* Oman expected to offer as much as $2 billion of sukuk
* Raising money faster than originally planned this year
* Rising U.S. rates are one factor
* May also prevent investors worrying after rating downgrade
* Seven-year sukuk likely to price between 4 and 4.5 percent
By Davide Barbuscia
DUBAI, May 21 Oman, which saw its debt rating
cut to junk this month, appears to be borrowing money it needs
far in advance of spending it in order to take advantage of
market conditions and prevent investors worrying about its
ability to fund itself.
The Omani government is expected to offer as soon as this
week as much as $2 billion of Islamic bonds, its first public
offer of sukuk in the international market.
It would be Oman’s second international bond issue this
year, after a $5 billion conventional bond sale in March that
was split into tranches of five, 10 and 30 years.
Oman is also in the process of syndicating a $3.6 billion
loan in the Asian bank market.
Should Oman raise the full amount of the syndicated loan
plus $2 billion with the sukuk, it would secure in the first
half of 2017 almost twice the amount it initially planned to
raise via international borrowing for the whole year.
“I think Oman’s debt management considerations are driven by
the idea that rates are more likely to go up than down, so
seeing a favourable issuance window in the market, the
government is probably front-loading its fiscal funding
requirements,” said Fabio Scacciavillani, chief economist at
Oman Investment Fund.
“By doing this the government also avoids the spreading of
doubts over Oman’s ability to remain committed to the U.S.
Standard & Poor's cut Oman's credit rating to junk this
month, citing erosion of its external reserves and
vulnerability to volatility in oil prices. The other two major
rating agencies, Moody's and Fitch, maintain substantially
higher ratings on Oman.
Anita Yadav, head of fixed income research at Emirates NBD,
said Oman might be borrowing such large sums internationally
partly because state spending had not been cut as much as
Also, it may be acting because U.S. dollar interest rates
are rising, and because it wants to avoid raising too much local
currency debt so that domestic banking liquidity is not
strained, she added.
Oman is to hold a global call with fixed income investors on
Monday; a seven-year sukuk issue is expected and a 12-year
tranche might also be considered, a document issued by one of
the banks leading the deal showed.
Oman’s $1 billion five-year conventional notes issued in
March yield around 3.75 percent while its $2
billion of 10-year conventional paper yield 5
These figures suggest a new conventional seven-year deal
would be priced at 4.7-4.75 percent, but strong latent demand
from Islamic investors means Oman's seven-year sukuk is likely
to price between 4 and 4.5 percent, said a fixed income
Issuance larger than $2 billion could push the pricing into
the high 4 percent area, he added.
A second portfolio manager said Z-spreads of Oman’s bonds
issued last March and maturing in 2022, 2027 and 2047 were
around 190 basis points, 280 bps and 370 bps respectively.
Given the size of the gap in yield between the maturities,
and subtracting 10 bps because of strong demand for sukuk,
Oman's new debt could be issued at 210-220 bps over U.S.
Treasuries while a 12-year tranche could be priced around 300
bps over Treasuries, he said.
(Editing by Andrew Torchia and Alison Williams)