February 25, 2016 / 8:31 AM / 4 years ago

Oman talking to banks ahead of potential dollar bond in Q2 - sources

DUBAI, Feb 25 (Reuters) - The government of Oman is in talks with banks about a sovereign dollar bond issue, sources aware of the matter said on Thursday, as the Gulf nation looks to tap international bond markets to shore up state finances pressured by low energy prices.

An offering would be the first time the sultanate has issued international debt in almost 20 years, and is expected to kick-start a regular programme of issuance to cover budget deficits for the country.

With smaller oil and gas reserves than its wealthy Gulf neighbours and a higher cost of production, Oman is particularly vulnerable to the oil price plunge. It lacks the big fiscal reserves of its wealthy neighbours.

The Finance Ministry did not respond to a request for comment.

However, Oman’s central bank executive president, Hamood Sangour al-Zadjali, said this month the government might issue bonds by the middle of this year as part of a plan to borrow up to $10 billion from abroad.

He did not comment though on the size of any bond offer or give further details of the foreign borrowing plan.

The sultanate, which was lowered two notches to BBB- from BBB+ by Standard & Poor’s last week, has already obtained a $1 billion sovereign loan from international banks this year.

Now it has sent invites to a small group of banks, most of whom participated in the loan, to pitch for roles in arranging the bond, said multiple sources speaking on condition of anonymity as the information is private.

The government may issue the dollar-denominated bond as soon as the second quarter, two of the sources added.

Its loan had 11 banks participating include Citigroup, Gulf International Bank and Natixis, who arranged the transaction.

The other banks were National Bank of Abu Dhabi, Societe Generale, Sumitomo Mitsui Financial Group, Bank of Tokyo-Mitsubishi UFJ, JP Morgan, Credit Agricole, Standard Chartered and Europe Arab Bank.

The country is the latest Gulf government to seek funds from the international bond market to help mitigate the impact of lower oil prices on state finances.

Bahrain’s government raised $600 million through a bond sale this week and Sharjah raised a $500 million sukuk in January.

Oil’s plunge since 2014 has hit Oman’s finances hard. It swung to a deficit of 3.26 billion rials in the first 10 months of the year from a surplus of 189.6 million rials a year earlier. To bridge the deficit, Oman has begun spending cuts, tax rises and fuel subsidy reforms.

The country has an extended domestic borrowing programme, including regular treasury bill auctions. The borrowing is adding pressure to the liquidity in the local banking system and forcing the government to raise money abroad. (Additional Reporting by David French in Dubai and Fatma Al Arimi in Muscat; Editing by Alison Williams)

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