National Central Cooling Company (Tabreed) is under pressure to raise more money as the downturn takes its toll.
Tabreed's credit rating lowered to 'BB'
ABU DHABI // National Central Cooling Company (Tabreed) is under pressure to raise more money as the credit crunch takes a toll on its long-term plans. Standard & Poor's yesterday downgraded the company's credit rating to the "low 'BB' category" as a result of "weaker than expected financial performance partly resulting from higher than anticipated capital expenditure", said Karim Nassif, an analyst at the credit ratings agency. He warned more downgrades "could occur if the company's liquidity position further weakens".
Karl Marietta, the chief executive of Tabreed, said the problem was that the company had been growing at a high speed in the past several years and that growth required significant capital. But in the current credit squeeze that capital is very difficult to obtain. He said the company was planning to tap the connections and reputation of Mubadala Development - a state-backed fund that owns 17 per cent of Tabreed - to raise about Dh1.5 billion (US$408 million) in short-term debt to fund the construction of new plants.
"They can help us contact banks that are lending," he said. "In the UAE today, not very many are lending. We need to reach out of our typical banking market." He said this would take place in the next two months. Afterwards, Tabreed will continue with a plan started in September to begin selling off between Dh500m and Dh1bn worth of district cooling assets to long-term investors. Tabreed has already been contacted by several large infrastructure funds that indicated they would be interested in investing in the facilities, including Mubadala, Sumitomo Corporation, J Power and Korean District Heating Company, Mr Marietta said.
District cooling is a more efficient air-conditioning system that uses central plants to create chilled water, which is then pumped to surrounding buildings. Standard & Poor's said it may increase Tabreed's credit rating as the Government takes a bigger role in assisting the company. It now views Tabreed as a "government-related entity" because of the "increasing government and quasi-government ownership and involvement in the company's operations and finances... and the strategic importance of the company to the development of Abu Dhabi".
In addition to the stake owned by Mubadala, another 11 per cent is owned by government-related entities - making Abu Dhabi an indirect owner of 28 per cent of the company. Mr Marietta has said previously the health of the property market would have an impact on Tabreed. Tabreed is the main provider of district cooling for Abu Dhabi and has joint ventures in the works with Aldar Properties and Sorouh Real Estate - the largest developers in the emirate. If there was a slowdown in development or cancellation of any projects, it would filter down to subsidiary companies like Tabreed, he said.
Nonetheless, Mr Marietta said he believed Standard & Poor's would upgrade the company again when it saw the results of its capital raising endeavours in the next few months. "We believe, and I think Mubadala shares this belief, we will reverse this downgrade as Standard & Poor's sees the efforts under the new business model," he said. @Email:firstname.lastname@example.org