The government of Oman has invited banks to participate in a $1 billion sovereign loan, two sources aware of the matter said on Sunday, as the Gulf country seeks funds at a time of stretched state finances due to lower oil prices.
The sultanate recorded a 2.93 billion rial ($7.63 billion) budget deficit for the first nine months of 2015, while its central bank governor told Reuters last month it was seeking to reduce spending and increase revenue to cope with the current fiscal position.
It raised a debut sovereign Islamic bond worth 250 million rials in October to help bridge the gap in its finances, and now the sultanate is seeking bank finance as well, according to the sources, who spoke on condition of anonymity as the information isn't public.
Oman's Finance Ministry did not immediately respond to a request for comment.
The loan will be arranged by Citigroup, Gulf International Bank and Natixis and will run for five years, the sources said.
The interest rate on the loan will be 110 basis points over the London interbank offered rate (Libor), according to one of the sources, a Gulf-based banker, who added that marketing of the deal will close by the middle of December.
The loan syndication comes at a time when credit rating agency Standard & Poor's downgraded Oman's sovereign debt and retained a negative outlook, citing risks over the next two years due to low oil prices.
"Once Saudi Arabia was downgraded, it was obvious that Oman and Bahrain would be downgraded as well, so people were expecting this," said the second source, a senior regional banker.
He was pointing to S&P's downgrade of Saudi, the Gulf's largest economy, last month due to pressure on state finances.
Oman has minimal overseas debt though so the loan is expected to be relatively well received due to its rarity value and modest size of the transaction, the Gulf-based banker added.
The country has a protracted domestic borrowing programme, including regular treasury bill auctions, which is adding pressure to the liquidity in the local banking system and forcing the government to raise money abroad.
The government has also talked about raising an international bond, which bankers expect to happen in 2016.