Management Strategy & Business Abu Dhabi, United Arab Emirates Description 4 Moody’s Related Research 6 Websites 6 Rating Rationale Mubadala Development Company PJSC (Mubadala) was assigned long-term local and foreign currency issuer ratings of Aa2 with a stable outlook in September 2008. Mubadala’s credit ratings are aligned with those of the Government of Abu Dhabi (Aa2/stable) because Moody’s views it as a quasi-sovereign entity. Analyst Contacts: Mubadala is fully owned and governed by the Government of Abu Dhabi. Dubai International Financial Centre 971.4.401.9536 The company was established in 2002 by an act of government (a decree of the Emir) and is an important vehicle of public policy — its primary mandate being to 17 Tristan Cooper Vice President/Senior Analyst assist the diversification of Abu Dhabi’s economy through investment in domestic industries. Mubadala’s primary source of funding has been regular capital 17 Philipp Lotter injections from the Government, which are expected to continue. It has also been Senior Vice President granted a substantial amount of free land from the Government, which is gradually London 44.20.7772.5454 being developed and valued. Although Mubadala does not have an explicit written guarantee, the Government has verbally assured Moody’s that it stands fully 17 Pierre Cailleteau Team Managing Director behind the company. Michael West Group Managing Director This Analysis provides an in-depth discussion of credit rating(s) for Mubadala Development Company PJSC and should be read in conjunction with Moody’s most recent Credit Opinion and rating information available on Moody’s website. Click here to link.
  • 2. Credit Analysis Moody’s Global Corporate Finance Mubadala Development Company PJSC Corporate Profile Abu Dhabi sovereign-owned development company tasked with building and diversifying the emirate’s domestic economy Mubadala was established in 2002 by a decree of the Emir with the primary task of developing Abu Dhabi’s economy from a largely hydrocarbon-based to a diversified economy. It is 100% owned by the Abu Dhabi government (rated Aa2/stable), and the company can only be dissolved once it has completed its mandate to develop the economy as per its Articles of Incorporation, at the end of a 50-year term, or by a decree of the Emir. Despite having the legal status of a joint stock company, its function, control and strategic mission resemble more those of an economic development agency, and accordingly Moody’s views Mubadala as a quasi- sovereign issuer. Mubadala’s business lines span an array of different sectors and industries, all of which are central to the Government’s economic development mandate. These include energy & petroleum, tourism, technology (including aviation/aerospace and alternative energy sources), education & research & development, healthcare, urban planning, transport & infrastructure and the environment. With total assets in excess of USD 10 billion, Mubadala’s most prominent investments include: a 51% stake in Dolphin Energy, which produces and transports natural gas via a pipeline from Qatar’s North Field to the United Arab Emirates (UAE); a 50% stake in Emirates Aluminium Company (EMAL), which is currently building the world’s largest aluminium smelter with an initial capacity of 700,000 tonnes per annum by 2010; and Masdar (Abu Dhabi Future Energy Company), a large-scale development centred around renewable energy that will include the world’s first carbon-neutral city. The company has also been granted substantial plots of real estate in Abu Dhabi for future development. In addition, Mubadala owns stakes in domestic companies such as Aldar Properties and DU, the UAE’s second integrated telecommunications company, as well as a growing international investment portfolio that includes stakes in Ferrari, AMD and Carlyle. In July 2008, Mubadala announced a substantial economic framework agreement with General Electric (GE) of the US that will lead to large-scale co-operation between the two companies. The agreement will complement Mubadala’s core development areas and attract additional expertise and best practices to Abu Dhabi. Ownership & Mandate Abu Dhabi has established a number of government entities whose ultimate tasks are the investment of the sovereign’s hydrocarbon receipts Mubadala is one of a group of government-owned entities whose primary task is to manage Abu Dhabi’s substantial hydrocarbon wealth. Whilst some of these entities have overlapping mandates, others are more narrowly defined: Abu Dhabi Investment Authority (ADIA): ADIA is the first and foremost Abu Dhabi sovereign wealth fund, investing the emirate’s substantial surplus revenues mainly into financial assets abroad, thus providing capital diversification for the economy. Market estimates of assets under management range from around USD250 billion to USD900 billion. Abu Dhabi Investment Council (ADIC): Initially part of ADIA, ADIC is now a separate entity and, while considerably smaller in size, fulfils a similar role to ADIA although it has a greater focus on investments within the Middle East region than ADIA. International Petroleum Investment Company (IPIC): This entity was established by ADIA and the national oil company, ADNOC, in 1984 to invest in foreign oil and energy companies, focusing primarily on downstream (refining & marketing) activities. 2 September 2008 Credit Analysis Moody’s Corporate Finance - Mubadala Development Company PJSC
