Update on the Sultanate of Oman

Published Date: 11 January 2018

The Government of Oman, rated BB/Baa2/BBB- by S&P, Moody’s and Fitch respectively, yesterday raised $6.5 billion via issuance of bonds with tenure of 5yr at T+190bps ($1.25bn), 10yr at T+310bps ($2.5 bn) and 30yr at T+395bps ($2.75 billion). Much as in 2016 and 2017, Oman is likely to follow the bonds issuance with a sukuk offering soon, possibly of a size between $1.0 - $2.0 billion to fund projected budget deficit of circa $7.8 billion in 2018. In light of the new issues, presented below is a recap of key credit characteristics of the Oman sovereign.

Last week, Oman released its 2018 budget that reflects increase of 9% in revenue to OMR 9.5bn and 6.8% in spending to OMR 12.5bn over the previous year, thereby leaving the budget in deficit of circa OMR 3bn i.e US$ 7.8bn. The budget is based on assumption of oil prices at $50/b.
2018 budget deficit is expected to be financed from borrowing (84%) and reserves (16%). The government is also hoping to privatise some of its domestic infrastructure assets.
Oman’s Fiscal breakeven oil price is likely to be around $ 75 – 80 / b (second highest after Bahrain) and external breakeven price is around $70 – 75 / b (highest in the GCC). Though Oman is not a member of OPEC, it has voluntarily reduced its production by about 30 thousand barrels per day, resulting in lower export revenues and wider current account deficits.
Omani banking system has relatively limited reliance on external funding, as banks are largely funded by domestic customer deposits. That said, last year S&P downgraded its score for Omani banking sector from 5 to 6 (1 being the best on a scale of 1 to 10) and Moody’s revised the outlook on the Omani banking sector to negative from stable mainly as a result of expectation of higher NPLs.
S&P downgraded Oman’s rating to BB/stable in November 2017. As per S&P Oman’s external debt will exceed its liquid external assets for the first time in 2018.
Moody’s has a Baa2/Negative rating on Oman since July last year. Moody’s concerns revolve around lack of clarity on strategy to address fiscal deficit and external vulnerabilities in the face of low oil prices.
Fitch downgraded Oman to BBB-/Negative in December 2017 mainly due to government expenditure and budget deficits being higher than previously planned.
Oman currently has total debt obligation of USD $31.4bn, made of a) bonds (including TBs) of $18.6bn; b) loans of $4.55bn and c) committed interest expense of $8.28bn. 73% of the debt obligation is denominated in USD with remainder in OMR. 93% of debt is on fixed rate and the earliest USD bond maturity is not until June 2021.