Moody’s lowers ratings of 8 Omani corporates

Muscat - 

Moody’s Investors Service has downgraded the ratings of eight non-financial corporates domiciled in Oman. The rating action on these eight corporates is a direct consequence of the downgrade of Oman’s sovereign rating on March 5, to Ba2 from Ba1 with a stable outlook, Moody’s said in a statement.

Moody’s has downgraded the ratings of the following eight corporates to Ba2 from Ba1 with stable outlooks because of their concentration of cash flows and operations in Oman: Dhofar Power Co (DPC), Majan Electricity Co (MJEC), Mazoon Electricity Co (MZEC), Muscat Electricity Distribution Co (MEDC), Oman Electricity Transmission Co (OETC), Oman Power and Water Procurement Co (OPWP), Rural AreasElectricity Co (Tanweer), and Oman Telecommunications Co (Omantel).

‘The ratings of DPC, MJEC, MZEC, MEDC, OETC, OPWP and Tanweer are constrained by the sovereign rating because of their significant exposure to the Omani government in the form of subsidies and whose credit standing has been weakening (OETC and OPWP being indirectly exposed),’ Moody’s said.

It said that DPC, MJEC, MZEC, OETC and Tanweer also face high capital expenditures requirements until at least 2021 with associated funding requirements and increases in leverage.

According to Moody’s, the ratings of DPC, MJEC, MZEC, MEDC, OETC, OPWP and Tanweer remain supported by the stable and transparent regulatory framework for the electricity sector and the independence of the regulator. ‘These seven companies’ ratings also remain supported by the low business risk profile of the electricity transmission, distribution and supply activities and their respective monopoly positions in Oman. Their stable outlooks are in line with that of the sovereign rating,’ Moody’s said.

The rating of Omantel, Moody’s said, is constrained by the rating of the Omani government because the company generates most of its cash flows in Oman. The downgrade of the baseline credit assessment (BCA) to ba2 from ba1 and corporate family rating (CFR) to Ba2 from Ba1 also reflects a weakening in Omantel’s operating performance driven by a decline in the higher margin mobile business as experienced across the mobile sector. ‘This decline has been offset by an increase in low margin revenues such as hubbing, resulting in increase in cost of sales and thereby reducing margins.’

Moody’s added that the rating of Omantel remains supported by the company’s dominant market position in the Omani telecom market and good liquidity. Omantel’s stable outlook is in line with that of the sovereign rating, the ratings agency said.

The ratings of DPC, MJEC, MZEC, MEDC, OETC, OPWP and Tanweer could be upgraded if Oman’s long-term issuer rating was upgraded, Moody’s said. This would also require no material deterioration in the companies’ operating and financial performance as well as stronger liquidity profiles.

Moody’s further said that the ratings of DPC, MJEC, MZEC, MEDC, OETC, OPWP and Tanweer could be downgraded in case of a further downgrade of Oman’s sovereign rating or in case of adverse changes in the regulatory framework.

Omantel’s rating is constrained to Ba2 by the Government of Oman’s sovereign rating, the ratings agency added.

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