  • 3. Credit Analysis Moody’s Global Corporate Finance Mubadala Development Company PJSC Abu Dhabi National Energy Company (TAQA): TAQA owns the majority of Abu Dhabi’s domestic power and water assets. In addition, it is building a multinational energy operating company via acquisitions globally. Compared with the other government entities above, it acts as an operator rather than a pure financial investor. Moody’s rates TAQA Aa2. While the above entities are primarily involved with expanding internationally, diversifying Abu Dhabi’s economy by acquiring assets outside of the country, Moody’s sees Mubadala’s core mandate to diversify Abu Dhabi’s domestic economy into non-oil sectors, and thus it is largely focused domestically. It is also a more active investor than the other entities, involving itself in the day-to-day management of many of the companies in which it has invested, particularly the large domestic projects. Mubadala’s core strategic rationale is to lead Abu Dhabi’s economic diversification and restructuring strategy from a single-sector oil-based to a multi-sector globally integrated economy, and from a public sector- dependent to a private sector-driven economy. Whilst Mubadala owns stakes in some international companies (Ferrari, AMD, Carlyle), these are dwarfed by its domestic activities, which include crucial long-term development projects such as EMAL (a project Moody’s rates A3), Dolphin, Aldar (Abu Dhabi’s primary master plan real estate developer, rated A3 by Moody’s) and Masdar City (the world’s first large-scale carbon-neutral city that is being built near the city of Abu Dhabi). Also, most of Mubadala’s international investments (including the stake in GE it has committed to build as part of its framework agreement) have a domestic economic angle, aimed at attracting businesses and best practices to Abu Dhabi. Unlike a sovereign wealth fund, Mubadala seeks government funding for its business plan and development projects rather than simply being allocated funds to invest. It is therefore more of a development agency, albeit run in accordance with commercial and competitive principles. Moody’s views Mubadala as a quasi-sovereign entity Given Mubadala’s development mandate, which often results in a longer-term view towards certain investments, and it being fully embedded in and integrated with the Government’s economic policy, Moody’s believes that any attempt to disaggregate Mubadala’s underlying corporate credit risk factors from its sovereign risk factors (in line with Moody’s joint default analysis for government-related issuers) would be artificial, as one is fully linked to the other. Accordingly, Moody’s views Mubadala as a quasi-sovereign issuer whose ratings are directly aligned with the Aa2 sovereign credit ratings of the Abu Dhabi government. Moody’s highlights the importance of long-term stability both in Mubadala’s ownership structure and in its government mandate for its ratings, given the current early development nature of its business and financial profiles, which rely substantially on government funding and oversight. Though not anticipated, any gradual de-linkage of Mubadala from the Government would therefore result in a greater emphasis on stand-alone credit features, which are currently considerably weaker than the Aa2 assigned rating, but would be expected to change over the course of the years. This is a different approach to that applied to TAQA, for example, whose baseline credit assessment of Ba1 can be distinctly separated from its Aa2 final rating, as an aggressive debt-financed acquisition strategy and resulting high leverage impact its stand-alone credit quality. Whilst TAQA’s and Mubadala’s final ratings are identical, the former benefits from the assumption that the Abu Dhabi government would step in and bail out the company in the event of financial distress, whereas Mubadala’s ratings assume that it is effectively indistinguishable from the Government itself. Arguments that support this approach — in addition to Mubadala’s mandate — include the fact that the company is fully owned and governed by the Government: Mubadala’s chairman is HH Sheikh Mohammed Bin Zayed Al Nahyan, the Crown Prince of Abu Dhabi, and its Management Board including its CEO incorporate members of Abu Dhabi’s Executive Council (the Emirate’s de facto cabinet of ministers). Most importantly, Mubadala is directly financed by the Government, which has provided substantial equity injections for all of the company’s major investment projects. Mubadala’s annual business plan is directly 3 September 2008 Credit Analysis Moody’s Corporate Finance - Mubadala Development Company PJSC
  • 4. Credit Analysis Moody’s Global Corporate Finance Mubadala Development Company PJSC funded by the Government, and any substantial investments beyond the business plan have been government-approved and financed, often also government-initiated. Management Strategy & Business Description Mubadala’s investment strategy is measured in financial terms While Mubadala’s scope of activities is shaped by its development role and by the Government’s economic objectives, it operates on sound commercial principles and does not regard itself as a social welfare agency. All investments need to demonstrate an attractive financial return in addition to a material impact on the Government’s economic diversification in order to be approved by its Board (essentially the Government). Accordingly, investments are made to combine financial and social returns. This