International Petroleum Investment Company

Transcription

1 International Petroleum Investment Company The International Petroleum Investment Company (IPIC; Aa3s/AAs/AAs) is one of Abu Dhabi's (Aa2s/AAsAAs) governmentowned investment vehicles (also referred to as sovereign wealth funds). It was established by Emiri Decree in 1984 (Law 3/1984). The government of Abu Dhabi owns 100% of IPIC. IPIC plays an integral role in the government of Abu Dhabi's strategy to secure and develop end markets for the emirate's crude oil production. Its mandate includes, among others, safeguarding the transportation and export of Abu Dhabi's crude oil by identifying longterm international investments in the hydrocarbon markets and an economic mandate to foster diversification of the economy. To fulfill this mandate, IPIC has multiple strategic shareholdings, forming a large and diversified portfolio of long-term investments. IPIC is also responsible for managing key investment projects that are considered important for the national security of the United Arab Emirates (UAE). This includes the construction of the Abu Dhabi Crude Oil Pipeline, which will provide an alternative to the current vulnerable shipping route. IPIC is of crucial strategic importance to the government of Abu Dhabi. This is reflected in the critical role it plays in Abu Dhabi's official long-term development strategy and its integral link to the government. Formally, IPIC enjoys the full and unconditional support from the government of Abu Dhabi and is considered "irreplaceable". This was declared in a statement by the Abu Dhabi Department of Finance in March We consider the support from the government to be very strong. Both S&P and Fitch rate the entity at the level of its supporting government, Moody's rates it one notch below that of Abu Dhabi. Abu Dhabi is one of seven emirates constituting the UAE. The federation comprises Abu Dhabi, Ajman, Dubai, Fujairah, Ras al- Khaimah, Sharjah, Umm al-quwain. Abu Dhabi is the capital of the UAE and the largest emirate in terms of area (67,340 sq. km.), covering 86.7% of the UAE's total area. It is the second largest emirate in terms of population (after Dubai) with about 1.6mn inhabitants. UAE is a constitutional monarchy with a presidential system of government. Abu Dhabi is ruled by Sheikh Khalifa bin Zayed Al-Nahyan. The large Al- Nahyan family is very popular and uncontested, thus providing political and social stability. Sheikh Khalifa's half-brother, Crown Prince Sheik Mohammed bin Zayed Al-Nahyan, is the successor and currently the Chairman of the Executive Council. He is an important driving force in the modernization of Abu Dhabi. The economy benefits from vast oil and gas reserves, contributing significantly to the very high GDP per capita level, which is expected at USD 99,802 in 2010 (S&P). The emirate has a strong track record with respect to budgetary performance and has an estimated net asset position of 240% of GDP. This strong financial position mitigates higher geopolitical risks due to the emirate's geographic location. Contents Profile of IPIC 2 Public policy mandate 2 Government support 4 Governing bodies & government oversight 4 Funding 5 The Emirate of Abu Dhabi IPIC's owner 7 Appendix 10 Overview of selected government-related entities of Abu Dhabi 10 Rating Agencies' View 11 Ratings of IPIC L-T S-T Outlook Moody's Aa3 P-1 Stable S&P AA A-1+ Stable Fitch AA F1+ Stable Source: Rating agencies Ratings of Abu Dhabi L-T S-T Outlook Moody's Aa2 P-1 Stable S&P AA A-1+ Stable Fitch AA F1+ Stable Ticker INTPET Company website Source: Rating agencies Statement of support from the government of Abu Dhabi tement.pdf Related publications: : EFSF issues inaugural bond - 26 January 2011 Credit Flash: FADE A new Spanish agency 19 January 2011 Credit Flash: CADES details 2011 funding strategy 13 January 2011 Sector Flash: Overview of European abbreviations: EU, EFSM, EFSF, ESM, and EIB - 10 January 2011 Authors Valentina Stadler (UniCredit Bank) valentina.stadler@unicreditgroup.de Amey Dyckmans (UniCredit Bank) anna-maria.dyckmans@unicreditgroup.de Bloomberg UCCR Internet UniCredit Research page 1 See last pages for disclaimer.

2 Profile of IPIC IPIC is 100% government owned The International Petroleum Investment Company (IPIC; Aa3s/AAs/AAs) is one of Abu Dhabi's (Aa2s/AAs/AAs) government-owned investment vehicles (also called sovereign wealth funds). It was established by Emiri Decree in 1984 (Law 3/1984). Initially, it was a 50:50 joint venture between the Abu Dhabi Investment Authority (ADIA) and the Abu Dhabi National Oil Company (ADNOC). Since 1986, the government of Abu Dhabi (Aa2s/AAs/AAs) has owned 100% of IPIC. FINANCIAL HIGHLIGHTS (USD BN) As of 30 June 2010 Pro forma as of 30 June 2010* Total assets Total equity Total borrowings *pro forma for the acquisition of the additional 52.9% stake in CEPSA, which will be fully consolidated after completion of the transaction (subject to regulatory approval) Source: IPIC, UniCredit Research Strategic role for the government of Abu Dhabi IPIC plays an integral role in the government of Abu Dhabi's strategy to secure and develop end markets for the emirate's crude oil production. Its role is to safeguard the transportation and export of Abu Dhabi's crude oil by identifying long-term international investments in the hydrocarbon markets with a focus on downstream operations (refining, transportation and distribution). IPIC has built a large and diversified portfolio of long-term investments to which it is committed as a strategic shareholder. Furthermore, IPIC is also responsible for managing key investment projects that are considered important for the national security of the United Arab Emirates. THREE MAJOR COMPONENTS OF THE PETROLEUM INDUSTRY Upstream oil sector Downstream oil sector Refers to the search for and the recovery and production of crude oil and natural gas. Also known as 'exploration and production sector', or 'E&P'. It includes the search for potential underground/underwater oil and gas fields, the drilling of exploratory wells and the operation of wells that recover crude oil and/or raw natural gas. Refers to the refining and marketing of crude oil as well as the selling and distribution of natural gas and products derived from crude oil. Also comprises the transport of crude oil and natural gas (e.g. via pipeline or shipping), which sometimes referred to as midstream. Source: UniCredit Research Public policy mandate IPIC plays key role in developing Abu Dhabi's economy IPIC's public policy mandate is to implement the government of Abu Dhabi's long-term strategy as outlined in the 'Economic Vision 2030' policy agenda. This agenda presents broad, long-term policy goals to drive economic, social and geopolitical changes in Abu Dhabi. The key goal is to achieve economic development through diversification within as well as away from the energy sector. It calls for the pursuit of geographic diversification through strategic investments in upstream, midstream and downstream hydrocarbon assets outside the UAE by entities such as IPIC. Furthermore, diversification into other industrial sectors is aimed at. IPIC is specifically identified in the government's strategic documents as playing a key role in executing these initiatives. Securing food supply in the long run is also one of IPIC's goals. UniCredit Research page 2 See last pages for disclaimer.

