Moody’s Sees Downgraded Oman Still Dodging Bahrain-Like Bailout

(Bloomberg) -- Moody’s Investors Service, which downgraded Oman’s credit rating to junk last week, said the cash-strapped sultanate won’t require a bailout similar to the one that Bahrain got in the next 12 to 18 months.

Oman doesn’t have any significant debt redemption coming due and has sufficient buffers to get through an unlikely “period of impaired market access” in the next 12 to 18 months, said Alexander Perjessy, a senior analyst at Moody’s. It has enough foreign-exchange reserves and another estimated $15 billion in liquid sovereign-wealth-fund assets, he said.

“The initial conditions are very different,” Perjessy said in an interview in Dubai. “Oman is starting from a much stronger position than where Bahrain was a year ago, and that’s reflected in the ratings.”

Bahrain briefly lost access to international capital markets last year when its external cushion was “very low” and it also needed to redeem a $750 million Islamic bond last November, he said. The yield on Oman’s bond due in 2028 remains higher than Bahrain’s similar-maturity debt, which rallied last year after the nation won a $10 billion bailout package and inclusion in JPMorgan Chase & Co.’s emerging-market bond indexes.

Moody’s Sees Downgraded Oman Still Dodging Bahrain-Like Bailout

Oman now has a sub-investment grade at all three major rating companies after Moody’s lowered its rating to Ba1, with a negative outlook. The rating company typically seeks to review any non-stable outlook within 12 to 18 months, Perjessy said.

“The negative outlook reflects the risk that when fiscal metrics continue to deteriorate in the next couple of years, there is a possibility that the market’s willingness to finance Oman would weaken,” Perjessy said. “That’s not our baseline but it’s a downside scenario.”

The Gulf Arab monarchy plans to slash its borrowing for 2019 by as much as 70 percent and rely on asset sales to plug its budget deficit. Investors said it will first need to convince the market it’s pushing through reforms to tame its budget deficit before selling Eurobonds.

“We assume that they will continue to be able to access the markets,” Perjessy said.

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