Muscat – Fitch Ratings on Friday upgraded the long-term issuer default ratings (IDRs) of the sultanate’s international integrated energy group OQ and Omantel to ‘BB’ from ‘BB-‘. The rating agency’s outlooks on both companies’ ratings are stable.
The rating actions on OQ and Omantel follow the upgrade of Oman’s sovereign rating to ‘BB’ from ‘BB-‘ on August 15, 2022, Fitch said in its statement.
‘We have upgraded OQ’s long-term IDR and senior unsecured ratings to ‘BB’ from BB-. The outlook on the long-term IDR is stable. The recovery rating is RR4,’ Fitch said. It said OQ’s IDR is equalised with that of Oman (BB/stable), reflecting Fitch’s view of strong links between OQ and the state.
Fitch said OQ’s ‘b+’ standalone credit profile (SCP) reflects successful project execution in both the upstream and downstream segments, alongside stronger financial performance due to higher oil and gas prices as well as the refining and petrochemical margin leading to lower net leverage expectations.
‘OQ’s SCP also reflects its solid business profile with integrated operations spanning exploration and production, refining, marketing, chemical and petrochemical segments. OQ’s SCP remains constrained by its complex group structure,’ the rating agency said.
Fitch noted that OQ is ultimately fully owned by the government of Oman via Oman Investment Authority (OIA) and was established to strengthen and centralise Oman’s oil and gas industry.
‘OQ’s rating is equalised with that of the sovereign under Fitch’s government-related entities rating criteria. Therefore, the upgrade of Oman’s rating drives the upgrade of OQ’s rating,’ it said.
According to Fitch, Oman’s government exerts significant influence on OQ’s business and funding strategy via OIA. It said, ‘OQ has received significant support from the government in the form of equity injections, asset transfers, shareholder loans and debt guarantees.’
Fitch believes large-scale support in the form of investment-project funding or debt refinancing would be difficult to obtain due to the potential budgetary constraints on the Omani government, but support for OQ’s short-term liquidity and interest payments would be provided, if needed.
As per Fitch’s estimates, OQ’s consolidated revenue accounted for 26 per cent of Oman’s 2021 GDP.
‘OQ is the main downstream company owning all domestic refining assets producing all transport fuels for the Omani market and is tasked with increasing the value per barrel of extracted oil by further expanding refining and petrochemical assets. It is also the exclusive operator of Oman’s domestic natural gas transportation infrastructure,’ the rating agency said.
OQ’s business profile, Fitch said, is supported by the large scale of its operations, business diversification with a presence in the oil and gas upstream, downstream and midstream sectors, quality of its exploration and production and its newly built refining and petrochemical assets as well as its favourable location with access to high-growth markets.
For Omantel, Fitch said the rating upgrade follows a recent similar rating action of the Oman sovereign’s as Omantel’s issuer default rating is capped by the rating of the sovereign.
‘The cap reflects our assessment of strong links between Omantel and the state and is in accordance with Fitch’s parent and subsidiary linkage and government-related entities criteria,’ the rating agency said.
Fitch noted that Omantel is 51 per cent-owned by state-owned funds and it continues to view Omantel’s standalone credit profile at ‘bbb-‘. Fitch has also upgraded Omantel’s senior secured notes under Oztel Holdings SPC Limited to ‘BB’ from ‘BB-‘.