3 IPIC's mandate IPIC's mandate is fulfilled on four different levels: 1. Hydrocarbon and petrochemical mandate: to develop the hydrocarbon and petrochemical industries 2. Economic mandate: to diversify the economy away from the emirate's dependence on the oil and gas sector and into other productive areas 3. National security mandate: to implement strategic national projects with a view to securing demand for Abu Dhabi's oil in times of crisis. Furthermore, IPIC targets to secure food supply for Abu Dhabi in the long run. 4. Diplomatic mandate: to foster state-to-state relations Develop and maintain Abu Dhabi's market share Diversification away from the oil sector Construction of Abu Dhabi Oil Pipeline Hydrocarbon and petrochemical mandate: The government aims to secure markets and end-users for the crude oil produced by Abu Dhabi National Oil Company (ADNOC), the fully state-owned oil producer. To fulfill this role, IPIC invests in the hydrocarbon and petrochemical sectors and in other industrial sectors that benefit from Abu Dhabi's competitive advantage in the area of oil and gas production. One example is IPIC's 40% ownership of ChemaWEyaat, the Abu Dhabi National Chemicals Co. established by Emiri decree in A further 40% is held by state-owned Abu Dhabi Investment Council (ADIC), and the remaining 20% by ADNOC. Economic mandate: The government of Abu Dhabi also aims at achieving diversification of its economy away from the oil and gas sector. IPIC plays an important role in this policy goal by its majority shareholding in UAE-based Aabar investments, an Abu Dhabi-based diversified investment fund. IPIC currently owns 86.2% of Aabar. According to company information, IPIC will increase its shareholdings of Aabar to 88.7% after the conversion of USD 350mn of mandatory convertible bonds. According to IPIC, this transaction is to be completed shortly, following satisfaction of all formalities for the issue of new shares. Aabar is primarily responsible for investments outside the energy sector, with ownership in Daimler (9.1%), Telsa Motors (3.6%), Falcon Private Bank (100%), UniCredit Bank AG (4.99%) and Virgin Galactic (31.8%). National security mandate: The key responsibility of IPIC in ensuring national security is its mandate to construct the Abu Dhabi Crude Oil Pipeline, which is considered to be Abu Dhabi's most important domestic midstream project. This pipeline will allow Abu Dhabi to export 1.5mn barrels a day and provide an alternative to shipping through the Strait of Hormuz. This narrow and strategically important waterway is bordered by Iran in the North. Thus, it is a vulnerable route of transportation for UAE oil as it can be difficult to pass through in the case of adverse geopolitical events. The pipeline project is directly funded by the government and is expected to be fully operational by the end of IPIC is negotiating a 25-year lease with ADNOC, under which the latter will operate and maintain the pipeline. In order to secure end markets for Abu Dhabi's oil in the event of geopolitical disruptions or a sudden drop in oil demand, IPIC has been mandated by the government to become a strategic shareholder in overseas refining capacity. Examples of this include long-term investments in OMV (20% stake), Borealis (64%), Ferrostaal (70%), Nova Chemicals (100%) and Spain's CEPSA (47%). According to the company, IPIC's ownership in CEPSA will soon increase to 100% once the acquisition of the remaining 53% has been approved by the regulatory authorities. IPIC also used to own 70% in South Korea's Hyundai Oilbank, which was sold in August 2010 according to the most recent Fitch rating report (dated 28 October 2010). UniCredit Research page 3 See last pages for disclaimer.

