* 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 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."
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
"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)