Reuters logo
MIDEAST DEBT-Oman front-loading funding requirements with planned dollar sukuk
May 21, 2017 / 2:45 PM / 6 months ago

MIDEAST DEBT-Oman front-loading funding requirements with planned dollar sukuk

* 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 (Reuters) - 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. dollar peg.”

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 planned.

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 percent.

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 portfolio manager.

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)

Our Standards:The Thomson Reuters Trust Principles.
0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below