Sovereign bonds come and go

01 October 1999
FINANCE

Those following Middle East sovereign debt issues had a mixed week with Lebanonsuccessfully tapping the market as the government of Oman announced that plans for its $400 million issue had been postponed.

The Omani bond was to have been the first GCC issue since the groundbreaking Qatar bond sold in May, and analysts had keenly anticipated a deepening of paper available from the region. Oman's Economy Minister Ahmad Bin Abdul-Nabi Mekki said the issue was delayed because firming oil prices were improving the economic outlook and easing the government's financing burden.

'They've delayed the issue for a combination of reasons,' says Redwan Merouani, head of Middle East and North Africa debt markets at Societe Generale. 'The economic picture does look better, but by delaying they are also going to avoid paying the Y2K premium, and the direct impact of the high price of the Qatar deal is diluted.' He adds that the size of the planned issue, Oman's status as a non-frequent borrower, and its investment grade sovereign rating, could have helped keep pricing down, probably around 300-320 basis points (bp) over Libor. 'But this could look expensive to some Omanis who only paid 73 basis points when they tapped the market in March 1997,' says Merouani. 'They don't want to pay apremium and they won't if they can avoid it.'

Merouani says the government should be able to meet its 1999 budget commitments without external financing. 'It's very difficult for any oil-dependent country to see much beyond March, and it's probable that Oman might stage a sovereign issue in the first quarter of next year, after Ramadan,' says Merouani.

In contrast, the Lebanese sovereign issue proceeded smoothly, with the deal completed on 22 September.

The 10-year $400 million dollar-denominated tranche carried a coupon of 10.24 per cent and a launch spread of 440 bp over US treasuries. The seven-year Eur 300 million ($312 million) tranche has a coupon of 8.875 per cent and had a launch spread of 400 bp.

The deal, arranged by Credit Suisse First Boston and Morgan Stanley Dean Witter, is the first tranche of a $2,000 million borrowing programme approved by parliament on15 July (MEED 6:8:99, Lebanon). Analysts say that this issue heralds the first stage of a significant diversification of Lebanon's customer base, with greater emphasis placed on selling the bonds to international investors rather than local and expatriate Lebanese (see Lebanon).

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