Fitch affirms Ipic at 'AA', outlook stable

Fitch Ratings has affirmed the International Petroleum Investment Company PJSC (Ipic) of Abu Dhabi's Long-term local and foreign currency Issuer Default Ratings (IDR) at 'AA' and Short-term IDR at 'F1+'.

Ipic GMTN Limited's foreign currency senior unsecured rating has 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+').
 
Ipic's ratings are aligned with Abu Dhabi's sovereign ratings under Fitch's parent and subsidiary rating linkage methodology.

Fitch considers Ipic to be a strategic asset to the government in its role as an investment vehicle for the state in the domestic and foreign hydrocarbon and petrochemical sectors.

Ipic is also responsible for managing key investment projects that are considered important to the United Arab Emirates' (UAE) national security. For example, Ipic is overseeing the Abu Dhabi Crude Oil Pipeline (Adcop) project, which will allow the UAE to increase exports from its Fujairah terminal on the Gulf of Oman. The new 370km pipeline will also lower shipping costs for the UAE's oil exports, as shippers charge a premium due to the higher perceived risk of entering the Straits of Hormuz.
 
The pipeline will have a capacity of 1.5 million barrels per day (bpd) when it is completed in late 2011.

Ipic's ratings rely on continuing support from the sovereign.

If the company embarked on a fundamental deviation from its core business mandate without corresponding support or involvement from the government, there would be potential for ratings volatility.

Additionally, high leverage, resulting in a ratio of portfolio value to total net borrowings of less than 1.5x could also result in a downgrade of the ratings or a revision of the Outlook to Negative.
 
Ipic's debt levels remain manageable following the issuance of €1.25 billion notes maturing in 2016, €1.25bn notes maturing in 2021 and £550 million notes maturing in 2026 by Ipic GMTN Limited in March 2011.
 
Proceeds from the notes were used to fund the acquisition of the remaining 53 per cent of shares in Cepsa that Ipic did not already own, including a 48.8 per cent stake from Total SA ('AA'/Stable). Fitch anticipates key leverage metrics such as the ratio of portfolio value to total net borrowings to remain adequate for the company's rating.
 
Fitch believes Ipic's liquidity remains strong, and anticipates that around $2 billion of available cash remains at the parent company level following the payment for Cepsa versus modest near-term debt maturities.

Other credit metrics on a consolidated basis, such as dividend net interest cover (including cash on balance sheet), are also likely to remain sufficient. This ratio was more than 7x as of December 2010.

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