Thursday 04, January 2018 by Jessica Combes

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


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.

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 crystallise on the government's balance sheet as growth slows. Although Moody's expects government debt to rise to close to 50 per cent of GDP by 2018 from less than 5 per cent at the onset of the oil price shock, Oman's holdings of financial assets (estimated at around 60 per cent 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 per cent of total goods exports and 83 per cent 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.

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 stabilisation 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. 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 dollar): 46,067 (2016 Actual) (also known as Per Capita Income)

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

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

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

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

External debt/GDP: 47.1 per cent (2016 Estimate)

Level of economic development: High level of economic resilience

Default history: No default events (on bonds or loans) have been recordedsince 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.

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