4 Promotion of Abu Dhabi's geopolitical strategy Diplomatic mandate: IPIC also has a mandate to conduct certain activities to solidify stateto-state cooperation. It promotes the emirate's geopolitical strategy in order to intensify Abu Dhabi's integration into the global economy and strengthen diplomatic ties with friendly governments. According to S&P, the government of Abu Dhabi mandated IPIC in November 2008 to purchase GBP 3.25bn in the British bank Barclays Bank through mandatory convertible bonds and reserve capital instrument equivalent to 16.5% of the bank's shares. This purchase was coordinated with the government of Qatar, which, through state-owned Qatar Holdings took another stake worth GBP 2.05bn. Following the stabilization of financial markets, IPIC sold this participation with a profit of USD 2.2bn in June Similarly, S&P states that IPIC is to contribute funds to a joint venture with Qatar, which will invest in upstream opportunities internationally. Further examples of IPIC being instrumental in building diplomatic relationships are: IPIC's participation in the SUMED pipeline a joint venture between Egypt, Saudi Arabia, the UAE, Kuwait and Qatar linking the Gulf of Suez to the Mediterranean Sea, thereby providing an alternative to the Suez Canal for transporting oil from the Persian Gulf region to the Mediterranean, and IPIC's participation in Pak Arab Refinery Ltd (PARCO), a fully integrated energy company and the largest company in the Pakistani corporate sector. It is a joint venture of the government of Pakistan (which owns 60%) and Abu Dhabi Petroleum Investment Company (ADPI), a subsidiary of IPIC. Full and unconditional support No change in ownership expected Substantial government contribution Close government links Government support IPIC is of crucial strategic importance to the government of Abu Dhabi. This is reflected in its critical role for Abu Dhabi's official long-term development strategy and its integral link to the government. IPIC does not have a direct guarantee, but it enjoys the full and unconditional support of the government of Abu Dhabi and is considered "irreplaceable". This was formally declared in a statement by the Abu Dhabi Department of Finance in March We consider the support of the government to be very strong and highly credit-positive. IPIC's full government ownership was established by Emiri Decree, which means that any change to its structure would require a new decree. Given the highly strategic and public policy mandate of IPIC, which includes matters of national security and diplomacy, no partial or full privatization is expected. In terms of funding, the government of Abu Dhabi has repeatedly provided equity injections to support IPIC's investments. According to company data, government support has amounted to USD 3.5bn since its creation in 1984, and has recently been complemented by a USD 500mn perpetual shareholder loan. Moody's highlights that IPIC remains heavily funded directly by the government in addition to its own capital market and bank borrowing activities, pointing to the fact that the government has historically provided the funding requirements of IPIC that were not raised in the debt markets. The rating agency expects this practice to be continued in the foreseeable future with regard to a) coverage of ongoing and future investment requirements the majority of which originate at government level and b) refinancing of existing debt as it falls due. IPIC does not pay any dividends to the Abu Dhabi government, which is in line with the historical approach of re-investing cash flows into its business. Governing bodies & government oversight IPIC's governing bodies and government oversight reflect its extremely close links with the government. It is run and overseen by core individuals of the Abu Dhabi government and UniCredit Research page 4 See last pages for disclaimer.

5 the ruling Al Nahyan family, highlighting its high political and strategic importance. Board of directors IPIC operates under the direct guidance and oversight of its board of directors. All eight board members are appointed directly by the government. Two of them sit on Abu Dhabi's cabinet (Executive Council) and four are members of Abu Dhabi's Supreme Petroleum Council (SPC), which formulates and implements Abu Dhabi's petroleum policy. IPIC's board is chaired by H.H. Sheik Mansour Bin Zayed Al Nahyan. He is a senior member of the ruling family of Abu Dhabi, UAE Deputy Prime Minister, UAE Minister of Presidential Affairs and member of the SPC. The deputy chairman of the board is the UAE Minister of Energy and a member of the Consultative Committee of the SPC. Additional board members include the CEO of ADNOC, the Under-Secretary of Abu Dhabi's Finance Department, the Chairman of the Department of Economic Development and the Managing Director of the Abu Dhabi Investment Council (ADIC). IPIC's board members also sit on the board of ADIA, ADIC, ADNOC, Mubadala, and Taqa. Close coordination with Abu Dhabi's government IPIC's funding strategy As a consequence, IPIC's board is one of the most senior in all of Abu Dhabi. The senior government and corporate positions of IPIC's board members ensures close coordination with the government and the various companies it controls. The board presents IPIC's annual investment plans and an overview of operations to the government for approval. According to S&P, IPIC's management cannot proceed with any strategically important investments without prior and explicit approval of the highest levels of Abu Dhabi's government. Funding IPIC's funding consists of a combination of direct government funding and its own capital market and bank borrowing activities. IPIC has a flexible funding strategy with access to the international capital markets. IPIC states that its funding principles include: the diversification of funding sources, a focus on servicing debt through internal cash generation, a policy of not providing support to its subsidiaries, which implies that IPIC is not responsible for the subsidiaries' debt, and a policy of not paying a dividend to the government in line with the historical approach of re-investing cash flows into the business. Change-of-control put option Inaugural bond issuance in November 2010 Basel II risk weighting of 20% IPIC's GMTN program documentation entails a change-of-control put option, giving the bondholder the right to redeem the bond in case Abu Dhabi ceases control of IPIC, and/or sells or transfers a stake to an entity other than directly or indirectly wholly-owned by Abu Dhabi. IPIC issued its inaugural bond in November It raised USD 2.5bn in two USD tranches, maturing in November 2015 and November 2020 respectively. IPIC's bonds carry a 20% Basel II risk weighting (under the Standard Approach). UniCredit Research page 5 See last pages for disclaimer.

6 SELECTED CREDIT RATIOS OF IPIC (UNCONSOLIDATED) Net Debt*/ Total Assets (Dividend + Interest Income + Cash) / Interest Income 42% 40% 31% x 7.3x 6.4x 4.5x 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% H H *Current interest-bearing loans and borrowings + non-current interest-bearing loans and borrowings bank balances and cash Source: IPIC, UniCredit Research Aa3/AA/AA ratings Rating agencies Due to the IPIC's strong support from the government and its strategic public policy role, S&P and Fitch rate the entity at the level of its supporting government, the government of Abu Dhabi (both AA). Moody's rating is one notch below Abu Dhabi's rating (Aa3), quoting the absence of an explicit guarantee for this approach. All three rating agencies have assigned a stable outlook. The main rating factors are: Moody's states that the Aa3 rating factors in very high support from the government of Abu Dhabi, given the company's central policy role in developing the emirate's wider hydrocarbon sector as evidenced by 25 years of regular government equity injections in support of IPIC investments. The one notch distinction between IPIC's rating and that of the sovereign reflects the absence of an explicit formal agreement obligating government support under all circumstances. The rating agency considers IPIC's fundamental credit profile to be considerably weaker in nature and constrained by its high exposure to the cyclical downstream hydrocarbon industry, including the commodity-price-driven petrochemical sector, and the equity risk related to its investments. S&P equalizes the ratings of IPIC with those of Abu Dhabi due to the company's critical role in the government's official long-term strategy and the rating agency's view of IPIC's integral link to the government. S&P believes that extraordinary government support in times of financial stress is almost certain. S&P views IPIC's stand-alone credit profile in the BBB category (citing high debt and a relatively high loan-to-value) when factoring in the benefit of strong ongoing state support. Fitch aligns IPIC's ratings with those of Abu Dhabi's as it considers IPIC to be a strategic asset to the government in its role as an investment vehicle for the state in the domestic and foreign hydrocarbon and petrochemical sectors. Fitch considers IPIC to be responsible for managing key investment projects that are considered important to UAE national security. Fitch also states that IPIC s liquidity is strong following the sale of its stake in Hyundai Oilbank for USD 2bn in UniCredit Research page 6 See last pages for disclaimer.

