The S&P Global Ratings agency has assigned its preliminary ‘AA’ long-term rating to the $3.06bn senior secured bonds to be issued by the Abu Dhabi Crude Oil Pipeline LLC (ADCOP), the operator of the 382km-long crude oil operational pipeline from Habshan in the emirate of Abu Dhabi to Fujairah.
The issuance will be split into $869mn Series A bonds due in 2029 and $2.2bn Series B bonds due in 2047. The outlook on the rating is ‘stable’, the firm has announced through a press release, received by arabianoilandgas.com.
The preliminary ‘AA’ long-term rating reflects S&P Global Ratings’ assessment of the creditworthiness of ADNOC subsidiary the Abu Dhabi Company for Onshore Petroleum Operations Ltd (ADCO), the sole operator and maintenance (O&M) provider for ADCOP’s pipeline and the sole off-taker under a robust use and operations (U&O) contract.
The agency assesses that, under the contract, there is adequate risk transfer to the revenue and O&M provider and that cancellation and termination provisions are appropriately restricted. As a result, ‘we believe that ADCOP has effectively transferred all risks in relation to O&M costs and revenues to ADCO independently from operational performance’, the statement from S&P Global Ratings says.
ADCOP retains responsibility for the payment of the lease for access to the port in Fujairah, including a 5% annual indexation amount. Any increase above the 5% annual indexed amount is passed through to the majority stakeholder in ADCO, which is ADNOC that owns a 60% share in the onshore oil concession.
S&P predicts the contractual cash flows as being sufficient for full and timely repayment of the rated debt and any additional costs at ADCOP that are not subordinated. S&P’s assessment of ADCO’s creditworthiness is based on its 60% ownership by ADNOC, which in turn is 100%-owned by the Abu Dhabi (AA/Stable/A-1+) government.
S&P Global Ratings in its statement says: ‘Our assessment is supported by our view that ADNOC Onshore (ADCO) is highly unlikely to be sold and will continue to operate in lines of business that are integral to the overall ADNOC group strategy, and that it continues to undertake activities that are very closely aligned with the ADNOC group’s mainstream business and customer base.
ADNOC Onshore also receives strong, long-term commitment from senior ADNOC group management and incentives exist to continue such support. We also consider ADNOC Onshore’s track record of operations and relatively sound delivery of these operations as supportive.
The S&P Global Ratings statement further reads: ‘the final rating will depend on our receipt and satisfactory review of all final transaction documentation. Accordingly, the preliminary rating should not be construed as evidence of the final rating.
If S&P Global Ratings does not receive final documentation within a reasonable timeframe, or if final documentation departs from materials reviewed, we reserve the right to withdraw or revise our ratings. Potential changes include, but are not limited to, utilisation of bond proceeds, maturity, size and conditions of the bond, financial and other covenants, security, and ranking.’
