Sovereign entities as market makers means less mystery

International Petroleum Investment Company (IPIC), an Abu Dhabi-based investment company, announced on Monday that it has been assigned Aa2/AA/AA long term credit ratings by Moody’s, Fitch Ratings and Standard and Poor’s, with a stable outlook.  “While we have no immediate plans to raise external capital, the ratings will facilitate future engagement with the debt capital markets if IPIC wishes to pursue this,” commented its managing director, Khadem al-Qubaisi, who added that the ratings were a means of “reinforcing strong corporate governance principles and enhancing transparency.”  According to one analyst, the ratings are “a signal that [state sovereign] funds are eager to keep spending and [are] willing to borrow to increase their buying power.”

IPIC’s ratings acquisition comes on the heels of a similar move by another Abu Dhabi investment arm, Mubadala Development Corp, which issued its first annual report last week and also recently announced plans to set up a medium-term bond program.  According to news agencies, “both companies have taken on billions of dollars in debt to fuel their growth in recent years, some of which soon needs to be refinanced.  That sets them apart from the secretive and far larger Abu Dhabi Investment Authority (ADIA), which likens itself to a pension fund and is not understood to seek out external sources of funding.”

Most importantly, the move is a another step in the early maturation of Gulf fixed income, on both a state and corporate level.  In March, Abu Dhabi raised the first $3bn of a $10bn sovereign bond program to secure funds for state entities and to help develop a domestic bond market, while Qatar and Bahrain followed suit.  Pundits at the time noted that such benchmarks are vital to the emergence of local credit markets, as corporate issuers in the region can ultimately price their own debt against them.