Moody’s Investors Service’s has detailed its summary credit opinion on Abu Dhabi, which includes certain regulatory disclosures regarding its ratings. Moody’s clarified that this does not constitute any change in its ratings or rating rationale of Abu Dhabi.
Moody’s current ratings on are:
- Long Term Issuer (domestic and foreign currency) ratings of Aa2,
- Senior Unsecured (foreign currency) ratings of Aa2,
- Senior Unsecured MTN Program (foreign currency) ratings of (P)Aa2,
- Other Short Term (foreign currency) ratings of (P)P-1, and
- Short Term Issuer (domestic and foreign currency) ratings of P-1
Moody’s explained its ratings rationale as follows: The long-term foreign and local currency issuer ratings of the government of Abu Dhabi, the richest of the seven emirates composing the UAE, are Aa2. These high investment-grade ratings are supported by several factors. Foremost among these is the prodigious strength of the government’s balance sheet. The government of Abu Dhabi has little direct or explicitly guaranteed debt and it has one of the largest sovereign wealth funds in the world with more than $300 billion of assets according to the IMF’s April 2011 staff report. Abu Dhabi has one of the highest GDP per capita in the world despite cyclical swings in oil prices and production. In addition, Abu Dhabi has a long history of domestic political stability and enjoys strong relations with its fellow emirates within the UAE, most neighboring countries, and the major global powers including the US.
Abu Dhabi’s ratings are constrained by the following factors: The emirate’s regional geopolitical environment is more troubled than that of other highly rated countries, while its political, administrative, and legal institutions are still developing. The emirate’s economic performance is volatile given its dependence on hydrocarbons. Although we note that Abu Dhabi’s large stock of offshore assets, most of which are invested in non-hydrocarbon sectors, provides financial diversification. The government of Abu Dhabi currently has little direct or guaranteed debt, but the IMF reports that debt of government-related enterprises is high by international comparisons. In addition, Abu Dhabi has over the past two years provided substantial financial support to the government of Dubai and its own commercial banks. Although the scope and disclosure of Abu Dhabi’s official economic data are improving, they remain relatively limited for a highly rated country. This hinders analysis.
Abu Dhabi’s ratings have a stable outlook
Because of its very strong fiscal position, Abu Dhabi’s Aa2 rating has not been threatened by the debt problems of some of Dubai’s government-related issuers. The emirate’s non-hydrocarbon sector and fiscal accounts were adversely affected in 2009, but have since rebounded in line with the rise in the global price of oil and recovery in the global economy. We note that official fiscal data significantly understate the strength of the budget because they exclude investment income and off-budget oil revenues (we estimate both items and include them in our presentation of the fiscal balance). In addition, government finances took on the burden of providing extraordinary financial support for Abu Dhabi banks and the Dubai government. The Dubai government continues to address the restructuring and refinancing of its various state-owned corporations “and we do not rule out the need for additional support.”
