Fitch Ratings has affirmed Abu Dhabi Ports Company PJSC’s (ADP) Long-Term Issuer Default Rating (IDR) at ‘A+’. Fitch has also affirmed ADP’s euro medium-term notes programme (EMTN programme) and the USD1 billion 2031 senior unsecured notes at ‘A+’. The Outlooks are Stable.
RATING RATIONALE
ADP has finalised placement of additional 1,250 million common shares. The offering diluted the Abu Dhabi government’s (AA/Stable) ownership of ADP to 75.44% from 100%. The newly-placed shares were mostly allocated among UAE-based entities and UAE-national individuals. The shares have the same rights and obligations.
In Fitch’s opinion, placement of the 24.56% shares does not change ADP’s overall assessment under Government-Related Entities Rating (GRE) criteria as an entity with strong linkage with the Abu Dhabi government. In Fitch’s opinion, the government (via Abu Dhabi Developmental Holding Company, ADQ) will continue to have full control of the board of directors as well as strategic, operational and financial direction of ADP, which remains strategically important to Abu Dhabi. The company has a special status as Abu Dhabi’s exclusive developer and regulator of non-oil and gas ports. ADP is also one of the key companies that fosters Abu Dhabi’s non-hydrocarbon economy and diversification.
KEY RATING DRIVERS
Fitch rates ADP using a top-down rating approach under its GRE criteria. ADP is rated two notches below the government of Abu Dhabi, which reflects our assessment of its strong linkage with Abu Dhabi government. ADP is 75.44% owned by the government of Abu Dhabi via ADQ, which Fitch views as an instrumental state-owned holding company of the government’s interests in various public companies.
We assess ADP’s Standalone Credit Profile (SCP) at ‘bbb+’, which reflects a largely contracted revenue base resulting in long-term cash flow visibility and stability, and synergies with industrial zones that should fuel the group’s Khalifa Port (KP) operations. It also reflects the group’s expected re-leveraging due to a large but flexible capex plan, which will be funded from a mix of cash flow generation, equity injections and debt.
Risk Assessments
Fitch assesses ADP’s GRE risk factors as follows:
Status, Ownership and Control – ‘Very Strong’
Support Track Record and Expectations – ‘Strong’
Socio-Political Implications of Default – ‘Strong’
Financial Implications of Default – ‘Moderate’
Fitch assesses ADP’s SCP risk factors as follows:
Revenue Risk – Volume: ‘Midrange’
Revenue Risk – Price: ‘Stronger’
Infrastructure Development /Renewal Risk: ‘Midrange’
Debt Structure: ‘Midrange’
PEER GROUP
The closest peer in our portfolio is DP World PLC (DPW, BBB-/ Stable). DPW is much larger in size and geographically diversified but ADP has lower leverage and a largely contracted revenue base, which ensures long-term cash-flow visibility and stability and justifies rating differential.
RATING SENSITIVITIES
Factors that could, individually or collectively, lead to negative rating action/downgrade:
– A downgrade of Abu Dhabi’s sovereign rating;
– A perceived reduction in implied support and commitment from the government, as well as in the importance of ADP to Abu Dhabi government’s strategic objectives.
Factors that could, individually or collectively, lead to positive rating action/upgrade:
– An upgrade of Abu Dhabi’s sovereign rating or an upward reassessment of one of the qualitative factors under our GRE Criteria.
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 ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.
TRANSACTION SUMMARY
ADP is an Emiri-decreed company, consolidated under Abu Dhabi’s balance sheet. ADQ oversees ADP’s strategic decisions and ADP’s board members predominantly comprise prominent Emiratis who work for Abu Dhabi GREs.
Established in 2018, ADQ is an Abu Dhabi-based investment and holding company with a broad portfolio of major enterprises in various sectors UAE’s economy, including energy and utilities, food and agriculture, healthcare and life sciences, and mobility and logistics. As a strategic partner of Abu Dhabi’s government, ADQ’s is committed to accelerate the transformation of the emirate into a globally competitive and knowledge-based economy. Fitch views ADQ as a government-owned holding company of the state’s interests in related companies as operations and debt are largely at subsidiaries level.
ADP’s flagship KP is strategically integrated with the economic and free zone of Kizad, which should increasingly feed port operations. In 2020, the government transferred its ownership of ZonesCorp to ADP, which adds new industrial zones to ADP’s portfolio and will benefit from strategic alignment with Kizad. Both Kizad and Zonescorp are intended to facilitate industrial diversification and provide infrastructure support in a cost-efficient manner to increase contribution of industrial activities to the emirate’s GDP.
CREDIT UPDATE
In 2021, based on preliminary unaudited financials, revenue grew 14% yoy to AED 3.9 billion (USD1.1 billion) compared with AED3.4 billion (USD0.9 billion) in 2020, driven by volume growth and new partnerships. Preliminary unaudited EBITDA increased to AED1.6 billion (USD 434 million), up from AED1.5 billion (USD422 million) in 2020.
Based on preliminary data, container volumes increased 5% yoy to 3.4 million twenty-foot equivalent units in 2021. Container volumes were 22% higher than the pre-pandemic level of 2019 due to increased connectivity and trans-shipment volumes amid higher demand for goods. General cargo volumes rose sharply by 50% to 45 million metric tonnes in 2021, up from 30 million metric tonnes in 2020.
In January 2022, ADP received ownership stakes from ADQ in two listed companies, comprising a 22.3% stake in logistics firm Aramex and a 10% stake in UAE-based contractor National Marine Dredging Company.
In February 2022 ADP finalised placement of additional 1,250 million common shares. The shares were listed on Abu Dhabi stock exchange. The placement’s key purpose is to raise funds for ADP’s growth projects, including asset acquisitions.
Summary of Financial Adjustments
EBITDA-margin projections are adjusted to include as operational expenses the financing costs and amortisation of right-of use reported according to IRFS 16 guidelines, resulting in lower EBITDA.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
PUBLIC RATINGS WITH CREDIT LINKAGE TO OTHER RATINGS
ADP’s rating is two notches below the government of Abu Dhabi’s.
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.
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer’s available public disclosure.
APPLICABLE CRITERIA
Government-Related Entities Rating Criteria (pub. 30 Sep 2020)
Ports Rating Criteria (pub. 15 Oct 2020) (including rating assumption sensitivity)
Infrastructure and Project Finance Rating Criteria (pub. 23 Aug 2021) (including rating assumption sensitivity)
APPLICABLE MODELS
Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).
Corporate Monitoring & Forecasting Model (COMFORT Model), v7.9.0 (1)
ADDITIONAL DISCLOSURES
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
Source: Fitch Ratings