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Outlook On Omantel Revised To Positive On Likely Improvement In Financial Policy

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Standard & Poor's Ratings Services has revised its outlook on Oman's largest telecom operator, Omantel to positive from stable.

S&P said that the outlook revision follows their reassessment of Omantel's financial policy and appetite for mergers and acquisitions. They no longer consider a large debt-financed acquisition to be likely, although smaller acquisitions in information communications technology may still occur. As a result, S&P said that they may remove the notch of negative adjustment that constrains the long-term rating due to their negative assessment of Omantel's financial policy.

That said, S&P added that the company's operating performance remains robust, with subscriber growth offsetting reductions in the average revenue per user.

Omantel's business risk profile is supported by its strong competitive position in Oman's fixed-line and mobile telephony markets, solid operating performance, and high profitability. Omantel is the leader in the domestic two-player mobile market, which in our view supports its above-average profitability. The company also dominates the country's fixed-line market.

However, S&P expects fixed-line broadband business to be as competitive as mobile telephony in the near to medium term. Offsetting these strengths are Omantel's fairly small scale in the global market, the evolving competitive and regulatory landscape for telecom operators in Oman, and Omantel's exposure to country risk.

Omantel's financial risk profile is supported by the company's net cash position, and our expectation that its credit metrics will remain robust, despite relatively high capital expenditure and a possible increase in royalty fees to 12% from 7% of revenue. The financial risk profile is constrained by Omantel's historically large dividend distributions and minimal discretionary cash flow. That said, even if Omantel decided to increase debt to fund expansion, the ratings agency assumes that it would maintain a ratio of Standard & Poor's-adjusted debt to EBITDA lower than 2x, in line with its historically conservative financial policy. An adjusted debt-to-EBITDA ratio sustainably lower than 1.5x would support an upgrade to 'BBB+'.

S&P assesses the company's overall credit profile as somewhat weaker than that of peers with similar business and financial risk profile assessments, primarily based on Omantel's smaller scale, lower level of diversity, and higher country risk.

Moreover, they see a "moderately high" likelihood of extraordinary government support for Omantel, which S&P considers to be a government-related entity.

The positive outlook on Omantel reflects the possibility of an upgrade if, as they expect, the company maintains robust credit metrics.

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Tags: omantel  Oman