Moody’s Investors Service said it downgraded Oman Telecommunications Co’s long-term issuer rating to Baa3 from Baa2 due to the US$2.2 billion of debt it has taken on after it bought a 21.9 per cent stake of Mobile Telecommunications Co, the company also known as Zain.
Oman Telecommunications, also known as Omantel, initially bought a 9.8 per cent stake in Zain in August for $846.1 million and followed it up in October with a further 12.1 per cent stake for $1.35bn.
The purchase was fully funded through debt which has increased the level of risk associated with the company’s ability to pay back its credit obligations. Still, the downgrade keeps Omantel in the last rung of Moody’s investment grade band and a downgrade from Baa3 would put the company into non-investment grade territory.
“Omantel’s initial 9.8 per cent acquisition in Zain was accommodated within the rating guidance which had been set for its prior rating at Baa2,” the rating agency said.
“However, the additional debt and EBITDA from the further 12.1 per cent stake in Zain means that its debt/EBITDA would remain above the limits set for its Baa2 rating guidance over an 18 month horizon.”
Despite the downgrade in rating, Moody’s said that the outlook for the company is stable and that it expects that the company will adhere to its track record of preserving a very strong and robust liquidity profile at all times.
The rating agency said that the rating on the telecommunications company takes into account its dependence and the strong support it receives from the government of Oman.
“The transaction would not change the likelihood of strong support for Omantel by the government of Oman,” the agency said. “The transaction is likely to pave the path for further diversification by government owned corporates in Oman and thus its success is pivotal to broader strategic initiatives and imperatives.”
Moody’s said that any increased debt levels may cause it to downgrade the credit rating of Omantel or if the sovereign credit rating of Oman is lowered.
