Moody's assigns first-time A3 rating to SENAAT and (P)A3 to its Sukuk Programme; outlook stable

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1. 11 /21/2018 about:blank Rating Action: Moody's assigns first-time A3 rating to SENAAT and (P)A3 to its Sukuk Programme; outlook stable 20 Nov 2018 London, 20 November 2018 -- Moody's Investors Service ("Moody's") has today assigned a A3 long-term issuer rating to General Holding Corporation PJSC (SENAAT ). Concurrently, Moody's has also assigned a (P)A3 rating to SENAAT's $3 billion trust certificate issuance programme established under SENAAT Sukuk Limited, a Cayman Islands special purpose vehicle. The outlook on all ratings is stable. This is the first time Moody's has assigned a rating to SENAAT. RATINGS RATIONALE As a wholly-owned entity of the Government of Abu Dhabi (Aa2 stable), Moody's has classified SENAAT as a government-related issuer (GRI). The company's A3 long-term issuer rating incorporates a baseline credit assessment (BCA), a measure of standalone credit quality, of ba1 combined with four notches of GRI uplift. The rating incorporates Moody's assumption of high extraordinary support from the Government of Abu Dhabi and SENAAT's high default dependence with the government. The substantial rating uplift from the BCA reflects Moody's view of the importance of SENAAT within the context of the various Abu Dhabi GRIs and its mandate to act as a vehicle to implement industrial projects to diversify the domestic economy. SENAAT's BCA of ba1 is underpinned by (1) a good track record of growth and profitability through a focused investment strategy; (2) a degree of industry diversification through ownership in several mature companies; (3) a deleveraging financial profile after having completed a large investment phase; and (4) a supportive domestic environment where long-term economic growth in Abu Dhabi will continue to benefit SENAAT's portfolio companies. At the same time, the ba1 BCA also reflects (1) high revenue and asset concentration exposure to the United Arab Emirates (UAE); (2) small scale of operations of individual businesses relative to global peers; (3) significant investment concentration to National Petroleum Construction Company (NPCC) and Emirates Steel which are both operating in cyclical industries; and (4) high gross leverage in the recent past with limited track record of maintaining credit metrics at levels defined under new financial policy. The BCA is solidly positioned in the ba1 category and one with an improving trajectory in terms of credit metrics under SENAAT's new financial policy of maintaining net debt/EBITDA below 2.0x on a reported basis. Following a period of elevated leverage between 2013 to 2016, Moody's adjusted gross debt/EBITDA has declined to 3.9x for the last twelve months (LTM) ended 30 June 2018 from 6.0x as of year-end 2016. Over the same period, reported net debt/EBITDA declined to 1.9x from 3.6x. SUKUK CERTIFICATES The (P)A3 rating assigned to the trust certificate issuance programme is at the same level as the long-term issuer rating of SENAAT. Sukuk certificates issued under the programme will rank pari passu to SENAAT's other unsecured obligations and certificate holders in Moody's view will effectively be exposed to SENAAT's senior unsecured credit risk. Holders of the certificates will not be exposed to the performance risk of the sukuk portfolio assets and do not have any preferential claim or recourse over the relevant trust assets, or rights to cause any sale or disposition of the trust assets except as expressly provided under the English Law transaction documents. The proceeds of the certificates will be used by SENAAT Sukuk Limited (in its capacity as the Issuer) to acquire a portfolio of assets. This will comprise of (1) no less than 34% of the aggregate face amount of the certificates in Ijara assets (specifically certain production units of Emirates Steel); and (2) no more than 66% of the aggregate face amount of the certificates in Shari'ah-compliant commodities to be sold to SENAAT on a deferred payment basis pursuant to the terms of the Murabaha Agreement. SENAAT Sukuk Limited will collect rental income from the Ijara assets under the Lease Agreement and instalment profit amounts as part of the deferred sale price under the Murabaha Agreement to make periodic profit distributions to certificate holders. Following the occurrence of a dissolution event, SENAAT (in its capacity as the Obligor) is required to (1) purchase from the Issuer the portfolio of Ijara assets at a predetermined exercise price irrespective of the performance of the underlying assets; and (2) pay the Issuer the aggregate outstanding amounts of the deferred sale price. The exercise price and the aggregate outstanding amounts of the deferred sale price will then be used by the Issuer to pay the holders of the certificates. A definitive rating will be assigned to