‘Debt capital market contracting amidst govt prepayments’
Oman’s debt capital market (DCM) contracted by 7 per cent yoy, to $44 billion outstanding, in 2023 as the government pre-paid more of its debt using the budget surplus from high oil prices, according to Fitch Ratings. In contrast, the share of sukuk in the outstanding DCM mix grew to 21.1 per cent (2022: 18 per cent).
The Omani DCM market is in an early stage of development, and is the second-smallest amongst GCC countries. However, the government has taken initiatives to develop the market, including the Financial Services Authority’s (FSA) newly published Sukuk and Bond Regulation, an essential step in the DCM development, which also adds regulatory clarity.
The Ministry of Finance also launched its Sustainable Finance Framework in January, under which it intends to issue green, social, and sustainable sukuk, bonds, or loans.
The new regulations are expected to help build confidence among both shariasensitive and Esg-sensitive investors, said Fitch in a statement.
The FSA regulation caters for sukuk with a chapter on sharia oversight, which requires the issuer submit a report every year proving the compatibility of the sukuk with the provisions of Islamic sharia, starting from the sukuk issuance date.
The new regulation also has disclosure requirements for green and sustainable bonds and sukuk, with the requirement to appoint an independent external auditor to assess ESG compliance. Under the regulation, debt issuers are required to submit a credit rating certificate.
Sukuk issuance in Oman expanded by 231 per cent yoy in 2023, to $1.2 billion, while bond issuance fell by 56 per cent yoy to $4.8 billion. Fitch rated around $7.5 billion of outstanding Omani sukuk — all at ‘BB+’ in 2024, issued by the sovereign (67 per cent) and by corporates (33 per cent). In September 2023, Fitch upgraded Oman to ‘BB+’ with a Stable Outlook.
“We do not expect a significant short-term surge in the DCM size, mainly due to the indication in Oman’s budget, published in January 2024, that the authorities will continue to pay down government debt.