The Government of the Sultanate of Oman made its inaugural foray international public Sukuk markets via a $2 billion 7-year Sukuk issuance on May 23, 2017. The Sukuk follows the Sultanate’s $5.0bn multi-tranche bond priced earlier this year. The transaction witnessed strong investor interest with the orderbook peaking at approximately $6.9 billion, with over 300 participating accounts.
The transaction was noteworthy in a number of ways and was able to fulfil several of the Sultanate’s key objectives: (I) Establishing a tight and liquid Sukuk benchmark; (II) Funding a significant part of the expected 2017 fiscal deficit; and (iii) Investor Diversification — this transaction was able to achieve sizeable well diversified investor interest across investor types and geographies with approximately 50 per cent distribution into Islamic investors and 72 per cent of the deal being sold into Asia and the MENA region.
Despite coming close on the heels of a credit rating downgrade by S&P from ‘BBB-/Negative’ to ‘BB+/Negative’ the transaction saw significant demand from a global investor base, reaffirming investors’ continued confidence in the Sultanate’s long-term credit fundamentals.
The $2.0bn issue size also represents the largest ever deal size achieved for a 7-year international Sukuk. The strong investor demand supported the significant price tightening of 35bps from initial price thoughts (IPTs) and enabled Oman to price 15bps inside its conventional bond curve. Final pricing of MS+235bps was 35bps inside IPTs and represented a negative new issue concession. Moody’s and Fitch rated the Sukuk at Baa1/BBB respectively and pricing was in line with the sovereign’s BBB rated peers.
The issuance was coordinated by a lead manager group comprising of Alizz Islamic Bank, Citi, Dubai Islamic Bank, Gulf International Bank, JP Morgan, HSBC and Standard Chartered Bank. Final orderbook represented nearly 3 times oversubscription. Investor distribution by geography was split across 65 per cent distribution into MENA, 22 per cent Europe, 7 per cent Asia and the remaining 6 per cent to US. By investor type 56 per cent of the issuance went to Banks, 32 per cent to Fund Managers, 7 per cent to Central Banks, Agency, Pension funds and Insurance companies with 5 per cent being sold to private banks.
Islamic investors represented 46 per cent of the issuance.
The Sultanate’s focus on diversification, considerably large asset base together with its track record of a stable political environment attracted investors across the globe.
With the $2.0 bn raised via the Sukuk together with the $5.0 bn Oman raised via its multi-tranche conventional bond issuance earlier in the year, the Sultanate has now met significant portion of the funding requirements tied to its anticipated budget deficit for 2017. The 7 year maturity also allows the Sultanate to balance and spread its maturity profile.
“We are delighted to see the strength of the market and the continued confidence investors have shown in Oman.
With this issuance we have successfully established a strong Sukuk benchmark and diversified our offering into regional and Islamic investors who were the target investors for this offering,” said Nasser Khamis al Jashmi, Under-Secretary of Ministry of Finance.
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