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Mon 27 Feb 2017 02:28 PM

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Oman eyes large bond sale, could exceed $2bn

Investors say sultanate also plans to issue dollar sukuk over next few months

Oman eyes large bond sale, could exceed $2bn

Oman aims to conduct a large US dollar bond sale this week that could exceed $2 billion, and also plans to issue dollar sukuk over the next few months to plug a budget deficit caused by low oil prices, investors said.

The government intends to sell a conventional bond with maturities of five, 10 and 30 years, according to lead banks, probably after roadshows end in the United States on Tuesday.

Oman has also mandated banks for a dollar sukuk, which could come soon after the conventional issue, said the investors, who obtained their information from roadshows conducted by Omani officials in the United Arab Emirates on Sunday.

Telephone calls and an email to Oman's finance ministry seeking comment were not answered.

Given Oman's substantial funding needs – the government said in January it planned to borrow 2.1 billion rials ($5.45 billion) internationally this year – the conventional bond could be sized at $2.5 billion or even larger, the investors said.

Oman may want to move quickly with a big issue before any possible downgrade of its credit rating or outlook, some investors suggested. Standard & Poor's rates Oman BBB-minus, one notch above junk grade, with a negative outlook, and Moody's has a Baa1 rating with a stable outlook.

The 30-year tranche would be a first for Oman and could attract demand from non-Gulf investors who showed strong appetite for high-yielding, long-term Middle Eastern assets when they bought 30-year notes offered by Saudi Arabia last October and Egypt in January.

"By issuing a 30-year tranche, they’re clearly looking to tap international accounts with natural appetite for longer duration exposure," said Doug Bitcon, head of fixed income funds and portfolios at Dubai’s Rasmala Investment Bank.

The new five-year bond is likely to be priced at around 200 basis points over mid-swaps, factoring in a new issue premium of about 25 bps to Oman's 2021 bond, which traded around 175 bps over mid-swaps on Monday. The 10-year tranche could go up to 300-310 bps over mid-swaps, investors said.

Oman issued bonds due in 2021 and 2026 last June then tapped them in September.

The 30-year tranche could be priced between 370 and 390 bps over mid-swaps, offering a yield between 6.5 percent and 7 percent, investors said.

A 390 bps spread would be very attractive against Indonesia's 30-year bond issued in December and trading around 228 bps, or even Turkey's 2045 bond, currently seen at about 364 bps, one portfolio manager said.

One potential scenario could see Oman making big issues of 10- and 30-year notes while limiting the size of the five-year tranche. It could then count on unsatisfied demand for short-dated Omani paper when it issues its sukuk, which are likely to have maturities of five and seven years, said the manager.

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