long-term horizon, that commonly accompanies Mubadala’s investments, differentiates it from other, private investors. Over the past years since inception, Mubadala’s primary investment focus has been on developing a core foundation for its investment portfolio. Relative ownership stakes and mechanisms to execute these investments are influenced by the degree of involvement from Mubadala they require. Passive investments tend to be financial in nature, with small stakes in companies that offer strategic advantages to Abu Dhabi or a broader agenda to promote Abu Dhabi as a business and tourism destination. Its 5% stake in Ferrari falls within this category. Conversely, Mubadala will take material and majority stakes in undertakings that require its execution expertise, or that would benefit from strong government backing. Such investments include Dolphin, Masdar and EMAL. All investments, as well as policies and guidelines, are approved by the Investment Committee. They are executed on the basis of an annual budget, which is approved by the Board. The approved budget is considered an authorisation to commit Mubadala’s funds, which have to date been primarily provided by the Government. Any material investments outside the budget require additional approvals. Figure 1: Mubadala Business Units, Core Holdings and Partnerships Mubadala Development Co. Real Estate & Services Infrastructure Healthcare Hospitality Al Taif Technical Sowwah Square, John UAE University, Sorbonne Cleveland Clinic A.D., Services, Abu Dhabi Buck International, University, Zayed Imperial College London Terminals, E-Ships, Poltrona Frau Emirates, University, Military Diabetes Cnt., A.D. Knee Leaseplan Emirates, ADFC, Al Sowwah College, NYU, New & Sports Medicine Cnt., Agility Abu Dhabi, Abu Infrastructure, Capitala, Military Hospital, New Molecular Imaging Cnt., Dhabi Finance (Mortgage Mina Zayed Waterfront, Tawam Hospital Ntl. Ref. Laboratory, Finance JV), Dunia Zayed Sports City Sports City Med. & Finance Community Diagnostic Cnt., Airport Med. Cnt. Energy & Aerospace & Masdar Acquisitions Industry Technology Dolphin, EMAL, Tabreed, Abu Dhabi Aircraft Clean Technology Fund, Ferrari, Leaseplan Corp., ADSB, Block 53, SKH En Technologies, Horizon, MIST Development, Related Companies, The Nouss, Tanqia, Barka, Al Piaggio, SR Technics, Masdar Research Carlyle Group, AMD, Rusail Independent Power, Injazat, YahSat, Canartel, Network, Thin Film Aldar Guinea Alumina Refinery DU, Nigeria Telecom Manufacturing, Masdar Project, Pearl Energy (Etisalat Nigeria) City 4 September 2008 Credit Analysis Moody’s Corporate Finance - Mubadala Development Company PJSC
  • 5. Credit Analysis Moody’s Global Corporate Finance Mubadala Development Company PJSC Future investments are likely to continue to focus on Mubadala’s core industries. Indeed, Mubadala is currently ranked as the region’s largest indigenous energy company by upstream value, according to a recent Wood Mackenzie report, due to its stake in Dolphin Energy, as well as exploration blocks in the Middle East and Southeast Asia. In addition to large projects, Moody’s expects Mubadala to continue to acquire financial stakes in international companies, such as its recent acquisition of stakes in AMD and The Carlyle Group. Most of these investments are also likely to have a longer-term strategic motivation for Abu Dhabi, such as Mubadala’s investment in Ferrari, which is also building a Ferrari-themed leisure park on Yas Island. Mubadala is expected to grow substantially over the coming years, in line with the growth of Abu Dhabi’s non-oil economy Moody’s expects Mubadala to accelerate its growth over the coming years from its current asset base in excess of USD10 billion, both from ongoing projects such as EMAL, Masdar and Abu Dhabi Aircraft Technologies (which has just entered into a major agreement with EADS, the maker of Airbus, for a range of services, maintenance and component production), and from new acquisitions and ventures, many of which will stem from its new co-operation agreement with GE. Mubadala and GE have entered into a two-part business arrangement, including business co-operation and financial services. In particular: Mubadala will become one of GE’s top 10 institutional shareholders by gradually acquiring shares on the open market. The holding may also include a USD200 million investment in GE Industrial Investment Partners. GE will invest in a global R&D centre in Masdar City, focusing on clean-energy technology. It will also build a corporate learning centre in Abu Dhabi modelled as a sister campus to the Crotonville campus in the US. GE will co-operate with Abu Dhabi Aircraft Technologies to explore expansion of maintenance, repair and overhaul opportunities, including the further development of Gulf Turbine Services. GE will also commit to a USD50 million investment in Masdar’s second Clean-Tech Fund. Both parties will work to establish a 50/50-owned, Abu Dhabi-based commercial finance business. Over time, this entity will transition to a stand-alone, non-recourse operation with total assets potentially exceeding USD40 billion. Over the coming three years, GE and Mubadala each expect to invest USD4 billion of equity into this business. Moody’s regards Mubadala’s framework agreement with GE as a good example of its strategy of attracting and committing best-in-class partners to Abu Dhabi and thus expanding its non-oil sectors. Despite Mubadala’s substantial portfolio (see Figure 1), Moody’s understands that a significant proportion of its current revenues are generated from only a handful of investments (most notably Dolphin), given the long-term horizon of its undertakings. As a growing number of these projects come to fruition, Mubadala’s revenues will more appropriately match the diversity of its portfolio. 5 September 2008 Credit Analysis Moody’s Corporate Finance - Mubadala Development Company PJSC
