Moody’s places Omantel rating on review for downgrade on Zain acquisition

Telco agreed to buy a further 12.1% stake in Kuwait's Zain

The 12.1 per cent stake purchase of Zain will increase Omantel’s share in the Kuwaiti operator to 21.9 per cent. Omantel’s stake acquisition in Zain is its first significant foray beyond the sultanateShow more

Moody's Investors Service has placed the Baa2 long-term rating of Omantel, the largest mobile operator in the sultanate, on review for downgrade as a result of the company’s decision to buy a further 12.1 per cent stake in Kuwaiti telco Zain for US$1.35 billion.

“Moody's expects adjusted debt/EBITDA will increase to levels post acquisition that are no longer commensurate with a baa2 baseline credit assessment,” the rating agency said in an e-mailed statement. “Moody's review will focus on assessing overall impact on Omantel's credit profile including the funding plans in support of the transaction.”

The rating agency said it would conclude its review once the proceedings in accordance with Boursa Kuwait’s regulations are complete and the transaction has then been concluded. The 12.1 per cent stake will increase Omantel’s share in the Kuwaiti operator to 21.9 per cent. Omantel’s stake acquisition in Zain is its first significant foray beyond the sultanate. The Omani operator 10 years ago acquired Pakistani ISP Worldcall, but offloaded the investment this year.

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“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 for the government of Oman,” the rating agency said.

The Muscat-based telco signed a non-binding letter of intent earlier this month with Kuwait-based Al Khair National, a Kharafi Group company, to acquire the latter’s 12.1 per cent share in Zain.

Moody’s said further acquisitions by Omantel, “if debt funded, would likely result in additional downward pressure on the company.” It held that it saw “limited execution risk in Omantel delivering synergies identified from the transaction with Zain,” which underpins Omantel's ability to increase EBITDA and pay down debt.

Omantel, which accrues the bulk of its revenue from its Omani operations, competes with Ooredoo Oman, a subsidiary of Qatar's Ooredoo.