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Middle East

CASE STUDY: Sultanate of Oman’s Landmark Deal Opens Oman to Islamic Finance

The Sultanate of Oman’s OMR250mn sukuk al-Ijara Trust Certificates due November 2020 helped the government set a critical funding benchmark and helped pave the way for a conventional dual-currency bond seven months later.

Feb 14, 2017 // 2:47PM

Deal At A Glance

Deal Type: Sukuk

Deal Structure: Sukuk al-Ijara

Obligor: Sultanate of Oman (through Ministry of Finance)

Governing Law: Omani Law

Listing: Muscat Securities Market

Mandated Lead Arrangers: Bank Muscat, Standard Chartered Bank

Legal Adviser to Obligor: Linklaters

Legal Adviser to Issuer: Trowers & Hamlins

Legal Advisers to JLMs: Allen & Overy, AlBusaidy Mansoor Jamal & Co.

Size: OMR250mn

Issue Date: November 2015

Maturity Date: November 2020

Yield: 3.500%

Reoffer price: 100%

Use of Proceeds: To fund government spending

Background

In October 2015 the Sultanate of Oman sought to raise fresh funds to help finance the government’s growing deficit, initially targeting a OMR200mn (US$520mn) transaction.

The government had a number of objectives tied to this issuance including the creation of a Sukuk benchmark for Oman, the provision of an alternate local currency investment avenue to domestic Islamic investors, funding diversification, and competitive pricing.

The sovereign managed to achieve these underlying objectives on its inaugural sukuk issuance, placing an upsized OMR250mn that secured strong local investor interest and helped set the benchmark for future borrowing from both the Sultanate and other Omani entities.

Transaction Breakdown

The JLM’s strategy was to allow the bidding window to remain open from 8-22 of October, which provided sufficient time to investors to complete their due diligence on the Sultanate’s credit.

A key strategy deployed was to share a RegS standard disclosure document and a detailed investor presentation, with the final aim of improving transparency and positioning Oman favourably for future issuances in the international capital markets.

While the deal was only actively marketed to regional investors, who accounted for 100% of the allocation of the trust certificates, it generated orders of OMR336mn (US$875mn), which led the Sultanate to upsize the issuance from OMR200mn to OMR250mn.  There was significant investor interest from within and outside Oman, with the longer marketing window providing Oman an opportunity to reach out to the international investor community.

The Sultanate of Oman priced its OMR250mn to yield 3.5%, determined by an open auction bidding process, and selected a standard Ijara structure. As the inaugural issuance, the government was keen to adopt a structure that is straightforward and well-known to investors. A key focus for the government was to standardize procedures and implement global best practices, which helped raise the bar for future capital markets activity from the sovereign.

Overall, the sukuk helped the Sultanate establish a benchmark for future issuances – including the government’s US$2.5bn dual-tranche bond in June 2016 – and for other Omani entities, and helped provide domestic investors with an exciting new opportunity.

Middle East Islamic Finance CEEMEA CEE & Turkey

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