Muscat – Fitch Ratings has affirmed Oman Electricity Transmission Company’s (OETC) long-term issuer default ratings (IDR) and senior unsecured rating at ‘BB+’. The outlook on the IDR is stable.

OETC’s standalone credit profile (SCP) of ‘bb+’ reflects its position as the natural monopoly national transmission system operator in Oman within a supportive regulatory framework, and fully regulated EBITDA, Fitch said in a statement.

‘These factors are offset by forecast deeply negative free cash flow (FCF) over the next four years due to large expansion capex, leading to average funds from operations (FFO) net leverage of 6.4x in 2024-2026. From 2026, our forecast shows no leverage headroom to the negative sensitivity of 6.7x,’ Fitch said.

Fitch views the sultanate’s regulatory framework as supportive, especially compared with most ‘semerging-market peers’.

It said Oman has an independent, consultative and transparent system with a revenue-cap methodology largely based on prior regulatory standards in the UK. Revenue generated by OETC is subject to price controls, which are set by the Authority for Public Services Regulation.

According to Fitch, OETC has an ambitious capex programme of RO358mn over 2024-2026. It added, ‘The majority of capex is for expansion, with less than 3% related to maintenance. The main project is the second phase of the North-South Interconnector project costing RO158mn. The project is viewed as strategic by the government.’

With Fitch-calculated EBITDA of RO128mn in 2023, OETC underperformed around 5% versus its business plan in 2023. This was due to a revenue shortfall resulting from lower-than-expected connection charges and variance in costs due to some unbudgeted expenses, the rating agency said.

With regards to OETC’s refinancing needs, Fitch said that OETC’s senior unsecured bond of $1bn matures in May 2025. Given its history of accessing capital markets and its firm banking relationships, Fitch expects OETC will be able to refinance the debt.

Under the new GRE criteria, Fitch assesses decision-making and oversight as ‘strong’ as the Omani government controls 51% of OETC through Nama Holding and has sufficient control over OETC through involvement in and influence over its strategic, operational and financial activities.