Huge demand for Oman’s sukuk as investor concerns about debt eases

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The Sultanate of Oman has received huge demand for its first dollar-denominated sukuk to issue since 2018, as high oil prices over the past year and a plan to stabilize public finances allayed investor fears of a sharp rise in debt levels.
The nine-year sukuk amounting to 1.75 billion dollars that the small Gulf country raised on Tuesday attracted more than 11.5 billion dollars in applications.
Market sources said that the sukuk rose today, Wednesday, by about one cent to the dollar, in what is known as the gray market. A model by Standard & Poor’s Global shows that for the first time in more than two years, credit risk swaps do not take into account a downgrade of Oman’s credit rating.
“They made quite cautious assumptions about oil prices, at $45 a barrel for this year, and $50 after that. But they have a plan to budget at $50 by 2025,” said Timothy Ash of BlueBay Asset Management, adding that he considers Oman now taking improvement in credit.
He said he expected better performance of its budget because oil prices are higher than this, as Brent crude exceeded $72 today.
According to Reuters, Morgan Stanley said today that it favors Oman, which is among the top performers on the emerging market bond index.
The Sultanate of Oman is a relatively small oil producer and is more sensitive to its price fluctuations, which means that the Sultanate is particularly hard hit by the historic price collapse in 2020 and the Covid-19 pandemic.
Its debt as a percentage of annual economic output, or gross domestic product, rose to about 80 percent last year, after it was just over 5 percent in 2015.
“Although our optimism for the rally has subsided, we still have a positive bias, we believe it is too early to reduce exposure while continuing to consolidation,” Morgan Stanley said in a research note.
The sultanate faced what bankers described as weak demand when it turned to the debt markets last year. But the plan to stabilize public finances and the recovery of oil prices helped Oman become the first Gulf country to issue bonds this year, as it raised in January 3.25 billion dollars in conventional bonds in a deal that attracted subscriptions of more than 15 billion dollars.
“With the latest issuance, Oman has refinanced bonds maturing in 2021 and the deficit this year… which allowed the government to focus on reducing the budget deficit,” said Rafael Bertone, head of debt markets at the Gulf Investment Corporation.
Nick Eisinger, head of emerging markets fixed income at Vanguard, said the sukuk, an instrument for which demand has long outstripped supply, is lower compared to Oman’s traditional bonds but still an adequate size.
He added, “Oman has a lot of cash in the near term. The reform was strong at the beginning of the year. It has slipped a bit since then but higher oil prices are helping.. The medium-term outlook remains questionable but it is good in the near term.”





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