Fitch Ratings-London-December 24: Fitch Ratings has downgraded Oman Electricity Transmission Company's (OETC), Mazoon Electricity Company's (Mazoon) and Oman Telecommunications Company S.A.O.G.'s (Omantel) Long-Term Foreign Currency Issuer Default Ratings (IDR) to 'BB+' from 'BBB-'. Fitch has also downgraded OETC's and Mazoon's Local Currency IDRs to 'BB+' from 'BBB-'. The Outlooks on all the IDRs are Stable. A full list of rating actions is below.
KEY RATING DRIVERS
The rating actions follow the downgrade of Oman's Long-Term Foreign- and Local-Currency IDRs to 'BB+' from 'BBB-'. The Outlooks are Stable (see 'Fitch Downgrades Oman to 'BB+'; Outlook Stable', dated 18 December 2018 at
Fitch's assessment of the 'BBB-' standalone credit profiles (SCP) of OETC, Mazoon and Omantel remain unchanged.
OETC's, Mazoon's and Omantel's ratings are assessed using Fitch's Government-Related Entities Rating Criteria. Their standalone credit profiles are higher than the Oman sovereign rating of 'BB+'. We do not envisage them to be rated higher than the sovereign's, given the moderate-to-strong legal and operational linkages between the government and each separate company. Changes to the sovereign rating would therefore likely be reflected in the ratings of OETC, Mazoon and Omantel.
DERIVATION SUMMARY
See relevant rating action commentaries (RACs) for each issuer at
'Fitch Revises OETC Outlook to Negative: Affirms at 'BBB'; dated 22 June 2017
'Fitch Assigns Mazoon Electricity Company First-Time 'BBB' Rating; Outlook Negative'; dated 5 October 2017
'Fitch Assigns Omantel First-Time 'BBB-' Final Rating'; dated 30 April 2018
KEY ASSUMPTIONS
See relevant RACs (referenced above) for each issuer.
RATING SENSITIVITIES
OETC
Developments That May, Individually or Collectively, Lead to Positive Rating Action
- The rating is capped by the Oman sovereign rating. A positive rating action on Oman would lead to a positive rating action on OETC provided OETC's standalone credit profile remains at 'BBB-'.
- For the standalone credit profile to remain at 'BBB-', funds from operations (FFO)-adjusted net leverage should remain below 6.2x, and FFO fixed charge coverage above 3.0x, both on a sustained basis and without any adverse changes to the regulatory environment.
Developments That May, Individually or Collectively, Lead to Negative Rating Action
- A negative sovereign rating action provided links with the sovereign do not weaken.
- Negative changes to the regulatory framework, such as downward revision of regulatory asset base and/or weighted-average cost of capital revision and/or significant delays to the recovery of revenue.
- FFO adjusted net leverage above 6.5x, and FFO fixed charge coverage below 2.5x on a sustained basis.
Mazoon
Developments That May, Individually or Collectively, Lead to Positive Rating Action
- The rating is capped by the Oman sovereign rating. A positive rating action on Oman would lead to a positive rating action on Mazoon provided Mazoon's standalone credit profile remains at 'BBB-'.
- For the standalone credit profile to remain at 'BBB-', FFO-adjusted net leverage should remain below 5.5x, and FFO fixed charge coverage above 3.5x, both on a sustained basis and without any adverse changes to the regulatory environment.
Developments That May, Individually or Collectively, Lead to Negative Rating Action
- A negative sovereign rating action provided links with the sovereign do not weaken.
- Negative changes to the regulatory framework, such as downward revision of regulatory asset base or weighted average cost of capital revision or significant delays in the recovery of revenue.
- Significantly lower-than-expected maximum allowed revenue without a subsequent increase in government subsidies or revision of Article 18 governing the subsidies.
- FFO adjusted net leverage above 6.0x, and FFO fixed charge coverage below 3.0x on a sustained basis.
Omantel
Developments That May, Individually or Collectively, Lead to Positive Rating Action
- The rating is capped by the Oman sovereign rating. A positive rating action on Oman would lead to a positive rating action on Omantel provided Omantel's standalone credit profile remains at 'BBB-'.
- For the standalone credit profile to remain at 'BBB-', FFO adjusted net leverage on a deconsolidated basis should remain sustainably below 3.8x without any deterioration in free cash flow (FCF).
Developments That May, Individually or Collectively, Lead to Negative Rating Action
- A negative sovereign rating action provided links with the sovereign do not weaken.
- Pressure on FCF driven by EBITDA margin erosion, consistently higher capex and shareholder distributions, or significant underperformance in the core domestic market and at other key subsidiaries
- FFO adjusted net leverage on deconsolidated basis sustained above 4.3x as a result of M&A, significant reduction in dividends from Zain Group and weakness in domestic FCF without remedial action from the company.
Oman sovereign rating
The main factors that could lead to positive rating action are:
- Narrowing of the budget deficit resulting in stabilisation of the government debt/GDP, for example as a result of an improved fiscal policy framework.
- Sustainable reduction of net external debt/GDP.
The main factors that could lead to negative rating action are:
- Continued increases in government debt/GDP or drawdown in assets, for example due to a failure to shrink the budget deficit.
- Continued increases in net external debt/GDP.
LIQUIDITY
See relevant RACs for each issuer.
FULL LIST OF RATING ACTIONS
Oman Electricity Transmission Company SAOC
- Long-Term Foreign-Currency IDR: downgraded to 'BB+' from 'BBB-', Outlook Stable
- Long-Term Local-Currency IDR: downgraded to 'BB+' from 'BBB-', Outlook Stable
- Senior unsecured rating: downgraded to 'BB+' from 'BBB-'
OmGrid Funding Limited
- Senior unsecured notes: downgraded to 'BB+' from 'BBB-'
Lamar Funding Limited
- Senior unsecured notes: downgraded to 'BB+' from 'BBB-'
Mazoon Electricity Company SAOC
- Long-Term Foreign-Currency IDR: downgraded to 'BB+' from 'BBB-', Outlook Stable
- Long-Term Local-Currency IDR: downgraded to 'BB+' from 'BBB-', Outlook Stable
Mazoon Assets Company SAOC
Senior unsecured notes: downgraded to 'BB+' from 'BBB-'
Oman Telecommunications Company SAOG
- Long-Term Foreign-Currency IDR: downgraded to 'BB+' from 'BBB-', Outlook Stable
Oztel Holdings SPC Limited
- Senior unsecured notes: downgraded to 'BB+' from 'BBB-'
Contact:
Principal Analysts
Samer Haydar (OETC, Mazoon and Omantel)
Associate Director
+971 4 424 1240
Supervisory Analysts
Tajesh Tailor (Omantel)
Senior Director
+44 20 3530 1726
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Yeshvir Singh (OETC and Mazoon)
Director
+44 20 3530 1810
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Committee Chairperson
Damien Chew, CFA
Senior Director
+44 20 3530 1424
Media Relations: Adrian Simpson, London, Tel: +44 20 3530 1010, Email: adrian.simpson@thefitchgroup.com.
Additional information is available on
Applicable Criteria
Corporate Rating Criteria (pub. 23 Mar 2018)
Corporates Notching and Recovery Ratings Criteria (pub. 23 Mar 2018)
Government-Related Entities Rating Criteria (pub. 25 Oct 2018)
Parent and Subsidiary Rating Linkage (pub. 16 Jul 2018)
Sukuk Rating Criteria (pub. 25 Jul 2018)
Additional Disclosures
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
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