drawdowns on the sukuk programme upon Moody's satisfactory review of the final terms and conditions and legal opinions at the time of issuance. Moody's also notes that its sukuk rating does not express an opinion on the programme structure's compliance with Shari'ah law. LIQUIDITY SENAAT group's liquidity position is adequate and is being managed prudently. As of 30 June 2018 (LTM), the group reported AED2.3 billion ($625 million) of funds from operations (FFO) and Moody's forecasts FFO over the next twelve months to be about AED2.1 billion ($572 million). Capital expenditure over the same period is forecasted to be about AED750 million ($204 million) and dividends to minority investors of about AED110 million ($30 million). Total reported group debt as of 30 June 2018 stood at AED7.1 billion ($1.9 billion) relative to group cash balances of AED3.1 billion ($844 million) while AED2.2 billion ($597 million) of debt was due over the next twelve months. Liquidity is bolstered by a $400 million revolving credit facility (RCF) at the SENAAT holding company (holdco) level. The first tranche comprising of two-thirds of the RCF size will expire in December 2019, while the remaining will expire in December 2021. Proceeds from SENAAT's proposed sukuk issuance will be used to refinance group debt, including subsidiary level secured debt. about:blank 1/5
2. 11 /21/2018 about:blank RATING OUTLOOK The stable outlook reflects the expectation of improvements in the credit metrics over the coming 12-18 months such that SENAAT achieves and maintains its financial policy objective of net debt/EBITDA being maintained below 2.0x (on a reported basis). It also reflects expectation of no large-scale investments and the group maintaining healthy liquidity, particularly at the holding level through the RCF given that holdco cash balances are minimal. WHAT COULD CHANGE THE RATING UP/DOWN SENAAT's issuer rating could be upgraded if the ba1 BCA is upgraded, reflected through the strengthening of the aggregate credit quality of the opcos, reduced concentration in the investment portfolio and by displaying a track record of maintaining its stated financial policy. Positive pressure is therefore likely if gross debt continues to be reduced, particularly at Emirates Steel level, in combination with opcos maintaining a trend of operational improvement such that adjusted gross debt/EBITDA for the group can be sustained below 3.0x through the cycle. In addition, a rating upgrade of the Government of Abu Dhabi could lead to an upgrade of SENAAT's issuer rating. The rating could be downgraded should the BCA weaken, as an example if the operational performance of the opcos deteriorate. The rating could face downward pressure if adjusted gross debt/EBITDA trends towards 4.5x or if group and/or holdco liquidity weakens. SENAAT's issuer rating could also be downgraded as a result of a reduction in Moody's current assumption of high government extraordinary support or as a result of a downgrade in the Government of Abu Dhabi's rating. PRINCIPAL METHODOLOGY The methodologies used in these ratings were Investment Holding Companies and Conglomerates published in July 2018, and Government-Related Issuers published in June 2018. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies. COMPANY PROFILE General Holding Corporation PJSC (SENAAT) is an industrial group wholly-owned by the Government of Abu Dhabi and headquartered in Abu Dhabi, UAE. SENAAT has a number of mature subsidiaries, namely Emirates Steel Industries PJSC (integrated steel producer), National Petroleum Construction Company (Oil & Gas EPC contractor), Agthia Group PJSC (food and beverages company), Arkan Building Materials PJSC (cement and building materials) and Al Foah Company LLC (producer and marketer of dates). Notable non-consolidated joint-ventures and associates include a 50% ownership in Dubai Cable Company (Private) Limited (a profitable company that manufactures power cables), as well as a 50% stake in Taweelah Aluminium Extrusion Company (TALEX) LLC (aluminium extrusion-based products) and a 51% stake in Al Gharbia Pipe Company LLC (large-diameter steel pipes) -- both of which are relatively young companies. As of 30 June 2018 (LTM), the company recorded AED15.6 billion ($4.2 billion) of revenues, AED2.2 billion ($612 million) of Moody's adjusted EBITDA and AED556 million ($151 million) of adjusted net profit. About 78% of the revenues and 70% of EBITDA were derived from NPCC and Emirates Steel over the same period. The Local Market analyst for these ratings is Rehan Akbar, +971 (423) 795-65. REGULATORY DISCLOSURES For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Artem Frolov VP - Senior Credit Officer Corporate Finance Group Moody's Investors Service Limited, Russian Branch 7th floor, Four Winds Plaza 21 1st Tverskaya-Yamskaya St. Moscow 125047 about:blank 2/5
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