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Rating Action:

Moody's downgrades eight Omani GRIs to Ba3 following sovereign downgrade; negative outlook

25 Jun 2020

London, 25 June 2020 -- Moody's Investors Service, ("Moody's") has today downgraded the ratings of eight government-related issuers (GRIs) domiciled in Oman.

The rating action is a direct consequence of the downgrade of the Government of Oman, on 23 June 2020, to Ba3 from Ba2 with a negative outlook. For further information on the sovereign rating action, please refer to Moody's press release published on 23 June 2020: https://www.moodys.com/research/--PR_426102.

Moody's downgraded the ratings of the following eight GRIs to Ba3 from Ba2 and assigned negative outlooks because of their concentration of cash flows and operations in Oman. This concludes the review for downgrade Moody's had initiated on these GRIs on 01 April 2020:

• Dhofar Power Company SAOC (DPC)

• Majan Electricity Company SAOC (MJEC)

• Mazoon Electricity Company SAOC (MZEC)

• Muscat Electricity Distribution Company SAOC (MEDC)

• Oman Electricity Transmission Company SAOC (OETC)

• Oman Power and Water Procurement Company SAOC (OPWP)

• Rural Areas Electricity Company SAOC (Tanweer)

• Oman Telecommunications Company S.A.O.G. (Omantel)

Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL427161 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and identifies each affected issuer.

RATINGS RATIONALE

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). In particular, recurring delays in the payment of subsidies to DPC, MJEC, MZEC, MEDC and Tanweer have negatively affected these companies' liquidity as demonstrated by their increased reliance on short-term working capital facilities. MJEC, MZEC and MEDC are subject to additional liquidity pressure because of increased reliance on short-term funding in the anticipation of their privatization. DPC, MJEC, MZEC, OETC and Tanweer also continue to face high capital spending until at least 2021 with associated funding requirements and increases in leverage.

The ratings of DPC, MJEC, MZEC, MEDC, OETC, OPWP and Tanweer remain supported by (1) the stable and transparent regulatory framework for the electricity sector and the independence of the regulator; (2) the cost-recovery mechanisms of the regulatory framework; (3) the low business risk profile of the electricity transmission, distribution and supply activities and (4) their respective monopoly positions in Oman. Their negative outlooks are in line with that of the sovereign rating.

The rating of Omantel is constrained by the rating of the Omani government because the company generates most of its cash flows in Oman. The rating of Omantel remains supported by the company's (1) dominant market position in the Omani telecommunications market; (2) industry leading, albeit slightly declining, Moody's adjusted EBITDA margins around 50% (excluding royalty charges); and (3) adequate liquidity. Omantel's negative outlook is in line with that of the sovereign rating.

Moody's expects Omantel's leverage and cash flow metrics to weaken in the fiscal year ending December 2020, albeit while remaining commensurate with the Ba3 CFR. This is driven by (1) the coronavirus-related lockdown which will hamper revenue from the prepaid segment during 2020 and (2) the sharp decrease in oil prices which will weigh on consumers' spending power and could result in a decrease in the number of subscribers, especially if there is an exodus of expats. This situation would be in line with what the company experienced in 2017, as a consequence of the sharp decrease in oil prices in 2015 and 2016. However, the rating agency expects those metrics to recover starting 2021 as the Omani economy starts recovering. Moody's expects Moody's adjusted debt to EBITDA and Moody's adjusted RCF to debt to weaken to 3.4x and 12.4% in 2020 from 3.0x and 15.9% in 2019 and to partially recover to 3.3x and 12.8% in 2021.

Moody's classifies DPC, MJEC, MZEC, MEDC, OETC, OPWP, Tanweer and Omantel as GRIs that benefit from credit linkages with the Government of Oman. All of the corporates' baseline credit assessments (BCA) have been downgraded to ba3 from ba2 in line with their final rating. GRI assumptions for DPC, MJEC, MZEC, MEDC and OETC include 'high' likelihood of extraordinary government support and 'very high' default dependence with the government. GRI assumptions for OPWP and Tanweer include 'very high' likelihood of extraordinary government support and 'very high' default dependence with the government. GRI assumptions for Omantel include 'moderate' likelihood of extraordinary government support and 'high' default dependence with the government.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

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

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.