7 The Emirate of Abu Dhabi IPIC's owner One of seven emirates of the United Arab Emirates Abu Dhabi is one of the seven emirates (states) constituting UAE. The federation comprises Abu Dhabi, Ajman, Dubai, Fujairah, Ras al-khaimah, Sharjah, Umm al-quwain. Abu Dhabi is the capital of the UAE and the largest emirate in terms of area (67,340 sq. km.), covering 86.7% of the UAE's total area. It is the second largest emirate in terms of population (after Dubai) with about 1.6mn inhabitants. The UAE is a member of the Organization of Petroleum Exporting Countries (OPEC), the United Nations, the World Trade Organization, the Arab League and a founding member of the Cooperation Council for the Arab States of the Gulf, also known as the Gulf Cooperation Council. In terms of geography, the UAE is situated in the east of the Arabian peninsula on the Persian Gulf. Oman borders it in the east, and Saudi Arabia in the west. In addition, it shares sea borders with Qatar, Iraq, Kuwait, Bahrain, and Iran. Abu Dhabi's ratings are Aa2/AA/AA. All ratings of the three major rating agencies carry a stable outlook. ABU DHABI: SWOT-ANALYSIS Strengths/Opportunities Ample financial flexibility Vast oil and gas resources High GDP per capita Stable political system with popular and uncontested ruling family Very strong balance sheet: Net assets of 240% of GDP Weaknesses/Threats Geopolitical risks with respect to Abu Dhabi's geographic location Less mature political institutions, lack of transparency and accountability High contingent liabilities, but affordable given high financial flexibility Source: UniCredit Research Stable political environment based on constitutional monarchy Abu Dhabi with leading role in the UAE UAE is a constitutional monarchy with a presidential system of government. Abu Dhabi is ruled by the Sheikh Khalifa bin Zayed Al-Nahyan, who enjoys the backing of the large Al-Nahyan family. The family has ruled for more than three centuries and is very popular and uncontested, thus providing political and social stability in Abu Dhabi. Sheikh Khalifa's half-brother, Crown Prince Sheik Mohammed bin Zayed Al-Nahyan, is the successor and currently the Chairman of the Executive Council. He is an important driving force in the modernization of Abu Dhabi. Although no formal succession rule exists, previous successions have provided quick realignment of political power without instability. Changes in the political system, if any, are likely to be gradual and consensus-based. Political institutions, which improve the functioning of a market economy, are less advanced. Geopolitical risks are somewhat higher given Abu Dhabi's location and the risks inherent to that region. Tension with respect to Israel but also the proximity to Iran are potential issues, i.e. Abu Dhabi's close ties to Western countries in addition to its large oil and gas industry and resulting importance may make the emirate somewhat vulnerable. Nevertheless, this is mitigated by the strategic importance to, and significant presence of, the US and other military powers. In addition, internal destabilizing factors are being reduced by enhanced internal security and by the stabilizing effect of the increasing and widespread wealth of the population. Abu Dhabi plays a leading role in the UAE as Abu Dhabi's ruler is the president and thus head of state of the UAE. Abu Dhabi's Sheikh Khalifa is the president of the Federal Supreme Council, which comprises the leaders of all seven emirates. The Council is responsible for the formulation of government policy, the proposal and ratification of national laws as well as the ratification of treaties. The vice president is from Dubai and is customarily the prime minister of the UAE. Currently, Sheikh Mohammed bin Rashid Al Maktoum is the UAE's prime minister. In general, policies in Abu Dhabi and in the UAE are reached by consensus. During the global financial turmoil, Abu Dhabi granted Dubai financial support, likely strengthening Abu Dhabi's role in terms of political power in the UAE. UniCredit Research page 7 See last pages for disclaimer.

8 ECONOMIC AND FISCAL INDICATORS OF ABU DHABI e 2011f 2012f 2013f Economic indicators Nominal GDP (USD bn) GDP per capita (USD) 59,235 74,602 91,586 97, ,422 90,551 99, , , ,784 Real GDP (% change) ** Consumer price index (average % change) Gross domestic investment (% of GDP) Gross domestic savings (% of GDP) Current account balance* (% of GDP) Trade balance* (% of GDP) Net foreign direct investment* (% of GDP) Fiscal indicators General government balance (% of GDP) General government debt (% of GDP) Net general government debt (% of GDP) *UAE as a whole; **IMF figure (Oct report), S&P expects 1.7%. Source: S&P, UniCredit Research Economy dependent on oil industry The economy benefits from vast oil and gas reserves, which are expected to last at least for another century according to S&P. Production costs are very low. Oil production was about 2.4mn barrels a day in 2009, which represents roughly 95% of the UAE's total oil production. Total official oil reserves amount to 92.2bn barrels, which represents 7% of the world's total (OPEC). Oil and gas reserves combined per capita and production per capita are thus the second highest after those of Qatar. The Abu Dhabi Crude Oil Pipeline is expected to be completed towards the end of 2011 and is of strategic importance to secure oil exports (by bypassing the narrow Strait of Hormuz between Iran and UAE) via the Emirate of Fujairah on the Indian Ocean. In recent years, Abu Dhabi has increasingly aimed at diversifying the economy into areas such as health care, education, high-tech manufacturing, downstream hydrocarbon industries, and tourism. S&P notes that despite the global recession, the non-oil sector grew at a rate of 6% in 2009 and it expects growth to continue at a similar rate in Despite the high priority on diversification and job creation in the private sector, the oil and gas industry continues to be a major contributor to GDP (49.4% in 2009). The unemployment rate was 3.25% at end-2008, according to the Statistics Center Abu Dhabi. Abu Dhabi is part of the UAE monetary union and the UAE dirham is pegged to the USD. Thus, monetary policy is managed in a passive manner, i.e. it follows the monetary policy of the US. Given large external surpluses and accumulated foreign assets, the exchange rate regime has been no concern. A drawback has been the inability to control money supply in light of fluctuations driven by the oil price, thus leading to elevated inflation rates in some years in the past. For the next three years, S&P predicts consumer price inflation rates in the area of 3% p.a. Promising economic growth prospects Abu Dhabi has a very high GDP per capita (in terms of 2009 data third to Luxembourg and Bermuda), which is expected to amount to USD 99,802 in 2010 and to increase to USD 112,784 by GDP is somewhat volatile and subject to swings in line with oil prices. Real economic activity is driven by public consumption. Thanks to the accumulated wealth of the emirate, public-sector spending can smooth over the oil cycle. The IMF expects real GDP to have increased by 3.6% in Growth prospects for the following years look promising with expected real GDP growth rates of 2.9%, 5.2%, and 5.3% for 2011, 2012, and 2013, respectively (S&P). Nominal GDP is expected to have increased by 16% in 2010, in line with the 15% p.a. rate for the period UniCredit Research page 8 See last pages for disclaimer.

