EXCLUSIVE-Oman may issue USD bond for first time in 17 yrs -fin min

Sun May 5, 2013 7:39am EDT

* High oil prices removed need to issue debt

* But budget break-even oil price has been rising

* Balushi says issue would create benchmark for corporates

* Would be at least $500 mln, details not decided

* Could prepare for deficit financing a few years from now

By Martin Dokoupil

MANAMA, May 5 (Reuters) - Oman is considering whether to issue a U.S. dollar-denominated sovereign bond, its first international bond since 1997 and its second ever, to facilitate debt sales by its private sector, finance minister Darwish al-Balushi told Reuters.

"This year we do not plan but maybe for next year, and this is not because of our immediate borrowing requirements but because we want to pave the way for the private sector," Balushi said late on Saturday.

"We want to establish a benchmark," he said on the sidelines of a meeting of Gulf Arab finance ministers in Bahrain.

Oman last tapped the international bond market with a $225 million eurobond in March 1997, when oil prices stood at around $20 per barrel. It sold a five-year bond at a premium of just 73 basis points over U.S. Treasuries.

Since then, oil prices have risen sharply, to above $100 at present, so the country - which currently depends on oil for 86 percent of its budget income - has not needed to issue much debt. With the exception of 2009, it has posted budget surpluses every year since 1998.

In recent years it has sold small issues of local currency development bonds, but the ratio of its gross government debt to gross domestic product was just 6.1 percent in 2012, the second lowest in the Gulf after Saudi Arabia, compared to a peak of 38.6 percent in 1998.

Balushi said his ministry had not yet decided on the parameters of the new dollar bond but it would be at least of benchmark size; typically, that means $500 million.

"We will see. It should be something reasonable to attract investors because if it is too small, investors will not be (interested) - we want to also attract a variety of investment."

BUDGET

Since the uprisings elsewhere in the Arab world in 2011, pressure on Oman's budget has increased as it has spent more to ensure social peace. Balushi estimated in January that the government would need an oil price averaging $104 to balance its budget this year.

The International Monetary Fund presented a bleak outlook for Oman's public finances last month, predicting the budget could slip into a deficit of 3.8 percent of GDP as soon as 2015, with the gap widening to as much as 13.3 percent in 2018.

By reestablishing Oman's presence in the international bond market, a sovereign issue could pave the way for regular deficit financing through bond issues several years from now.

Balushi said last month that spending policy would become more conservative in coming years. He insisted on Saturday that any forthcoming sovereign bond issue would not be in response to an urgent need, and he disputed the IMF's analysis.

"This is based on a scenario that oil prices will come down from their level today and expenditure will take the same trend as in 2011, 2012 and 2013," he said.

"We do not agree with this because we think that the trend of expenditure will not rise, because in 2011, 2012 there was some reason, but this reason will not continue and therefore expenditure will not go at the same level higher going forward."

To diversify its economy beyond crude oil and gas production, Oman is spending heavily on industrial projects, including a multibillion-dollar scheme to transform the southern coastal town of Duqm into an industrial centre.

Creating a benchmark for Omani corporations to issue bonds could help them finance some of this construction. In March, partially state-owned Bank Muscat, Oman's largest lender, priced a $500 million, five-year bond in its first dollar debt issue in nine years.

The Omani government has also said it plans its first-ever issue of rial-denominated sukuk (Islamic bonds) next year, and outlined issuance of 200 million rials ($519 million) worth of local currency bonds in its 2013 budget.

($1 = 0.3850 Omani rials) (Editing by Andrew Torchia)