03 April 2012
MUSCAT -- Ratings agency Standard & Poor's yesterday affirmed its 'A' long-term corporate credit ratings on the government-owned Oman Power and Water Procurement Co SAOC (OPWP). The outlook is negative "The ratings on OPWP are based on an equalisation with the long-term sovereign credit rating on the Sultanate of Oman (A/Negative/A-1). The equalisation reflects our opinion that there is an 'almost certain' likelihood that the government of Oman would provide timely and sufficient extraordinary support to OPWP in the event of financial distress," the agency said in a statement.
S&P's said it based its rating approach on its view of OPWP's "critical" role as the monopoly buyer and supplier of bulk electricity and desalinated water in Oman. OPWP was set up by the government in 2004 as an intermediary between electricity producers and distributors. Its legal role is to secure the production capacity and output to meet "all reasonable demands" for electricity, and to secure the production of desalinated water. This includes the critical function of forecasting the demand and supply of electricity and related water in Oman over a seven-year period.
S&P's also noted the "integral" link with the Omani government, given the company's public policy role and 100 per cent state ownership through the Ministry of Finance and government-owned Electricity Holding Co. SAOC (EHC). The government created OPWP specifically to act as a government agency according to Article 14 of the Law for the Regulation and Privatisation of the Electricity and Related Water Sector (Sector Law), and OPWP must remain wholly government-owned. OPWP's obligations are not explicitly guaranteed, but under Article 67 of the Sector Law, the Ministry of Finance must provide adequate financing to enable OPWP to undertake its assigned activities.
"These strengths are somewhat offset by OPWP's inherently low profitability, which mainly results from its agency role, seasonal working capital requirements, and a potential increase in counterparty risks as Oman's distribution companies are privatised," the agency said.
S&P's noted that its assessment of OPWP's stand-alone credit profile (SACP) at 'A-' reflects its assessment of the company's "strong" business risk profile and "intermediate" financial risk profile. The SACP is supported by OPWP's monopoly position, although it has no production facilities, and its regulated payment model.
These supports are partly offset by reliance on funding from its owners to meet seasonal swings in cash flows, and weak balance-sheet profitability that stems partly from its agency role and the accounting treatment of leases. OPWP requires no external long-term debt financing, which results in strong credit ratios.
Commenting on OPWP's financial outlook for 2012-2014, the agency said it anticipates revenue growth of 10 -12 per cent, based on the regulatory payment model, and EBITDA margins of between 25 per cent and 30 per cent.
"We believe OPWP will continue to report net accounting losses of RO 2-3 million over the short term, before returning to profitability in the long term. The treatment of leases in the financial statements and accounting losses in the statutory financial accounts do not affect the company's cash flow generating ability. We consider that OPWP's financial risk profile depends largely on the company's ability to generate sufficient cash flow and maintain adequate and timely liquidity."
The negative outlook on OPWP reflects that on Oman, the agency said. "If the ratings on Oman were to change, the ratings on OPWP would change. We currently do not expect our view of OPWP's "critical" role and "integral" link with the Omani government to change, meaning that the ratings on OPWP would remain equalised with those on Oman. We also anticipate that the tariff regime will remain supportive and that OPWP will not engage in any nonregulated activities without approval from Oman's Authority for Electricity Regulation."
MUSCAT -- Ratings agency Standard & Poor's yesterday affirmed its 'A' long-term corporate credit ratings on the government-owned Oman Power and Water Procurement Co SAOC (OPWP). The outlook is negative "The ratings on OPWP are based on an equalisation with the long-term sovereign credit rating on the Sultanate of Oman (A/Negative/A-1). The equalisation reflects our opinion that there is an 'almost certain' likelihood that the government of Oman would provide timely and sufficient extraordinary support to OPWP in the event of financial distress," the agency said in a statement.
S&P's said it based its rating approach on its view of OPWP's "critical" role as the monopoly buyer and supplier of bulk electricity and desalinated water in Oman. OPWP was set up by the government in 2004 as an intermediary between electricity producers and distributors. Its legal role is to secure the production capacity and output to meet "all reasonable demands" for electricity, and to secure the production of desalinated water. This includes the critical function of forecasting the demand and supply of electricity and related water in Oman over a seven-year period.
S&P's also noted the "integral" link with the Omani government, given the company's public policy role and 100 per cent state ownership through the Ministry of Finance and government-owned Electricity Holding Co. SAOC (EHC). The government created OPWP specifically to act as a government agency according to Article 14 of the Law for the Regulation and Privatisation of the Electricity and Related Water Sector (Sector Law), and OPWP must remain wholly government-owned. OPWP's obligations are not explicitly guaranteed, but under Article 67 of the Sector Law, the Ministry of Finance must provide adequate financing to enable OPWP to undertake its assigned activities.
"These strengths are somewhat offset by OPWP's inherently low profitability, which mainly results from its agency role, seasonal working capital requirements, and a potential increase in counterparty risks as Oman's distribution companies are privatised," the agency said.
S&P's noted that its assessment of OPWP's stand-alone credit profile (SACP) at 'A-' reflects its assessment of the company's "strong" business risk profile and "intermediate" financial risk profile. The SACP is supported by OPWP's monopoly position, although it has no production facilities, and its regulated payment model.
These supports are partly offset by reliance on funding from its owners to meet seasonal swings in cash flows, and weak balance-sheet profitability that stems partly from its agency role and the accounting treatment of leases. OPWP requires no external long-term debt financing, which results in strong credit ratios.
Commenting on OPWP's financial outlook for 2012-2014, the agency said it anticipates revenue growth of 10 -12 per cent, based on the regulatory payment model, and EBITDA margins of between 25 per cent and 30 per cent.
"We believe OPWP will continue to report net accounting losses of RO 2-3 million over the short term, before returning to profitability in the long term. The treatment of leases in the financial statements and accounting losses in the statutory financial accounts do not affect the company's cash flow generating ability. We consider that OPWP's financial risk profile depends largely on the company's ability to generate sufficient cash flow and maintain adequate and timely liquidity."
The negative outlook on OPWP reflects that on Oman, the agency said. "If the ratings on Oman were to change, the ratings on OPWP would change. We currently do not expect our view of OPWP's "critical" role and "integral" link with the Omani government to change, meaning that the ratings on OPWP would remain equalised with those on Oman. We also anticipate that the tariff regime will remain supportive and that OPWP will not engage in any nonregulated activities without approval from Oman's Authority for Electricity Regulation."
© Oman Daily Observer 2012
