Oman returns to loan market for $2 billion despite recent downgrade

LONDON, July 2 (LPC) — Oman is in the market for a $2 billion bridge loan from international and regional lenders, which bankers expect the sultanate to successfully complete despite being demoted to unwanted territory .

In March, the sultanate was forced to suspend a US$2 billion sovereign loan after it was hit by falling oil prices, the impact of Covid-19 and a downgrade by Fitch from BB+ to BB, making the cost of an overpriced loan.

However, as market conditions have improved since March, Oman – one of the oil-rich Gulf’s weaker economies – returned for a one-year loan, although it suffered a second downgrade by Moody’s from Ba2 to Ba3 in June. 23.

Oman’s Ministry of Finance sent out a request for proposals to lenders on June 18 and initial commitments are expected by the end of this week.

The banks are being asked for tickets of US$300 million for the role of lead arranger and mandated bookrunner and two regional banks are in the running for the role of coordinator, which will be decided shortly.

“There will be a mix of regional and international banks in the deal with one regional bank playing the role of coordinator,” said one banker.

It will eventually be taken out in the bond markets, but it is unclear whether the bridge loan will be further syndicated or provided as a club loan.

“It depends on the interest they get and what the banks are willing to do. It could become a club of ten lenders,” the banker said.

Oman’s Ministry of Finance could not immediately be reached for comment.

CRITICAL STEP

There were doubts the sovereign would be able to provide a loan this year, burdened by high levels of debt and a deficit which Fitch predicted in May could climb to around $12 billion in 2020, or 18% of GDP.

There were fears that public finances could reach a crisis point and that its currency’s peg to the US dollar could become unstable within a year if it could not access external funding.

However, lenders have been willing to resume talks as the initial panic caused by the pandemic subsides and oil prices rise, helped by OPEC’s agreement last month to extend production cuts by oil until the end of July.

“The market is improving. The sentiment is more positive and the cost of funds from lenders has come down,” said a second banker.

Decent pricing and the short one-year loan term should also help generate interest from relationship lenders.

“I think there will be enough appetite for US$2 billion. The pricing is attractive, but it will be limited to relationship banks and those familiar with the Omani government,” the second banker said.

SATURATION POINT

However, Oman is more vulnerable to oil price swings than many of its wealthier Gulf neighbors and some banks remain cautious about further Omani exposure, having already lent it a large sum.

In March, Bank Muscat secured a $650 million loan, while in February Oman Gas Co signed an $800 million facility. In the third quarter of 2019, Oman’s Ministry of Finance, Oman Oil Company Exploration & Production and National Bank of Oman also provided loans of $1.35 billion, $1 billion and $300 million, respectively. .

“It will be very difficult for some banks. The problem isn’t just the credit deterioration and downgrades, it’s also the amount of paper that has come out of what isn’t a very big country in recent years. Oman has been on a borrowing spree left and right. How much can we really do? Have we run out of space within the limits of our country? We have to think carefully,” said a third banker. (Editing by Claire Ruckin)

Priscilla C. Carnegie