Oman Review 2016

PDO ... securing finance for projects

PDO ... securing finance for projects

PDO’s $3bn deal one of many planned

Bankers expect plenty more activity from Omani borrowers in the international debt markets, especially after the sovereign secured a $1bn loan in January

The $3 billion inaugural loan for Petroleum Development Oman will be the first of many, as the country’s sovereign and corporates head to international debt markets, according to market participants.

Banks had to make their pitches for the $3 billion loan for Petroleum Development Oman (PDO).

The loan for the quasi state-owned borrower has incited much enthusiasm from the loan market.

HSBC is sole financial advisor to PDO and consulted potential lenders about pricing for the loan, but the bank has not been appointed as a lead arranger. The bank is hopeful that it will secure a lead role, Andrew Long, chief executive officer of HSBC Oman says.

"It’ a very exciting deal and an extremely good credit," says Long.

PDO is asking lenders for tickets of $300 million each, according to a second banker.

The five year loan pays all-in pricing (margin plus fees) of 190bp. Long declined to specify what portion of the 190bp was the margin, although the second banker says the margin would be about 130bp.

The $1 billion five-year loan for the Oman Ministry of Finance which signed in January, had a margin of 120bp.

On the sovereign loan, fees for mandated lead arrangers with commitments of $150 million were 80bp. Fees were 65bp for lead arrangers with $100 million tickets and 50bp for arrangers with tickets of $50 million.

The Oman loan launched with a margin of 110bp but the leads had to flex the margin by 10bp to bring in more lenders. The Sultanate of Oman is rated A3 (on review for downgrade)/BBB- (stable) by Moody’s and Standard & Poor’s only.

The deal is a pre-export finance facility (PXF) which is repaid by proven orders from buyers.

PDO’s deal is similar to the recent $3 billion loan for KazMunaiGas in which Swiss trader Vitol committed to buying $3 billion of oil from the Kazakh producer.

The four year KMG-Vitol deal was underwritten by Bank of China, Bank of Tokyo Mitsubishi UFJ, HSBC, UniCredit and Vitol.

Mandated lead arranger and bookrunners were Intesa Sanpaolo, Sumitomo Mitsui Banking Corporation, ABN Amro, ICBC, ING, Mizuho, Crédit Agricole, SGBT Asset Based Funding and Société Générale.

PDO is 60 per cent owned by the government of Oman, 34 per cent owned by Royal Dutch Shell, 4 per cent owned by Total and 2 per cent owned by Partex. The enterprise accounts for 70 per cent of Oman’s crude oil production.

Bankers expect plenty more activity from Omani borrowers in the international debt markets, especially after the sovereign secured a $1bn loan in January to make up for depleted oil revenues.

Oman is also preparing its debut dollar bond and has picked Citi, JP Morgan, Bank of Tokyo Mitsubishi, Natixis and National Bank of Abu Dhabi to lead the deal.

"From what we see and hear, other government related entities are looking to borrow in their own right and we think there will be a greater inclination to borrow going forward," says HSBC’s Long.

The Muscat-based banker cited corporations in the railway, airline, shipping and ports sectors as potential borrowers.

The sovereign issuance will lead more borrowers to the market, according to Sadaf Buchanan, partner and head of banking and finance at Dentons in Muscat.

"The government has been very open about their plans to borrower directly or via state entities," says Buchanan.

"And the sovereign bond plans helps the market generally," says Buchanan. "Altogether this is encouraging, given the current state of the economy and the need to raise finance."

In a boost for the sukuk market, last month the Oman Capital Markets Authority (CMA) released its first sukuk regulations in four years, aiming to provide clarity and transparency for issuers and investors.




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