  • 6. Credit Analysis Moody’s Global Corporate Finance Mubadala Development Company PJSC Any debt raised by Mubadala will be treated as quasi-sovereign debt and Moody’s will fully consolidate this into its sovereign debt metrics Since inception, Mubadala has received substantial equity injections from the Government, and indeed its annual budget is fully supported and funded by the Government. Nonetheless, several of its large-scale projects, including EMAL and Dolphin, have been financed by non-recourse project finance debt. Given Mubadala’s significant operational involvement in such projects and their strategic importance to Abu Dhabi, Moody’s takes the view that there is a high likelihood that Mubadala (in representation of the Government) would provide financial support in the unlikely event of financial distress. Indeed Moody’s recent assignment of A3 ratings to EMAL assumes that “the likelihood of the Government [via Mubadala] providing financial support to [EMAL], if needed, is very high”. Although Moody’s believes that Mubadala will continue to be partially funded directly by the Government, it may consider accessing capital markets in addition to bilateral banking relationships in support of a more optimal funding mix. Mubadala’s rating assignment is also a substantial step towards greater public transparency and accountability. We will treat any such debt as quasi-sovereign liabilities that will be fully considered in our assessment of the Government’s credit ratings. Nonetheless, we expect any debt issuance at Mubadala to be in moderation and reflective of its evolving business profile, thus adding limited strain on its nascent cash flows, whilst larger investments continue to show a significant level of direct government funding. Mubadala produces audited IFRS financial statements, to which Moody’s has obtained confidential access. Moody’s Related Research Analyses: Government of Abu Dhabi, August 2007 (104194) Abu Dhabi National Energy Company (TAQA), March 2008 (108182) Aldar Properties PJSC, April 2008 (108706) Emirates Aluminium Company (EMAL) Pre-Sale Report, March 2008 (107839) To access any of these reports, click on the entry above. Note that these references are current as of the date of publication of this report and that more recent reports may be available. All research may not be available to all clients. Websites Mubadala Corporate website: Government of Abu Dhabi website: Moody’s Middle East Limited: MOODY’S has provided links or references to third party World Wide Websites or URLs (“Links or References”) solely for your convenience in locating related information and services. The websites reached through these Links or References have not necessarily been reviewed by MOODY’S, and are maintained by a third party over which MOODY’S exercises no control. Accordingly, MOODY’S expressly disclaims any responsibility or liability for the content, the accuracy of the information, and/or quality of products or services provided by or advertised on any third party web site accessed via a Link or Reference. Moreover, a Link or Reference does not imply an endorsement of any third party, any website, or the products or services provided by any third party. 6 September 2008 Credit Analysis Moody’s Corporate Finance - Mubadala Development Company PJSC
  • 7. Credit Analysis Moody’s Global Corporate Finance Mubadala Development Company PJSC Report Number: 111176 Authors Editor Production Specialist Philipp Lotter Maya Penrose Ida Chan Tristan Cooper © Copyright 2008, Moody’s Investors Service, Inc. and/or its licensors and affiliates (together, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, such information is provided “as is” without warranty of any kind and MOODY’S, in particular, makes no representation or warranty, express or implied, as to the accuracy, timeliness, completeness, merchantability or fitness for any particular purpose of any such information. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The credit ratings and financial reporting analysis observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding or selling. MOODY’S hereby discloses that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MOODY’S have, prior to assignment of any rating, agreed to pay to MOODY’S for appraisal and rating services rendered by it fees ranging from $1,500 to approximately $2,400,000. Moody’s Corporation (MCO) and its wholly-owned credit rating agency subsidiary, Moody’s Investors Service (MIS), also maintain policies and procedures to address the independence of MIS’s ratings and rating processes. Information regarding certain affiliations that may exist between directors of MCO and rated entities, and between entities who hold ratings from MIS and have also publicly reported to the SEC an ownership interest in MCO of more than 5%, is posted annually on Moody’s website at under the heading “Shareholder Relations — Corporate Governance — Director and Shareholder Affiliation Policy.” 7 September 2008 Credit Analysis Moody’s Corporate Finance - Mubadala Development Company PJSC