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Rating Action:

Moody's assigns provisional (P)Baa2 rating to Oman's new Global Medium-Term Note programme

03 Jan 2018

Frankfurt am Main, January 03, 2018 -- Moody's Investors Service has today assigned a provisional senior unsecured foreign currency programme rating of (P)Baa2 to the new Global Medium-Term Note (MTN) programme by the Government of Oman. The rating mirrors the Government of Oman's long-term issuer rating of Baa2 with negative outlook.

RATINGS RATIONALE

According to the draft base prospectus available to Moody's at the time of the rating committee, the Notes to be issued under the new global MTN programme will constitute direct, unconditional and unsecured obligations of the Government of Oman (the issuer), and will rank pari passu with all other senior unsecured debt obligations of the issuer.

The proceeds of the notes to be issued under the programme are intended to be used for general budgetary purposes of the issuer.

The proposed notes are governed by English Law and Arbitration is agreed to take place in the UK under the Arbitration Rules of the London Court of International Arbitration. The issuer waives immunity and no person shall have any right to enforce any term or condition of the notes under the Contracts (Rights of Third Parties) Act 1999.

Oman's credit strengths include its high wealth levels and a still comparatively strong government balance sheet. Moreover, risks are comparatively low that contingent liabilities from the banking system or wider non-financial public sector will crystallize on the government's balance sheet as growth slows. Although Moody's expects government debt to rise to close to 50% of GDP by 2018 from less than 5% at the onset of the oil price shock, Oman's holdings of financial assets (estimated at around 60% of GDP in 2017) will provide support through its fiscal and external adjustment.

In Moody's view, Oman's heavy economic and fiscal reliance on the oil and gas sector represents a key credit challenge. Hydrocarbon exports accounted for an average 65% of total goods exports and 83% of total government revenues in 2011-16. As a result of this high dependence, Oman has suffered a steeper deterioration in its fiscal and external accounts than most other Gulf Cooperation Council (GCC) sovereigns since 2015.

The negative rating outlook on Oman's issuer rating reflects Moody's view that risks to Oman's rating are skewed to the downside. Despite diversification efforts, Oman's government finances and external accounts remain highly susceptible to oil price swings. In addition, the government's increased reliance on international debt issuance introduced an element of susceptibility to international capital flow volatility and potential tightening market funding in an environment of rising global interest rates.

WHAT COULD MOVE THE ISSUER RATING UP/DOWN

Given the negative issuer rating outlook, any upward movement in the rating in the foreseeable future is highly unlikely. However, Moody's would consider moving the outlook back to stable if a clear and credible fiscal and economic policy response were to emerge, offering the prospect of sustained changes to the government's revenue and expenditure composition. A faster reduction in fiscal deficits, a stabilization of the government's net asset position and improvements to the external liquidity position would be credit-positive.

Signs of an emerging fiscal or balance-of-payments crisis would exert downward pressure on the rating. In particular, any signs of funding stress or a forced change to the current exchange rate system would most likely result in further negative rating action. A deterioration in the domestic or regional political environment would also be highly credit negative.

This rating action concerns a new rating solicited by the issuer for a new global MTN programme that was not in the market at the time that the sovereign release calendar was published, and is therefore being released on a date not listed in that publication.

GDP per capita (PPP basis, US$): 46,067 (2016 Actual) (also known as Per Capita Income)

Real GDP growth (% change): 3% (2016 Actual) (also known as GDP Growth)

Inflation Rate (CPI, % change Dec/Dec): 1.1% (2016 Actual)

Gen. Gov. Financial Balance/GDP: -18.5% (2016 Actual) (also known as Fiscal Balance)

Current Account Balance/GDP: -18.4% (2016 Actual) (also known as External Balance)

External debt/GDP: 47.1% (2016 Estimate)

Level of economic development: High level of economic resilience

Default history: No default events (on bonds or loans) have been recorded since 1983.

On 18 December 2017, a rating committee was called to discuss assigning a provisional rating to the new global MTN programme of the Government of Oman. The main points raised during the discussion were: The terms and conditions of the notes to be issued under the proposed global MTN programme and the conclusion that these notes would rank pari passu with other senior unsecured debt obligations of the Government of Oman.

The principal methodology used in this rating was Sovereign Bond Ratings published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

The weighting of all rating factors is described in the methodology used in this credit rating action, if applicable.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Steffen Dyck
VP - Senior Credit Officer
Sovereign Risk Group
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Yves Lemay
MD - Sovereign Risk
Sovereign Risk Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Deutschland GmbH
An der Welle 5
Frankfurt am Main 60322
Germany
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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