The National Central Cooling Company, or Tabreed, has rescheduled more than 25 per cent of its future district cooling plantsABU DHABI // as Abu Dhabi developers delay projects in response to the property downturn, a top company official says. The company plans to complete 16 plants this year, but expansion plans for next year and later are being scaled back, said Sujit Parhar, the chief executive.
"Nothing is cancelled, but we are changing the schedule of plants that haven't been built after discussions with developers," he said. The change in strategy came as Standard & Poor's yesterday downgraded the long-term rating of Tabreed to "BB minus" from "BB", and placed the rating on CreditWatch "with negative implications". An Islamic bond issued by the company was also downgraded to "BB minus" from "BB".
Karim Nassif, an analyst at the ratings agency, said the downgrades were triggered by lower than expected second-quarter profits and a potential shortage of funding to complete projects. "The company faces a high ongoing exposure to refinancing risk through the rollover of various short-term banking facilities," he said. "While this rollover has been successfully undertaken in the year to date, the refinancing risk does leave Tabreed vulnerable to a further stress on its already weak liquidity position. This situation also illustrates our uncertainty as to the sustainability of the company's business model and capital structure."
Tabreed has to find another Dh900 million (US$245m) to complete its 16 plants this year, after already securing Dh1.1 billion from banks. Stephen Ridlington, the chief financial officer, said yesterday the company was already in advanced discussions with several local banks to secure the rest of the funding. He said the downgrade by Standard & Poor's was "surprising". "While they are right to point to the fact that funding has not yet been delivered, we are confident it will be delivered," he said. "There's no question the liquidity problem will be solved."
Mr Ridlington said Tabreed had recently undergone a management shake-up. Mubadala Development, Abu Dhabi's strategic investment arm, has also taken a more direct role in the company. The Abu Dhabi Government owns about 28 per cent of the company through direct and indirect stakes. "The situation we are in will not happen again," Mr Ridlington said. "The growth requirements of the last two or three years of the boom put a lot of pressure on the company."
While future growth is now being slowed in line with the economy, Tabreed executives believe it has the potential to increase several-fold in the coming years. The Abu Dhabi Plan 2030 to redevelop swathes of the city and expand it out on to new islands will require about 3 million tonnes of cooling. Tabreed now produces about 340,000 tonnes. "The challenge is how you are going to fund it," Mr Parhar said. "That is what we have been facing."
Tabreed's liquidity position has been a critical concern for the company since the global credit markets froze last year in the wake of the subprime lending crisis in the US. However, local banks have shown some appetite for the company's debt. In July, First Gulf Bank awarded Tabreed a Dh750m credit line. Tabreed had earlier secured a Dh268m Islamic loan from Abu Dhabi Commercial Bank. District cooling is a more efficient system of air conditioning, where chilled water is produced at a central station and pumped through pipes into surrounding buildings.