Oman raises $5b from international bond sale

Oman government’s bond sale last week, in tranches of five, 10 and 30 years, was about double the size that most investors had expected and a huge amount for a country which returned to the international bond market in 2016 after an absence of two decades

DUBAI: Oman’s government has almost completed its entire foreign borrowing plan for 2017 in a single issue, by selling $5 billion of international bonds.

The government’s bond sale on Wednesday, in tranches of five, 10 and 30 years, was about double the size that most investors had expected and a huge amount for a country which returned to the international bond market in 2016 after an absence of two decades.

Order books for the issue totalled $20 billion, bankers said,. The country can now count on strong international demand for its high-yielding debt.

At the beginning of this year, Oman said it planned to cover a projected OMR3 billion budget deficit in 2017 with OMR2.1 billion of international borrowing, OMR400 million of domestic borrowing and the drawdown of OMR500 million from financial reserves. This week’s bond sale covered over 90 per cent of the international borrowing plan. The early issuance may save money for Oman since US interest rate hikes are set to resume as soon as this month, and given the risk that credit rat- ing agencies could lower Oman’s rating or outlook later this year.

“Unless they spend more than planned — which may be a possibility — they may not need to tap the international debt market again” this year, said Anita Yadav, head of fixed income research at Emirates NBD.

Domestic borrowing

Alternatively, if Oman does choose to raise more foreign debt abroad this year, it could reduce its domestic borrowing, which threatens to hurt the economy by tightening liquidity in the banking system.

Oman’s issue this week “put its public finances in a safe space and removed potential disruptive causes of uncertainty,” said Fabio Scacciavillani, chief strategy officer at Oman Investment Fund, one of the country’s sovereign funds.

Tranches

The five-year tranche, a maturity which traditionally attracts demand from Gulf investors, totalled $1 billion, while the 10and 30-year tranches raised $2 billion each.

Much of the two longer tranches appeared to go to US investors, who also snapped up Saudi Arabia’s debut bond issue last October. This reduced the impact of Oman’s bond on liquidity within the region, bankers said. The fiveyear bond was launched at 190 basis points over mid-swaps, the 10-year at 300 bps over and the 30year at 387.5 bps over.

“The government would have paid more if the deal had been done after a US rate hike. Also the risk of a rating downgrade is nonnegligible, given that Standard & Poor’s has a negative outlook on its BBB- rating on Oman. Pricing would have been a lot higher if the rating had changed negatively,” said Yadav.

Last week, the finance ministry raised the basic corporate income tax rate to 15 per cent from 12 per cent, imposed a 3 per cent rate on very small companies that had previously been exempt, and removed other exemptions. Analysts at U Capital Research estimated the 15 per cent rate would increase tax revenue by only about OMR33 million. A bigger tax increase could risk a slowdown in the economy while it is already under pressure from low oil prices.