Local investors show strong interest in Oman bond issue

Oman issued OR100m bonds

10 issues planned this year

Aiming to pay down deficit

A lack of alternative investment choices has helped to swell domestic demand for Omani sovereign bonds, with the sultanate’s latest issuance significantly oversubscribed.

Oman issued OR100 million of bonds on Thursday, the second of 10 rial-denominated bond and sukuk sales planned for 2025. These will range from OR50 million to OR100 million and will total OR750 million.

“It’s mostly local banks, plus local investors, who are subscribing to these bonds,” says Hunaina Banatwala, head of trading at Dubai’s Cross-Alpha. “Banks have insufficient lending opportunities and given these bonds don’t impact their capital adequacy ratios, the interest from this segment of institutional investors has been fairly strong.”

Deposit growth has outstripped lending growth in Oman’s banking sector over the past few years.

“Banks are flush with liquidity and can’t leave this money lying idle, so they invest in government bonds to earn enough of a return to cover the interest they pay on customers’ savings accounts,” says Banatwala.

Thursday’s bond was 2.4 times oversubscribed and will pay a coupon of 4.6 percent annually. Oman will also issue OR1.3 billion in dollar-denominated bonds, according to a January budget statement.

The sultanate has been able to reduce the coupon it pays on new rial-denominated bonds by 0.7 percentage points although a weakening dollar and expectations of further declines in the relative value of the US currency is pressuring Oman’s dollar-denominated bond spreads; investors want a greater return to compensate for the enhanced currency risk, says Banatwala.

One aim in raising rial-denominated debt is to develop Oman’s capital markets and to establish a yield curve for Omani fixed income, says Joice Mathew, head of research at Muscat’s United Securities.

Another purpose in raising debt is to help finance Oman’s projected deficit of OR620 million this year and to service and repay existing debt. Oman will also spend OR400 million of its reserves to part-fund the deficit.

Maturing bonds

Oman has rial-denominated bonds and sukuk totalling OR1.02 billion that will mature before the end of 2026, according to S&P Global data. The country also has $2.4 billion in dollar-denominated bonds maturing in June 2026.

Yet the actual amount Oman owes on many of its bonds is considerably less than these headline figures, says Rohit Chawdhry, Cross-Alpha’s chief investment officer.

That is because Oman repaid some dollar and local currency debt early, funded through higher oil revenue. Together with cuts to government spending, this enabled the country to slash its debt-to-GDP ratio from 64 percent in 2020  to 35 percent in 2024, according to S&P.

In 2024, Oman repaid OR600 million of bonds and sukuk ahead of maturity, plus OR355 million in loans. This helped Oman reduce its annual debt servicing costs to OR940 million in 2024 from its budgeted OR1.05 billion, according to the government.

S&P Global Ratings upgraded Oman to BBB- from BB+ last September, restoring Oman to investment grade status which signifies that the borrower has a relatively low default risk.

Moody’s and Fitch, the other two big agencies, last year kept their ratings on Oman unchanged but raised their outlook from stable to positive, indicating they will probably upgrade the sultanate.

Usually, an issuer needs two ratings agencies to classify it as investment grade for its bonds to join investment grade bond indexes. Becoming part of such benchmarks will attract inflows from passive funds that track them.

“Active investors have already positioned themselves for that, which is why spreads (on Omani dollar bonds) have narrowed significantly,” says Zeina Rizk, partner and co-head of fixed income at Dubai’s Amwal Capital Partners.

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