Abu Dhabi Defends Downgraded Companies (WSJ Online)

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The Abu Dhabi government backed its associated companies Thursday, saying it fully supports them and has enough reserves to meet its commitments to them, after Moody's Investors Service Inc. downgraded a raft of key government-owned and related companies by one or more notches.

"We obviously disagree with the reasoning involved in a number of Moody's decisions, especially those concerning TDIC, Mubadala, and IPIC," Hamad Al Hurr Al Suwaidi, under secretary of Abu Dhabi's department of finance, said in an emailed statement.

The three companies are "irreplaceable" as part of the government's economic diversification plan and the government "fully and unconditionally" backs them, Mr. Suwaidi said. "It is impossible to differentiate between the government and any of these three entities in terms of credit risk," he said.

Moody's earlier Thursday downgraded the ratings of Mubadala and IPIC, or the International Petroleum Investment Co., to Aa3 from Aa2. It cut TDIC, or the Tourism Development and Investment Co., to A1 from Aa2. Abu Dhabi carries an Aa2 sovereign rating with stable outlook from Moody's.

"We have strong fiscal position and reserves that give us all the capacity we need to meet our commitments to these companies from our own resources," Mr. Suwaidi said.

The government also said it "continues to support" Taqa, which Moody's cut four notches to A3 from Aa2. "Taqa is majority-owned by the government, provides almost all of Abu Dhabi's water and electricity supply, and plays an important role in the emirate's energy policy," Al Suwaidi said.

Moody's Thursday concluded a review of seven Abu Dhabi-based companies that it started in December last year, prompted by the restructuring of operations at government-owned conglomerate Dubai World to re-evaluate assumptions of government support.

Abu Dhabi's government companies and government-related firms have borrowed heavily from international debt markets over the past year to fund their expansion, and the government's aggressive development program. Companies fully owned by the government raised at least $9 billion in bonds and loans on international markets in the past year.

The government itself raised $3 billion last April as part of a $10 billion sovereign bond program. In a research note, Saud Masud, head of research at UBS in Dubai, said: "We reiterate our view that despite being a strong net creditor, Abu Dhabi's economic engine will likely significantly slow down, especially as Dubai Inc. deleverages going forward."END