9 Strong track record of budget surpluses The emirate has a very strong track record in showing budget surpluses (see table above). The budget (according to S&P's definition) turned from a surplus of 33.9% of GDP in 2008 to a deficit of 4.3% of GDP as a result of lower oil prices and support provided to the emirates' banks (2.9% of GDP) and countercyclical policies. Government revenues have rebounded in S&P expects the surplus to be about 16% of GDP in the period Abu Dhabi has ample financial flexibility and its accumulated liquid asset reserves are sufficient to counteract short-term fiscal pressure. According to Fitch, 80% of government revenue is from oil and gas. There is no income and sales tax. Abu Dhabi has the long-term aim to diversify its revenue base. Contingent liabilities with respect to the banking sector are elevated. The UAE's central bank provided liquidity support facilities in in addition to the UAE Ministry of Finance's provision of a cash deposit program in Abu Dhabi itself injected capital support of 2.9% of GDP into five of its banks in 2009 according to S&P. With respect to the public sector, contingent liabilities are less. During 2009, Abu Dhabi extended a loan worth USD 10bn to the emirate of Dubai in support of Dubai government-related entities. Despite higher overall contingent liabilities, they remain manageable for Abu Dhabi given its remarkable financial flexibility. Net asset position of 240% of GDP Rating agencies Abu Dhabi has accumulated significant foreign and domestic assets over time. S&P estimates the net asset position to be in the area of 240% of GDP at end-2010 (asset data is not disclosed). Future budget surpluses will be used to continue the accumulation of assets. In recent years, Abu Dhabi has increased its borrowing activities but the government debt amount of 2.3% of GDP (expected for 2010 by S&P) is rather low by itself and also compared to the net asset position. The question remains why Abu Dhabi raises funds at all in the capital markets. S&P notes that the government follows a wider strategy of promoting bond issuance in the country by establishing benchmarks, in addition to optimizing the utilization of both sides of the balance sheet. The emirate of Abu Dhabi is rated Aa2/AA/AA. All ratings by the three major rating agencies carry a stable outlook. We briefly summarize the main rating factors: Moody's notes Abu Dhabi's very strong fiscal position and that its rating has not been affected by the financial turmoil in Dubai. An improvement in the regional political environment, progress in economic diversification, and further development with respect to institutions could lead to a favorable rating impact in the long term. Less rating-favorable are a deterioration in the regional and domestic political environment, low oil prices for a prolonged period and elevated contingent liabilities leading to a serious depletion of assets. S&P's stable outlook reflects the balance between the Abu Dhabi's strong financial position and prudent policies against geopolitical risks, high contingent liabilities, and potential impediments to growth stemming from undeveloped institutions. Significant improvement to transparency and availability of financial and economic data, as well as progress on institutional reforms improving the functioning of the market economy would have a favorable impact on ratings. An escalation of regional geographical risks or domestic political instability could lead to a downgrade. Fitch also highlights the strength of the government's balance sheet and the further accumulation of external assets. The biggest downside risks would result from a severe decline in assets, a prolonged period of low oil prices, or a major geopolitical event. UniCredit Research page 9 See last pages for disclaimer.

10 Appendix Overview of selected government-related entities of Abu Dhabi Abbreviation Name Year established ADIA ADIC ADNOC IPIC MDC SPC TAQA TDIC Abu Dhabi Investment Authority Abu Dhabi Investment Council Abu Dhabi National Oil Company International Petroleum Investment Company Mubadala Development Company Supreme Petroleum Council Abu Dhabi National Energy Company Tourism Development & Investment Company Sector Focus Description Ratings Government ownership 1976 Multi-sector, asset management 2007 Private equity, real estate, infrastructure Sovereign wealth fund responsible for investing Abu Dhabi s fiscal surplus primarily in financial assets abroad Spin-off from ADIA, fulfilling a similar role with greater focus on investments in the UAE 1971 Domestic oil & gas National oil and gas company of Abu Dhabi responsible for the production, processing, transportation and marketing of Abu Dhabi s oil and gas 1984 Energy and energyrelated 2002 Multi-sector, private equity, projects Invests globally in energy and energyrelated industries and in strategic hydrocarbon projects in Abu Dhabi Business development and investment company mandated to drive diversification and development of Abu Dhabi s economy 1988 Petroleum SPC is the highest authority responsible for petroleum affairs in the emirate of Abu Dhabi, laying down the emirate s policy and objectives in all sectors of the petroleum industry 2005 Energy Holds the majority in the emirate's power generation and water desalination plants 2005 Tourism, real estate development Mandated to develop the tourism sector within Abu Dhabi, and charged with fulfilling Abu Dhabi s ambition of becoming a global tourist destination --/--/-- 100% --/--/-- 100% --/--/-- 100% Aa3/AA/AA 100% Aa3/AA/AA 100% --/--/-- n.a. (supervisory authority) A3/A/ %* A /AA/ AA 100% *stakes are held through Abu Dhabi's Water and Electricity Company ADWEA (51.1%) and through the government-affiliated Farmers' Fund (21%) Source: IPIC, UniCredit Research UniCredit Research page 10 See last pages for disclaimer.

