- Oman plans to issue an RO200m sovereign sukuk
- This will be the Oman governments debut Islamic bond
Oman is to issue a RO200m ($520m) sovereign sukuk, the first Islamic bond for the Omani government, the Finance Ministry has announced.
The government bond committee is finalising structures for the sukuk and subscription will begin soon, according to the local press.
The Capital Market Authority has already approved the issuance.
Bank Muscat Investment Banking, through its Islamic window Meethaq, and UK-based Standard Chartered Bank are advising the government.
This is a milestone for the evolution of Islamic finance in Oman, says Bashar al-Notoor, global head of Islamic finance at UK-based Fitch Ratings. In general, the appetite for sukuk is strong and the demand continues to be higher than supply.
Fitch does not publically rate Oman.
Oman plans to borrow RO600m in 2015 to cover its projected RO2.5bn budget deficit. The Central Bank of Oman has stated that RO400m of this will be in the form of bonds on the domestic market.
An RO200m bond issuance in February 2015 was oversubscribed by RO74.9m.
However, the Washington-based IMF predicts an unsustainable overall fiscal deficit of 14.8 per cent, or 9.3bn, in 2015, so more borrowing may be needed.
A royal decree introduced Islamic banking in 2011, and the country now has two Islamic banks and a number of Islamic windows within conventional banks.
The sovereign bond issuance should develop Islamic financial markets by offering financial institutions a wider variety of instruments to invest in, and setting benchmarks.
Oman is a relatively recent market for Islamic finance, says al-Natoor. Things are falling into place but there is still a long way to go. Generally sukuk are time-consuming and costly in the early stages, until the regulation and structures are in place and familiar for institutions and investors.