Concurrently, Moody’s has assigned a Baa2 foreign currency long-term issuer rating to Mazoon Electricity Company SAOC that mirrors the local currency rating of the company. The outlook on all ratings is negative.
The Baa2 rating assigned to the Certificates is at the same level as the long-term issuer rating of MZEC, as the Certificates holders in Moody’s view will (i) effectively be exposed to MZEC’s senior unsecured credit risk; (ii) not be exposed to the risks relating to the trust assets; (iii) will not have any preferential claim or recourse over the trust assets, or rights to cause any sale or disposition of the trust assets except as expressly provided under the transaction documents (which are governed by either English or Omani Law); and (iv) only have rights against MZEC, ranking pari passu with other senior unsecured obligations as provided in the transaction documents.
Moody’s also notes that its rating of the Certificates does not express an opinion on the Sukuk structure’s compliance with Shari’ah law, and for this it refers to the decision provided by the Shari’ah supervisory committees/boards of the Certificates arrangers.
The proceeds from the Certificates will be used by the Issuer to buy certain assets (the “Assets”) from MZEC in Oman. MZEC will periodically pay a certain rental amount to lease the Assets from the Issuer, which will then be used to pay the profit rate to the Certificates holders.
Under the service agency agreement, MZEC as the service agent retains any responsibility with regards to the Assets, including their maintenance and insurance. Any breach of obligations from MZEC under the transaction documents would trigger a dissolution event, whereby the Certificates would become immediately due and payable by MZEC.
The ratings of MZEC are supported by (1) the regulator’s record of transparency and independence; (2) the cost-recovery mechanisms of the regulatory framework; as well as (3) the low business risk profile of the electricity distribution and supply activities and the companies’ regional monopoly positions in Oman but remain constrained by the (1) high capital investment programmes over at least the 2017-21 cycle; (2) associated financing requirements and frequent access to third-party debt funding; and (3) shareholder distributions, albeit at fairly moderate levels. The outlook on the Programme is aligned with the outlook of MZEC and reflects the negative outlook of Oman’s sovereign rating. A change in MZEC’s ratings will automatically be reflected in the rating of the Programme and any certificates issued by it.
WHAT COULD CHANGE THE RATINGS – UP/DOWN
Given that the rating of MZEC is aligned with that of the sovereign of Oman, an upgrade of MZEC’s rating is linked to that of the Omani sovereign.
Ratings could be lowered as a result of a downgrade in Oman’s government bond rating, change in Omani government support and dependence assumptions (e.g. manifested through privatisation) or a weakening BCA.A downgrade could occur if MZEC’s credit metrics weaken such that (1) (CFO pre-WC + Interest) / Interest (3-year average) drops below 4.5x;
(2) (CFO pre-WC — Dividends) / Debt (3-year average) drops below 15 per cent; or (3) Debt/Capitalisation (3-year average) raises to above 55 per cent.
The methodologies used in these ratings were Regulated Electric and Gas Utilities published in June 2017, and Government-Related Issuers published in August 2017. Please see the Rating Methodologies page on www.moodys.com for a copy of these methodologies.
Mazoon Electricity Company SAOC (MZEC) is an entity established under the Commercial Companies Law of Oman. The primary activities of MZEC encompass electricity distribution and supply in four Governorates (regions) of Oman. Electricity Holding Company SAOC (Nama Holding – NH) owns 99.99 per cent of MZEC, with the remainder held by Nama Shared Services LLC (NSS, 0.005 per cent) and Nama Institute for Competency Development LLC (NICD 0.005 per cent), both subsidiaries of NH. The Ministry of Finance in turn holds 100 per cent of NH’s share capital.