Oman gas project to sell $500 million in bonds

22 August 1997

Oman LNG, a joint-venture set up to export Omani natural gas, will issue about $500 million in international bonds later this year to cover part of its construction costs, a company official says. Chase Manhattan of the US has been picked as lead manager and Merrill Lynch as co-lead for the issue, which will be a private sale under the US 144A rules.

The sale is likely to take place some time after October, when Oman LNG and a group of banks are due to sign a loan finance package intended to pay the cost of building a gas liquefaction plant on the Omani coast. This package, which includes commercial loans and export credit agency (ECA) financing, was arranged by NatWest Markets of the UK and ABN-AMRO of the Netherlands and was originally intended to be worth $2,000 million. 'The loans will be reduced to the tune of the bond issue. There's probably going to be a pro-rata scaleback for the banks and the ECAs,' the official says. 'Some issues are still outstanding, but in principle the banks and ECAs have agreed to a bond issue.'

The bond issue will save Oman LNG a lot of money by cutting the annual cost of its borrowing. 'A conservative estimate is that we'll save 100- 150 basis points,' the official says. He adds that the company does not intend to increase the size of the issue, even if international investors show strong interest. 'It's going to be $500 million and no more.' However, the company could opt to refinance its loans with more bonds once the project is up and running.

Chase Manhattan has been acting as Oman LNG's financial adviser. Apart from Chase and Merrill Lynch, six other banks bid for the bond mandate: Goldman Sachs, Citibank, CS First Boston and JP Morgan of the US, BZW of the UK and ABN-AMRO. Oman LNG's shareholders include Royal Dutch/Shell, Total of France and several Japanese oil companies. It plans to start gas exports in 2000, and a sales agreement has already been signed with Korea Gas Corporation (see Oman).

The bonds have provisionally been rated at A3, an investment grade, by Moody's Investors Service. The company is still awaiting a rating from Standard & Poor's, which is expected to be either BBB+ or A. The Moody's rating puts Oman LNG on the same level as the Ras Laffan gas project in Qatar, which sold $1,200 million worth of bonds at the start of the year. The official says the success of the Ras Laffan issue prompted Oman LNG to add bonds to its financing mix. 'There had been discussions right from the beginning but [bonds] were not included in the initial financing plan. Following the success of Ras Laffan, it was thought that they would add to our flexibility.'

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