Moody's Investors Service has downgraded, some by several notches, the ratings of all the seven government-related issuers (GRIs) owned by the Abu Dhabi and UAE governments.

The ratings action anounced today concludes its review for downgrade of the GRIs initiated on December 9, 2009.

Ratings affected by today's announcement include the following:
* Mubadala Development Company (Mubadala): Aa3 / Prime-1, stable outlook, from Aa2 / Prime-1
* International Petroleum Investment Company (IPIC): Aa3 / Prime-1, stable outlook, from Aa2 / Prime-1
* Tourism Development & Investment Company (TDIC): A1 , stable outlook, from Aa2
* Abu Dhabi National Energy Company (Taqa) to A3 / Prime-2, stable outlook, from Aa2 / Prime-1
* Emirates Telecommunications Company (Etisalat) to Aa3, stable outlook, from Aa2
* Dolphin Energy (Dolphin) to A1, stable outlook, from Aa3
* Aldar Properties (Aldar) to Ba1, negative outlook, from Baa2

As regards the ratings of Mubadala, IPIC and TDIC, which remain within close proximity of Abu Dhabi's sovereign rating, Moody's has concluded that these organisations are vehicles of government policy, and are embedded in a framework of government funding and oversight that enables them to achieve ratings close to the ratings of the sovereign itself. All three entities remain heavily funded directly by the government in addition to their own capital market and bank borrowing activities.

Going forward, the ratings of all three companies are expected to continue to move within one (Mubadala, IPIC) and two (TDIC) notches of the sovereign.

Whilst the Abu Dhabi government also expressed strong statements of support to Taqa, Dolphin and Aldar, Moody's has decided to introduce a greater level of distinction between the ratings of these companies and those of the government, thus resulting in downgrades.

Taqa, whose baseline credit assessment (BCA) - the measure of its fundamental creditworthiness excluding any exceptional support from the government - was unchanged at Ba1, continues to enjoy high support according to Moody's methodology.

However, due to the lack of ongoing and regular funding from the government and a greater commercial orientation of its business activities - including now substantial foreign engagement - the government support factored into its rating was lowered from the previously highest level. Accordingly ratings have been lowered to A3. 'Whilst exceptional and timely support remains high, we believe it cannot be regarded as absolute,' said the statement.

Moody's believes, and indeed ratings assume, that Taqa's fundamental creditworthiness will strengthen over the medium term, as the company focuses on de-leveraging its balance sheet and consolidating its business profile rather than engaging in further large-scale acquisitions.

The assumed support of Dolphin, whose BCA was unchanged at Baa1, was also lowered marginally to reflect the company's commercial - albeit highly strategic - business activities. Dolphin's rating is now A1. Both Dolphin, which sources and transports gas from Qatar by pipeline to the UAE, and Taqa, which majority owns the bulk of Abu Dhabi's power and water production assets, are viewed as very strategic.

The downgrade of Aldar's ratings to Ba1 also reflects a lowering of the support which Moody's assumes will be forthcoming to the company over time.

Although various government entities have assigned large public infrastructure projects to Aldar in the past, with a significant step-up in 2009, Aldar's portfolio still contains a significant portion of commercial projects, which will require financing beyond 2011 and for which the support mechanisms are less certain. This uncertainty, as well as the exposure to the volatile real estate market, have been expressed in the negative outlook, which relates to the company's stand-alone fundamental profile. This is unchanged at B2.

The support factored into Etisalat's ratings from the federal government was adjusted from high to medium, thus bringing it in line with other regional and international telecoms companies. This has resulted in its ratings being lowered to Aa3. The company's stand-alone profile, which remains unchanged at A2, continues to reflect its fairly benign regulatory and competitive environment, and its solid financial profile, although we expect some of its financial flexibility to be used for acquisitions abroad in line with its growth strategy.

Moody's takes strong comfort from the Abu Dhabi government's recent initiatives to establish greater control and oversight of its GRIs.

The recent establishment of a Debt Management Office (DMO) as part of the Department of Finance represents the institutional cornerstone of this initiative, thus requiring all GRIs to obtain approval for debt financing from the DMO prior to issuance. It will also allow the government to introduce greater day-to-day oversight over a GRIs financial condition, including forthcoming liquidity requirements, as well as allowing it to intervene in a timely manner, where required.

Accordingly, Moody's believes that most rated GRIs are likely to see greater equity contributions from the government, particularly those whose financial profiles are currently characterised by high leverage.

All ratings are now stable with the exception of Aldar, whose negative outlook incorporates ongoing medium term risks affecting its stand-alone profile inherent with the real estate sector.
Accordingly, Moody's expects the government framework that governs the entities - and particularly regarding those that are rated closest to the sovereign - to remain unchanged for the foreseeable future.

Moody's also expects the government to continue to strengthen its oversight over its GRIs via the newly established DMO, and to ensure that the balance sheets of those entities that are currently stretched are rectified over time.

'This is particularly the case for Taqa, where we are assuming a gradual de-leveraging over the medium term,' said the statement.

Ratings also assume that entities rated closest to sovereign level maintain timely access to government liquidity, which is particularly relevant for IPIC, which faces substantial debt refinancing requirements over the short term.

Today's rating action completes Moody's review of all seven companies, which were placed on review for downgrade on December 9, 2009. Aldar's last rating action was on January 28, 2010, when Moody's lowered its ratings given a deterioration of its BCA.-TradeArabia News Service