Oman gains ‘breathing space’ with jumbo $5 billion bond sale

DUBAI / Reuters

Oman’s government has given itself breathing space from the pressure of financing a large budget deficit by selling $5 billion of international bonds, almost completing its entire foreign borrowing plan for 2017 in a single issue.
Wednesday’s bond sale, 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, showing that though Oman is among the financially weakest oil exporters in the Gulf, it can for 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 3 billion rial ($7.8 billion) budget deficit in 2017 with 2.1 billion rials of international borrowing, 400 million rials of domestic borrowing and the drawdown of 500 million rials from financial reserves.
This week’s bond sale covered over 90 percent 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 rating 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.
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.