Ipic’s 2013 debt maturities remain challenging

Abu Dhabi-based International Petroleum Investment Company’s (Ipic) $3.1 billion (Dh 11.377 billion) debt maturities for 2013 are challenging, a ratings agency said on Wednesday.

Fitch Ratings believes Ipic's liquidity is presently limited, and estimates there is around $1.3 billion of available cash at the parent company level versus 2012 debt maturities of $1.5bn (excluding about $1.4bn of "on demand" borrowings that can be called by lenders at any time).

“Ipic's debt maturities of $3.1bn in 2013 remain challenging despite early repayment in May 2012 of Dh1.89bn ($500mn) of two outstanding facilities which were each maturing in 2013. Ipic also refinanced certain parent-level bank syndicate credit facilities in March 2012. An onerous repayment schedule could put negative pressure on the company's liquidity,” Fitch said in a note released on Wednesday.

Ipic's debt accounted for nine per cent of Abu Dhabi's GDP in 2011. Ipic's subsidiary, Aabar Investments, investing in the non-hydrocarbon sectors, had debt of $9.7bn at the end of 2011 or four per cent of Abu Dhabi's GDP. Aabar's debt is non-recourse to Ipic.

Fitch understands that most of Ipic's short-term debt is related to the Abu Dhabi Crude Oil Pipeline (ADCOP) project (related debt of $2.9bn). Ipic intends to repay a material portion of this debt maturing over 2012 and 2013 by realising value of the ADCOP project, either through government or commercial channels. Ipic has invested approximately $4bn in the project, which became operational in July 2012.

Fitch expects it to be able to refinance its obligations on international capital markets. International and domestic bank relationships also appear strong.

Fitch affirmed Ipic’s Long-term local and foreign currency Issuer Default Ratings (IDR) at 'AA' and Short-term IDR at 'F1+'. Ipic's and Ipic GMTN Limited's foreign currency senior unsecured debt ratings have also been affirmed at 'AA'. The Outlook for the Long-term IDRs is Stable, in line with the Outlook for the Emirate of Abu Dhabi ('AA'/Stable/'F1+').

The ratings agency said negative rating action could occur if Ipic fails to maintain a ratio of total portfolio value to total net borrowings of more than 1.5x at the Ipic parent company level. The ratio was 1.9x as of December 2011. Fitch currently views this coverage ratio as being satisfactory for an investment-grade (IG) rating given Ipic's profile, but low versus IG investment holding companies in general.

The ratings could change if Ipic embarks on a fundamental deviation from its core energy investment mandate with or without the support or involvement of the government. A material deviation away from core investments in energy-related sectors that is greater than 20% of the total group portfolio value would lead Fitch to re-evaluate the ratings.

Ipic's standalone credit profile, based on its relatively weak credit ratios compared with other investment holding companies, is assessed in the 'BB' rating category. In 2011, Ipic's parent level debt almost doubled to $19.2bn mainly due to the Compania Espanola De Petroleos (CEPSA) acquisition. This resulted in a weakening of the company's total portfolio value to total net borrowings ratio to 1.9x in 2011 from 2.7x in 2010. Ipic's parent company dividend and interest income to interest expense ratio was a low 1.3x in 2011.

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