In addition, the BCAs of DPC, MJEC, MZEC, MEDC and Tanweer could be lowered as a result of (1) weakening liquidity profiles or (2) weakening credit metrics such that (CFO pre-WC + Interest) / Interest (3-year average) drops below 2.0x; (CFO pre-WC -- Dividends) / Debt (3-year average) drops below 0%; or Debt/Capitalisation (3-year average) rises to above 65%.

The BCA of OETC could be lowered as a result of (1) a weakening liquidity profile or (2) weakening credit metrics such that net debt/fixed assets (3-year average) rises above 90%; FFO/net debt (3-year average) falls below 5%; or FFO interest coverage (3-year average) falls below 1.8x.

An upgrade of Omantel's ratings is currently unlikely given the negative outlook and the fact that the rating is constrained by the Government of Oman's sovereign rating.

We could consider Omantel being rated above the Omani sovereign rating should its baseline credit assessment align with a strongly positioned ba2 and if there is at least an equal balance between free cash flow generated in Oman and dividend flowing from Zain (net of interest expense) through Oztel to Omantel. In addition, an upgrade of Omantel's CFR would require Moody's adjusted debt/EBITDA to be below 3.25x and Moody's adjusted retained cash flow/debt above 25%.

Downward rating pressure on Omantel could occur if the Government of Oman's sovereign rating is downgraded. Similarly, Omantel's CFR could come under downward pressure if its Moody's adjusted debt/EBITDA exceeds 3.75x , likely resulting in a downgrade to its BCA. A Moody's adjusted retained cash flow/debt below 17% could also exert negative pressure on the company's BCA as well as negative free cash flows.

Any adverse government influence/inference with respect to Omantel's financial policies or operating strength could also lead to downward pressure on the company's BCA.

The principal methodologies used in rating Oman Electricity Transmission Company SAOC, Lamar Funding Limited, OmGrid Funding Limited were Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207, and Regulated Electric and Gas Networks published in March 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1059225. The principal methodologies used in rating Dhofar Power Company SAOC, Mazoon Electricity Company SAOC, Mazoon Assets Company S.A.O.C, Majan Electricity Company SAOC, Oman Power and Water Procurement Company SAOC, Muscat Electricity Distribution Company SAOC, Rural Areas Electricity Company SAOC were Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207, and Regulated Electric and Gas Utilities published in June 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1072530. The principal methodologies used in rating Oman Telecommunications Company S.A.O.G., Oztel Holdings SPC Limited were Telecommunications Service Providers published in January 2017 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1055812, and Government-Related Issuers Methodology published in February 2020 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1186207. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.

The Local Market analyst for Oman Electricity Transmission Company SAOC, Mazoon Electricity Company SAOC, Mazoon Assets Company S.A.O.C, Lamar Funding Limited and OmGrid Funding Limited ratings is Thomas Le Guay, +971 (423) 795-45.

The Local Market analyst for Oman Telecommunications Company S.A.O.G. and Oztel Holdings SPC Limited ratings is Julien Haddad, +971 (423) 795-39.

REGULATORY DISCLOSURES

The List of Affected Credit Ratings announced here are all solicited credit ratings. Additionally, the List of Affected Credit Ratings includes additional disclosures that vary with regard to some of the ratings. Please click on this link https://www.moodys.com/viewresearchdoc.aspx?docid=PBC_ARFTL427161 for the List of Affected Credit Ratings. This list is an integral part of this Press Release and provides, for each of the credit ratings covered, Moody's disclosures on the following items:

• Rating Solicitation

• Issuer Participation

• Participation: Access to Management

• Participation: Access to Internal Documents

• Disclosure to Rated Entity

• Endorsement

• Lead Analyst

• Releasing Office

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security 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.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The below contact information is provided for information purposes only. Please see the ratings tab of the issuer page at www.moodys.com, for each of the ratings covered, Moody's disclosures on the lead rating analyst and the Moody's legal entity that has issued the ratings.

The relevant office for each credit rating is identified in "Debt/deal box" on the Ratings tab in the Debt/Deal List section of each issuer/entity page of the website.

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.

Julia Pribytkova
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Limited, Russian Branch
7th floor, Four Winds Plaza
21 1st Tverskaya-Yamskaya St.
Moscow 125047
Russia
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Mario Santangelo
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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