11 Rating Agencies' View INTERNATIONAL PETROLEUM INVESTMENT COMPANY: RATING PROFILE Long-term Short-term Outlook Moody s Aa3 P-1 stable S&P AA A-1+ stable Fitch AA F1+ stable Source: Rating agencies, UniCredit Research RATING AGENCIES' COMMENTS ON THE INTERNATIONAL PETROLEUM INVESTMENT COMPANY Agency Moody's 5 March 2010 Comment Rating Rationale: IPIC's Aa3 / P-1 ratings are derived off Abu Dhabi's Aa2 sovereign ratings and currently factor very high support from the government of Abu Dhabi, given the company's central policy role in developing the Emirate's wider hydrocarbon sector as evidenced by 25 years of regular government equity injections in support of IPIC's investments. IPIC is a vehicle of government policy, and is embedded in a framework of government funding and oversight that enables it to achieve ratings close to the ratings of the sovereign itself. It remains heavily funded directly by the government in addition to its own capital market and bank borrowing activities. Indeed, the government has historically provided the funding requirements of IPIC that were not raised in the debt markets, which is a business model expected to be followed for the foreseeable future. This is both in regards to coverage of ongoing and future investment requirements - the majority of which originate at government level - and refinancing of existing debt as it falls due. Furthermore, the government has formally assured Moody's that it fully and unconditionally stands behind IPIC for any debt - both principal repayments and debt servicing - on a timely basis in the event that the company were unable to provide for itself, a policy that is also expected to remain in place for the foreseeable future. Whilst this commitment is substantial and will continue to result in Moody's considering it appropriate to reflect this support in meaningful uplift to the ratings of IPIC, the one notch distinction between IPIC's rating and that of the sovereign reflects the absence of an explicit formal agreement obligating the government to support under all circumstances. The company is closely aligned with government policy, and indeed is run and overseen by core individuals of the Abu Dhabi government and the ruling Al Nahyan family. Since 1986, IPIC has been 100% owned directly by the government, having initially been established as a joint venture between ADIA and ADNOC two years earlier. The current ownership structure was set up by Emiri Decree, whereby any change to its structure requires a new decree. Given the highly strategic nature of IPIC's mandate, which includes matters of national security and diplomacy, no partial privatization is expected and thus factored into IPIC's ratings. IPIC's board is chaired by HH Sheikh Mansour Bin Zayed Al Nahyan, a senior member of the ruling family and UAE Minister of Presidential Affairs. Additional board members include the CEO of ADNOC, the Undersecretary of Abu Dhabi's Finance Department, the UAE Minister of Energy, the Chairman of the Economic & Planning Department and the Managing Director of the Abu Dhabi Investment Council (ADIC). In total, IPIC's board contains 4 representatives from the Supreme Petroleum Council, 3 from ADNOC, 2 from the Executive Council, 2 from Mubadala, 1 from ADIC, 1 from the Abu Dhabi National Energy Company (TAQA) and 1 from ADIA. IPIC's ratings have been further supported by a strong underlying asset base of geographically well-diversified companies, 25 years track record of sound investment decisions, and diversified dividend coverage to support holding company indebtedness, a history of partial equity financing from government capital injections, as well as the highly strategic nature of IPIC's mandate, including its domestic hydrocarbon projects. IPIC's fundamental credit profile is considerably weaker in nature and constrained by its high exposure to the cyclical downstream hydrocarbon industry, including the commodity price driven petrochemical sector, as well as the equity risk related to its investments, which have seen sharp declines in its asset values on the back of the current stock market slumps. More importantly, IPIC has resorted to a far greater share of debt financing on recent investments, which has seen debt metrics weaken from a history of near zero leverage. At 49% market value leverage, IPIC's leverage is considered very high. Liquidity: IPIC will need to refinance in excess of USD 4 billion over the coming 12 months, which weighs negatively on its liquidity profile. In June 2009, the company successfully raised USD 5 billion under a syndicated facility with a number of local and international banks, which was used to support the completion of a number of acquisitions, including the acquisition of 100% of the outstanding common shares of Nova Chemicals, as well as to repay its EUR 975 million term loan bridge facility which matured in July In June 2009, IPIC also repaid the two bridge loans (USD 178 million and EUR 500 million) that were used to finance the acquisition of Aabar Investments, one of its subsidiaries. Moody's believes that IPIC will have to continue to access funds to further extend its debt maturity profile. Moody's assessment of IPIC's liquidity risk profile also assumes that any shortfall will be met by the government. Rating Outlook: IPIC's ratings have a stable outlook. Drivers of Rating Change: IPIC's ratings are sensitive to any change in Moody's assumption regarding support from the government of Abu Dhabi and assume that its current status, ownership structure and mandate are maintained. Under the assumption of a stable framework, IPIC's ratings are likely to move within one notch of Abu Dhabi's sovereign ratings. UniCredit Research page 11 See last pages for disclaimer.

