Moody’s Upgrades 7 Government-Related Companies in Oman

Global credit rating agency Moody’s Investors Service on Friday upgraded the corporate family ratings (CFR) of seven government-related issuers (GRIs) in Oman to Ba2 from Ba3 and maintained the positive outlooks.

Moody’s upgraded the ratings of Omantel, Oman Power and Water Procurement Company (OPWP), Oman Electricity Transmission Company (OETC), Dhofar Integrated Services Company (DISC), Majan Electricity Company (MJEC), Mazoon Electricity Company (MZEC) and Muscat Electricity Distribution Company (MEDC).

The rating action on these government-related companies is a direct consequence of Moody’s recent rating action on the Government of Oman where the government bond rating was upgraded to Ba2 from Ba3, while the outlook remains positive.

Moody’s said that it has upgraded the ratings of these seven companies to Ba2 because of their close linkage to the Omani government and high exposure to the domestic operating environment.

‘The upgrade of the ratings reflects the close interlinkage of DISC, MJEC, MZEC, MEDC, OETC and OPWP with the sovereign rating because of their significant exposure to the Omani government in the form of subsidies (OETC and OPWP being indirectly exposed),’ the rating agency said.

Moody’s, however, noted that the liquidity of DISC, MJEC, MZEC, MEDC and OPWP remains weak because of their continued reliance on short-term funding in the form of working capital facilities. It said MJEC, MZEC, DISC and OETC will also continue to face high capital spending in the next 12-18 months with associated funding requirements and increases in leverage.

The rating agency added that it will be monitoring the impact of the reorganization of the electricity distribution and supply companies on the capital structures of these entities and their ability to optimize their capital spending.

According to Moody’s, the ratings of DISC, MJEC, MZEC, MEDC, OETC and OPWP remain supported by (i) the stable and transparent regulatory frameworks for the electricity and water sectors and the independence of the regulator; (ii) the cost-recovery mechanisms of the regulatory frameworks; (iii) the low business risk profile of their activities; and (iv) their respective monopoly positions in Oman.

‘The positive outlook for DISC, OPWP, MJEC, MZEC, MEDC and OETC are in line with the positive outlook on the government rating’, Moody’s said.

For Omantel, Moody’s said the upgrade of its corporate family ratings to Ba2 from Ba3 and affirmation of the ba3 BCA (baseline credit assessment) reflects the upgrade of the sovereign rating and the company’s status as a government-related issuer. Moody’s also expects that Omantel’s credit metrics will improve over the next 12-18 months which could lead to improvement in the BCA.

According to Moody’s, Omantel’s credit quality is supported by its (i) strong market position in the Omani telecom market; (ii) resilient demand due to the necessity-like consumer spending on telecom services; (iii) exposure to other Middle Eastern and African markets through ownership in Zain Group; and (iv) efforts to reduce leverage, particularly by using proceeds from the recent sale and leaseback of assets to reduce debt.

The rating agency said that its positive outlook on Omantel is in line with that of the government. The outlook also incorporates Moody’s expectation that the company will demonstrate resilient financial performance, reduce leverage and improve liquidity over the next 12-18 months.