Prompted by stronger fundamentals, Oman to issue sovereign bond: sources

Dubai — Oman is gearing up to raise capital via a suite of loans, sovereign bonds and Islamic financing, in a move triggered by the recent recovery in oil prices, two sources told S&P Platts.

The exact amount Oman is targeting is being determined via a series of meetings between government ministries and the Debt Management Office this month, one government source said.

"Markets have improved. [Oil] prices are increasing," the source said.

"Even the spreads on our sovereign bonds have gone down. We should go to the market soon with a sovereign bond and a sukuk [Islamic finance bond], some domestic and international tranches. Also reviewing some loans. We are taking a portfolio approach."

Oman's oil price projections following the renewed OPEC+ crude oil production cut deal will be finalized next week, the source said.

Under the agreed-upon cut, Oman will cut its May through July crude production by 23%, or 201,000 b/d, to 680,000 b/d. A member of OPEC+, Oman is the Persian Gulf's largest oil producer that is not a member of OPEC, with a maximum production capacity of about 1 million b/d.

Oman's economy is heavily burdened by debt and it is one of the most exposed countries in the Gulf Cooperation Council to low oil prices.

Hydrocarbons account for about 75% of the government's revenues. Oman's budget deficit is projected to reach 17% of gross domestic product this year after a shortfall of 7% in 2019, according to recent estimates by the International Monetary Fund.

Since the COVID-19 outbreak and oil price crash, Oman has undertaken $3.4 billion in spending cuts.

However, the medium-term outlook will remain highly dependent on accelerating reforms amid a large funding gap over the next five years, Barclays said in a recent research note. The UK bank forecast Oman will incur a fiscal gap of 12.9% GDP this year.

In May, Oman said it would cut its budget by 10%, up from the 5% announced a few weeks previously. The oil and gas sector, however, have managed a higher magnitude of cost-cutting, which is in line with the size of the cuts announced by international oil companies, a source said.

"We have been able to cut significant oil and gas expenditure," the government source said. "Contractors and suppliers' prices are lowering. Plus, commodities such as steel, copper, chemical prices are also down. This is significantly helping."