12 RATING AGENCIES' COMMENTS ON INTERNATIONAL PETROLEUM INVESTMENT COMPANY (CONTINUED) S&P 1 June 2010 Fitch 28 October 2010 Rationale: The 100% state-owned International Petroleum Investment Company (IPIC), based in Abu Dhabi in the United Arab Emirates (UAE)is rated in accordance with Standard & Poor's Ratings Services enhanced criteria on government-related entities (GREs). Although the government does not formally guarantee IPIC's liabilities, S&P equalizes the ratings on IPIC with those on the government of Abu Dhabi. This assessment is based on what S&P believes is the company's critical role for Abu Dhabi's official long-term development strategy and S&P's view of an integral link with the government. Accordingly, S&P considers that extraordinary government support in times of financial stress is almost certain. The government has sole ownership of the company. Four of the eight members of IPIC's board of directors serve on the Supreme Petroleum Council, which formulates and implements Abu Dhabi's petroleum policy and is headed by the ruler of Abu Dhabi. Two further members of the IPIC board are members of the Executive Council, Abu Dhabi's cabinet headed by the Crown Prince. IPIC's public policy role consists of implementing the government's long-term development strategy, as outlined in the government's "Economic Vision 2030" plan, by developing the hydrocarbon and petrochemical industries and by implementing strategic national projects with a view to securing demand for Abu Dhabi's oil in times of crisis. IPIC operates on behalf of the government and implements only projects approved by the government. This, coupled with IPIC's operational proximity to the Abu Dhabi government and repeated governmental capital increases, leads Standard & Poor's to conclude that the government has the capacity and willingness to continue to provide substantial ongoing support to IPIC's operations and to intervene in a timely manner if the company were to require extraordinary financial support. In March 2010, Abu Dhabi's Department of Finance took the rare step of declaring its "full and unconditional" support for IPIC, a company it deems "irreplaceable". Abu Dhabi has a track record of ongoing support, and the Emirate's more recent extraordinary support for GREs in the neighboring Emirate of Dubai demonstrates its willingness to provide support, although Abu Dhabi had never committed to support Dubai GREs in times of financial distress. Given that S&P has equalized the ratings on IPIC with those on the government, IPIC's stand-alone credit profile (SACP) is not a primary rating factor. Indirectly, IPIC's SACP is, however, relevant because S&P could reassess S&P's view of the level of expected government support in an absence of timely capital injections to fund acquisitions or too aggressive leverage. S&P currently views IPIC's SACP in the 'BBB' category when factoring in the benefit of strong ongoing state-support. However, IPIC (including the subholding Aabar) carries a significant amount of debt at currently close to $13 billion, implying a relatively high loan-to-value (LTV), which has varied around 50%-55%. This compares with typical LTVs of 30% or below for investment-grade private holding companies. S&P expects, however, that IPIC's debt may decrease somewhat as a result of an expected pending capital injection or potential disposal proceeds. Furthermore, management is also focused on extending its debt maturity profile. Outlook: The stable outlook reflects S&P's view that IPIC's integral link with and critical role for the government will remain unchanged, and that the company would benefit from the government's extraordinary financial support should the need arise. S&P would likely lower the rating on IPIC if S&P was to lower the credit rating on the government of Abu Dhabi or detect any indication that the government's commitment to IPIC is weakening. S&P could also reevaluate IPIC's critical role to the government if IPIC's diplomatic or national security mandate were diluted or because of too great a diversification into non-oil-related investments through Aabar. A higher rating could result from an improvement in the credit quality of the Emirate of Abu Dhabi, to which the underlying credit risk of IPIC is linked. Rating Rationale: International Petroleum Investment Company PJSC s (IPIC) ratings are aligned with Abu Dhabi s sovereign ratings ( AA /Stable/ F1+ ) under Fitch Ratings parent and subsidiary methodology. Under this methodology, Fitch considers IPIC to be a strategic asset to the government in its role as an investment vehicle for the state in the domestic and foreign hydrocarbon and petrochemical sectors. IPIC is also responsible for managing key investment projects that are considered important to the United Arab Emirates (UAE) national security. For example, IPIC is overseeing the Abu Dhabi Crude Oil Pipeline (ADCOP) project which will allow the UAE to increase exports from its Fujairah terminal on the Gulf of Oman. The new 370km pipeline will also lower shipping costs for the UAE s oil exports, as shippers charge a premium for the perceived high risk in entering the Straits of Hormuz. The pipeline will have a capacity of 1.5 million barrels per day (bpd) when it is completed in the second half of IPIC s high investment grade ratings are further supported by a mandate to structure a portfolio of core investment holdings that are integrated and connected with Abu Dhabi's economy and development strategy. What Could Trigger a Rating Action: A change to the sovereign ratings of Abu Dhabi, up or down, would likely lead to a similar change to IPIC s ratings as their ratings are aligned under Fitch s parent and subsidiary rating methodology. Negative rating action could also occur if IPIC fails to maintain a ratio of portfolio value to total net borrowings of more than 1.5x. Ratings could change if the company were to embark on a fundamental deviation from its core business mandate without corresponding support or involvement from the government. For example, a material deviation away from core investments in energy that is greater than 20% of the total portfolio value would also lead Fitch to re evaluate the ratings. Source: Rating agencies, UniCredit Research UniCredit Research page 12 See last pages for disclaimer.

