Oman is planning a second debt sale in 2021 with dollar sukuk

Oman picked banks including Citigroup and HSBC Holdings for its second Islamic bond offering this year, taking advantage of demand among investors hungry for higher yields and impressed by the Gulf Arab state’s economic overhaul.

Citigroup, Gulf International Bank, HSBC, Standard Chartered Bank, Bank ABC and Bank Muscat will arrange an investor call on Monday, according to a person familiar with the matter.

A year after the sultanate’s bonds approached distressed territory and its government discussed the possibility of financial aid from other members of the Gulf Cooperation Council, higher oil prices coupled with a slew of cost-cutting measures have helped put it back on track.

Oman successfully tapped the international debt market in January, raising $3.25bn. Rated junk by all three major credit assessors, it’s making the most of appetite for high-yielding bonds, which are less sensitive to US interest rates. Oman’s dollar bonds have gained 4.4 per cent this year to outperform all of its Gulf Arab peers, according to Bloomberg Barclays indexes.

The finance ministry has said that as of end-March it was more than halfway to meeting its total funding needs of OMR4.2bn ($10.9bn) for this year, thanks to borrowing and drawdowns from the sovereign wealth fund. The country’s public finances, long among the weakest in the Gulf region, remain vulnerable to oil-price swings and disruptions from the global pandemic, however.

Its debt as a percentage of economic output will climb to 82.7 per cent in 2021 from 79.2 per cent last year, according to a bond prospectus seen by Bloomberg. That contradicts estimates by the International Monetary Fund, which projected debt-to-GDP would fall this year to 71.3 per cent from 81.1 per cent last year.

The government’s total outstanding debt stood at OMR19.7bn by the end of 2020, up from OMR17.6bn the previous year, according to document.

“Oman’s debt-to-GDP ratio could stabilise this year given the rally in oil prices,” said Ziad Daoud, chief emerging-markets economist at Bloomberg, “yet the pace of debt accumulation since 2014 is still worrying.”

Raising Revenue
Since taking power in January 2020 following the death of his long-time predecessor, Sultan Haitham bin Tariq has taken dramatic measures to help balance Oman’s finances and prepare it for a time after oil. The effort has included cutting subsidies, introducing a value-added tax and even planning an income tax – which would be a first for a Gulf Arab state – as part of a medium-term plan to overhaul the economy.

Its drive to cut spending by weaning thousands of state employees off government jobs came up against its first serious obstacle last month, however, when security forces clashed with demonstrators during several days of rare protest. The protesters had gathered in the industrial city of Sohar to complain about record unemployment and worsening economic conditions. The government responded with a promise to create jobs in both the private and public sectors.

Fitch Ratings forecasts Oman will run a deficit of 6.1 per cent of gross domestic product this year and 5 per cent in 2022, compared with over 18 per cent in 2020, as higher oil prices and fiscal measures by the government bring in more revenue. In the first quarter, Oman’s deficit widened to OMR751.4m, from OMR26.3m in the same period last year.

Fiscal deficits and external debt maturities will total $9bn to $10bn per year — or about 13 per cent of GDP — in 2021-2022, according to Fitch.