Moody’s takes rating actions on Omantel and OPWP

25/02/2015 07:14 AST

International ratings agency Moody’s Investors Service has affirmed the A3 long-term issuer rating and stable outlook of Oman Telecommunications Company SAOG (Omantel) and changed the outlook to negative from stable for the A1 long-term domestic and foreign currency issuer ratings of Oman Power & Water Procurement Company (SAOC) (OPWP). OPWP’s ratings were affirmed.

The actions follow the outlook change to negative from stable on the A1 rating of the government of Oman on February 20, 2015, the agency said in a statement. The outlook change for the sovereign rating is driven by uncertainty surrounding the effectiveness of the government’s policy response to a multi-year period of low oil prices, which exerts downward pressures on economic growth, government finances and the external payments position, it said.

Ratings rationale for Omantel

Moody’s expects that the impact of an anticipated weakening of the Oman government’s credit metrics will have limited bearing on Omantel’s credit profile. This is predicated by (1) Moody’s expectation that Omantel’s revenues will continue to benefit from a buoyant consumer environment in its core market where adherence to diversification plans by the Oman government will ensure continued nominal GDP growth in the non-oil sector; (2) Omantel’s strong standalone baseline credit profile, with credit metrics expected to remain strongly positioned relative to peers; and (3) Omantel’s relatively low debt levels and a robust liquidity profile comprising a staggered debt maturity profile negating dependence on the Government of Oman for financial support.

The rating agency said it would continue to closely monitor the evolution of Omantel’s credit profile focusing on (1) any material negative impact of a lower oil price and downward sloping glide path of oil production on telecommunications consumer trends in its core market in Oman; (2) whether the proposed royalties increase to 12 per cent of revenues in Oman is introduced (3) any differing dynamics in the competitive environment impacting Omantel’s margins and dominant market position, especially if a third network operator where to be introduced; and (4) the potentially negative consequences of an increasing capital expenditure spend trendline on free cash flow generation and credit metrics.

Any materialisation of the aforementioned, which would have a significant impact on Omantel’s credit profile on a forward looking basis, could lead to Moody’s revisiting the Omantel’s Baseline Credit Assessment rating for negative pressure, it warned.

“The stable outlook on the rating reflects Moody’s expectation that Omantel will continue to consistently operate within its current financial profile, ie, net debt/EBITDA leverage of below 1.5x, EBITDA margins of above 50 per cent and retained cash flow (RCF)/debt of above 25 per cent,” said Moody’s.

Ratings rationale for OPWP

By changing OPWP’s A1 outlook to negative from stable, Moody’s has extended the rating action on the government of Oman to OPWP given the close links between the two entities. OPWP’s intrinsic strengths rest on the (1) role the company plays in the country’s power and water sector; (2) provisioning of timely financial support from the government as stipulated by law; and (3) exclusive government ownership of OPWP. Given the legal and regulatory framework, in combination with the government’s exclusive ownership and low business risk profile, OPWP’s baseline credit assessment (BCA) of a1 is on par with the credit risk assessment of the government of Oman.

“As Moody’s does not expect any near-term changes to the regulatory framework that could jeopardise OPWP’s role, OPWP’s rating is expected to continue to move in lock-step with that of the government of Oman,” the agency stated.

Oman Daily Observer