Fitch Ratings has affirmed
The ratings have been removed from Rating Watch Evolving.
The rating actions follow the company's reorganisation.
Fitch rates Masdar on a top-down basis with a two-notch differential with Abu Dhabi (AA/Stable). This reflects Fitch's view that Masdar was created to perform a highly strategic public mission for the Emirate of Abu Dhabi and that the latter has a clear interest in ensuring Masdar's financial stability. This translates into a support score of 20 points out of a maximum of 60 points according to Fitch's Government-Related Entities (GRE) Rating Criteria.
Masdar's Standalone Credit Profile is 'a-' and reflects a leverage ratio (net adjusted debt-to-EBITDA) expected to remain around 4x in Fitch's rating case scenario, amid moderate volatility of the main revenue and cost items.
KEY RATING DRIVERS
Status, Ownership and Control:
Masdar is a commercial law company indirectly owned by the Emirate of Abu Dhabi, through intermediate holding companies,
Fitch considers the government exercises broad control over the company's strategy and operations, notably with the presence of a Federal Cabinet member on its board and its investment strategy is discussed as the highest levels of the government. Masdar's investment and borrowing are subject to the approval of its shareholders. The change of ownership has had a neutral impact on this assessment.
Support
Fitch considers that Masdar has received consistent support since its inception in 2007, leading to very low reliance on external debt despite the extent of its projects. State support, in the past mostly dedicated to the development of Masdar City, has taken the form of initial in-kind contributions of land, regular direct government grants, as well as equity injection. With a narrower focus on renewables and clean energy investment, and a commitment from the government to reach 100GW produced by Masdar by 2030, significant future equity injections are expected. This is to limit leverage at the holdco level and maintain a strong underlying financial profile.
Fitch considers there are no legal or policy restriction to timely government support to Masdar if needed.
Socio-Political Implications of Default:
Fitch considers that a default by Masdar on its financial obligations is unlikely to endanger the provision of an essential public service or have strong economic repercussions for
Fitch understands that Masdar is of great political importance for the government due to its central role in
Financial Implications of Default:
Despite the Masdar brand being closely associated with the Emirate of
Fitch considers that a default by Masdar on its financial obligations, due to its shareholders and its proximity with the government could have a moderate impact on the availability and cost of finance by the government and other GREs relying on government support.
Masdar has not been singled out by the government as more likely to receive exceptional support like some of the larger
Standalone Credit Profile
Fitch assesses Masdar's SCP at 'a-', reflecting the combination of leverage expected to remain below 4x in our rating-case scenario and a 'Midrange' assessment of the Revenue Defensibility and Operating Risk qualitative risk factors.
The notch-specific 'a-' SCP is derived from the leverage ratio being in the higher end of the band for 'a' category according to the GRE notching guideline table ('a' category corresponding to leverage between 0x and 4x).
Revenue Defensibility
Masdar's revenue mix has changed as a result of the merger. Previously, Masdar's revenue came from two main sources - rent-related income from the management of Masdar City and financial income from its investments in clean-energy projects - which are supported by strong growth prospects linked to the increase in global investments in the energy transition. However, it remains exposed to the inherent volatility of the energy market and increased competition among Gulf countries to attract foreign investments, in Fitch's opinion.
Following the reorganisation of the entity it will no longer receive rents from Masdar City. However, there will be increased investment income from several US-based assets transferred from Mubadala during the reorganisation process. Masdar is also expected to expand significantly and with government support through equity injections, considerably increasing the level of investment income generated by Masdar.
Masdar's financial income from its investments in clean energy projects should benefit from the global surge in investments in the sector amid increased climate change awareness. A material share of the dividend income received by Masdar comes from the
Masdar's revenue are partly secured by long-term contracts, providing some predictability.
Operating Risk
Fitch considers Operating Risk a 'Midrange' factor for the assessment of Masdar's SCP. It is linked to the combination of 'Midrange' operating costs, linked to moderate volatility of expenses and a material capex programme, and 'Midrange' resource management.
Fitch considers that Masdar's operating cost drivers are well identified, with moderate potential volatility. Staff costs remain the main cost item and have been growing by 5% on average below revenue growth. Masdar has a material capex programme linked to planned investment in clean energy projects, but it also has some flexibility to scale down if the macroeconomic environment remains uncertain.
Financial Profile
There have been significant changes to the underlying cashflows for Masdar and how it operates. We expect there to be continued high demand domestically and internationally for renewable energy products, with oil and gas supplies interrupted by the conflict in
Derivation Summary
Fitch considers Masdar a GRE of
The combination of a GRE score of 20 points and a SCP of 'a-' (i.e. four notches away from the sovereign) leads to a top-down rating approach minus 2, leading to a Long-Term IDR of 'A+'.
No criteria variation was required for this assessment as the indirect owner remains
Short-Term Ratings
As an issuer rated on a top-down basis from
Debt Ratings
Non-recourse project finance lending across Masdar's portfolio totals
Key Assumptions
Masdar has seen significant changes occur this year, with revision of its policy goals and a change to its ownership structure. As a result we expectto significant shifts in the way its operates and its projected revenue and cost growth. The focus will be on clean energy investments completed mainly on a project-by-project basis, with non-recourse debt and higher levels of ownership. Cash flows are expected to increase materially due to further equity investment by shareholders and the
Due to this change, we have used the business plan provided by the entity as our base case scenario. We have applied stresses to this base case scenario to reach our rating case.
Liquidity and Debt Structure
Masdar's liquidity is mainly ensured by a high level of unrestricted cash at end-2021 reaching AED400 million.
Issuer Profile
Masdar is a GRE of
Rating Sensitivities
Factors that could, individually or collectively, lead to negative rating action/downgrade:
Due to the GRE criteria's notching guideline table Masdar's IDR is sensitive to both its sponsor's IDR and its SCP.
A downgrade of Masdar's IDR could result from a downgrade of
A revision of Fitch's assessment of state support could also lead to a downgrade.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
An upgrade of Masdar's IDR could result from an upgrade of
A revision of Fitch's assessment of state support could also lead to an upgrade.
ESG Considerations
Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of '3'. This means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. For more information on Fitch's ESG Relevance Scores, visit www.fitchratings.com/esg
Public Ratings with Credit Linkage to other ratings
The ratings are credit-linked to those of
Best/Worst Case Rating Scenario
International scale credit ratings of Sovereigns, Public Finance and Infrastructure issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of three notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from '
(C) 2022 Electronic News Publishing, source