Oman, which saw its debt rating cut to junk this month, appears to be borrowing money it needs far in advance of spending it in order to take advantage of market conditions and prevent investors worrying about its ability to fund itself. The Omani government is expected to offer as soon as this week as much as $2 billion of Islamic bonds, its first public offer of sukuk in the international market.
It would be Oman's second international bond issue this year, after a $5 billion conventional bond sale in March that was split into tranches of five, 10 and 30 years. Oman is also in the process of syndicating a $3.6 billion loan in the Asian bank market. Should Oman raise the full amount of the syndicated loan plus $2 billion with the sukuk, it would secure in the first half of 2017 almost twice the amount it initially planned to raise via international borrowing for the whole year.
"I think Oman's debt management considerations are driven by the idea that rates are more likely to go up than down, so seeing a favourable issuance window in the market, the government is probably front-loading its fiscal funding requirements," said Fabio Scacciavillani, chief economist at Oman Investment Fund. "By doing this the government also avoids the spreading of doubts over Oman's ability to remain committed to the US dollar peg." Standard & Poor's cut Oman's credit rating to junk this month, citing erosion of its external reserves and
vulnerability to volatility in oil prices. The other two major rating agencies, Moody's and Fitch, maintain substantially higher ratings on Oman. Anita Yadav, head of fixed income research at Emirates NBD, said Oman might be borrowing such large sums internationally partly because state spending had not been cut as much as planned. Also, it may be acting because US dollar interest rates are rising, and because it wants to avoid raising too much local currency debt so that domestic banking liquidity is not strained, she added. Oman is to hold a global call with fixed income investors on Monday; a seven-year sukuk issue is expected and a 12-year tranche might also be considered, a document issued by one of the banks leading the deal showed.