After a hiatus of 18 months the government of Oman returned to the international debt market in August 2019 with the issuance of a $3bn dual-tranch bond, made up of $2.25bn worth of 10-year bonds and $750m worth of five-year bonds. The issuance attracted considerable interest from investors, with the overall issue oversubscribed, attracting orders of up to $13.6bn. As a result of this strong demand the sultanate was able to issue the debt at reasonable rates, with the five-year bonds being issued at 5% and the 10-year bonds at 6%. In terms of the regional distribution of the five-year bond purchases, 45% were from Europe, 39% from the US, 11% from Asia, and 5% from the Middle East and Africa.
International Pull
The high international demand for Oman’s bonds is partially due to the country’s low interest rates, which would give investors higher yields. The global stock of negative yielding debt reached a record level of $17trn in 2019, of which $9trn is held in Europe. Leading European investors such as pension funds, insurers and financial institutions have been looking for safe places outside their domestic markets to store their wealth at reasonable yields. Given that Oman is a politically stable country with a local currency pegged to the US dollar, it has been able to attract investors despite having its credit rating downgraded by all major credit rating agencies to junk status.
Other factors contributing to the high demand for Oman’s debt among international investors include the stabilisation in oil prices, moderate debt-toGDP levels and efforts by the Oman government to diversify the economy away from oil. When the government of Oman announced the budget for 2019 it forecast a $7.3bn budget deficit, of which $6.2bn was to be funded through debt. However, as of September 2019 it had issued external debt of only $3bn, less than half the budgeted amount and significantly lower than the $8bn issued in 2018.
Fiscal Reforms
Following the drop in global oil prices in 2014 international credit ratings agencies have expressed concern over Oman’s government debt accumulation and sizeable current account deficits. Oman’s debt-to-GDP ratio exceeded 50% in 2019, and large external debt maturities are scheduled for 2021 and 2022. Moody’s downgraded Oman’s credit rating to junk status in 2019, following earlier downgrades by Fitch in 2018 and Standard & Poor’s in 2017. However, the government is pursuing a number of structural reforms that are intended to help improve the country’s credit ratings. Through a disciplined fiscal austerity programme Oman has already reduced the burden on public expenses by reducing subsidies on fuel products and utilities services. Hydrocarbons still account for over 70% of government revenues but Oman is working on reducing its oil dependence by diversifying the economy through large-scale projects such as the Khazzan Gas Project and through the Tanfeedh initiative – which focuses on expanding the manufacturing, tourism and logistics sectors in the country.
While the government’s debt stood at over $30bn in 2019, Oman’s corporate debt was smaller, at around $9bn. The majority of corporate debt issuances are made by banks in the form of perpetual bonds and euro medium-term notes. These instruments have long been popular among lenders as they boost overall capital adequacy to meet central bank requirements, while also strengthening balance sheets. However, the largest corporate debt issued since 2017 was not by a financial institution, but rather by Omantel, the country’s leading telecoms company. Omantel issued $1.5bn worth of debt in the international market in 2018 to fund the $2bn acquisition of a 22% stake in Zain Group, a Kuwait-based telecoms firm with operations across the region. The debt issuance was oversubscribed, underscoring healthy international demand for Oman’s corporate debt.