13 ABU DHABI: RATING PROFILE Long-term Short-term Outlook Moody s Aa2 P-1 stable S&P AA A-1+ stable Fitch AA F1+ stable Source: Rating agencies, UniCredit Research RATING AGENCIES' COMMENTS ON ABU DHABI Agency Moody's 1 March 2011 S&P 10 December 2010 Comment Rating Rationale: The long-term foreign and local currency issuer ratings of the government of Abu Dhabi, the richest of the seven emirates that compose the United Arab Emirates (UAE), are Aa2. These high investment-grade ratings are supported by several factors. Foremost among these is the prodigious strength of the government's balance sheet. The government of Abu Dhabi has little direct or explicitly guaranteed debt and an extensive portfolio of financial assets that are mostly held offshore. The government verbally assured Moody's in November 2009 that its financial assets continued to be worth at least double the value of the emirate's GDP (Abu Dhabi's GDP approximated $140 billion in 2008). Abu Dhabi enjoyed one of the highest GDP per capita in the world in 2009 despite the fall in average oil prices and production together with slowing non-oil growth (partly affected by events in Dubai). Meanwhile, Abu Dhabi has a long history of domestic political stability and enjoys strong relations with its fellow emirates within the UAE, most neighbouring countries, and the major global powers, including the US. Abu Dhabi's ratings are constrained by the following issues. The emirate's regional geopolitical environment is more troubled than that of other highly rated countries while its political, administrative, and legal institutions are still developing. The emirate's economic performance is volatile given its dependence on hydrocarbons. Although we note that Abu Dhabi's large stock of offshore assets, most of which are invested in non-hydrocarbon sectors, is an important means of economic diversification. Meanwhile, the quality, scope, and disclosure of Abu Dhabi's official economic data is improving, but remains relatively limited for a highly rated country. This hinders analysis. Although the government of Abu Dhabi currently has little direct or guaranteed debt, its domestic contingent liabilities in Moody's opinion are extensive. For example, the government of Abu Dhabi has over the past two years provided financial support to the government of Dubai and its own commercial banks. Rating Outlook: Abu Dhabi's ratings have a stable outlook. Because of its very strong fiscal position, Abu Dhabi's Aa2 rating has not been threatened by the recent turmoil in Dubai though the emirate's non-hydrocarbon sector and fiscal account have been adversely affected. We note that official fiscal data significantly understate the strength of the budget because they exclude investment income and off-budget oil revenues (we estimate both items and include them in our presentation of the fiscal balance). Although its oil revenue remains a comfortable cushion, the narrowly reported budget balance significantly deteriorated in 2009, posting a deficit of approximately 23% of GDP following a surplus of 13% of GDP in The main causes of the deterioration were a sharp fall in oil revenues and a large increase in expenditure, partly caused by extraordinary financial support for Abu Dhabi banks and the struggling Dubai government. In addition, as the Dubai restructurings continue, we do not rule out the need for additional support. What Could Change the Rating Up: Over the longer term, an improvement in the regional political environment, progress in economic diversification, and further development of the emirate's institutions. What Could Change the Rating Down: A deterioration in the regional or domestic political environment. A prolonged period of low oil prices and/or the crystallization of contingent liabilities such that the consolidated fiscal account came under sustained pressure and government assets were seriously depleted. Rationale: The ratings on the Emirate of Abu Dhabi are supported by the government's very strong asset position, which provides significant financial flexibility and has allowed the emirate--through strong countercyclical policies and preemptive support to the financial sector--to face the global economic downturn with a high degree of resilience. The ratings are also underpinned by the country's domestic political stability and wealth, reinforced by its rich resource endowment, and policies that encourage Abu Dhabi's integration with the global economy. The ratings are constrained by the geopolitical risks that face all sovereigns in the region, the lack of transparency, and limited availability of timely financial and economic data, particularly regarding the government's assets. The ratings are further constrained by the contingent liabilities arising from the banking system and the public sector of the UAE as a whole. The government of Abu Dhabi has accumulated substantial foreign and domestic assets, which are the product of a high resource endowment and prudent fiscal policies over past decades. S&P estimates the government's net asset position to be about 240% of GDP in one of the highest among the sovereigns S&P rates. While the volatility of global oil prices reduces the predictability of government revenues, S&P expects that the Emirate's budget will continue to show substantial surpluses exceeding 10% of GDP (including investment incomes and dividends) in the medium term. This follows an exceptional budget deficit in 2009 equivalent to 4.3% of GDP that was mostly due to a decrease in oil prices, countercyclical policy measures, and support for government-related entities in Abu Dhabi. Because S&P considers the government of Abu Dhabi's $10 billion loan to the government of Dubai (6.7% of GDP in 2009) as net lending, it does not affect the deficit. Per capita GDP, which S&P expects will average about $100,000 over the next three years, is higher than that of most 'AA'-rated peers. Economic growth is supported by prudent macroeconomic policies, which have a long track record, and proactive diversification policies. S&P's projections show that the Emirate's oil and gas reserves will last for at least another century at current production levels, with low production costs. S&P projects manufacturing and tourism to complement the dominant hydrocarbon sector, while the government attempts to downsize and looks to the private sector to create jobs for Abu Dhabi nationals. Structural weaknesses and challenges remain, however. First, the independent institutions, accountability, and transparency needed for the functioning of an efficient market economy are by and large still in the early stages of development. Second, levels of debt in the wider public sector in the UAE as a whole are high. The boundaries between the state and the corporate and financial institutions, whether state-owned or not, is more blurred in Abu Dhabi than in most of its rated peers. Thus, the elevated levels of debt of UAE-based government-related entities (GREs) could constitute a contingent liability to Abu Dhabi, the UAE's dominant and wealthiest emirate. At the same time, it needs to be understood that it is not Abu Dhabi's declared or demonstrated policy that it would indiscriminately bail out each and any of the GREs in Dubai or elsewhere in the UAE, mitigating that risk somewhat. Third, like other sovereigns in the region, Abu Dhabi is exposed to event risks such as a sharp escalation in hostilities between Iran and the West, or terrorist attacks. Such developments might raise risks in the UAE's banking, property, and tourism sectors. Nevertheless, S&P does not expect event risk and contingent liabilities to threaten political or social stability, and believe that Abu Dhabi is capable of absorbing potential costs through existing government assets. Outlook: The stable outlook on Abu Dhabi balances the Emirate's strong financial position and prudent policies against geopolitical risks, high contingent liabilities, and potential impediments to growth, stemming from undeveloped institutions. Furthermore, significant improvements in transparency and availability of financial and economic data, and progress on institutional reforms (mainly relating to institutions necessary to improve the functioning of a market economy) such as provision of reliable, timely, and accurate public finance information, could have a favorable impact on the ratings in the coming years. In addition, S&P could also raise the ratings if geopolitical risks were to permanently decline. Conversely, and although S&P deems such a scenario as currently unlikely, S&P could lower the ratings by several notches if regional geopolitical risks escalate sharply, threatening Abu Dhabi's political and economic stability, or if domestic events compromise political stability. UniCredit Research page 13 See last pages for disclaimer.