LONDON, July 2 (LPC) – Oman is seeking a US $ 2 billion bridging loan from international and regional lenders, which bankers expect the Sultanate to succeed despite further degradation into unwanted territory .

In March, the sultanate was forced to suspend a US $ 2 billion sovereign loan after being hit by falling oil prices, the impact of Covid-19 and a downgrade of Fitch to BB from BB +, making the cost of a loan too expensive.

However, as market conditions have improved since March, Oman – one of the weaker oil-rich Gulf economies – returned on a one-year loan, although it suffered a second downgrade by Moody’s from Ba3 to Ba2 in June. 23.

Oman’s finance ministry sent out a request for proposals to lenders on June 18 and initial commitments are expected by the end of this week.

Banks are being asked for tickets of US $ 300 million for the mandated lead and bookrunner role and two regional banks are vying for the coordinator role, to be decided shortly.

“There will be a mix of regional and international banks in the deal with a regional bank that will get the role of coordinator,” said one banker.

It will eventually be taken out in the bond markets, but it is not clear whether the bridging loan will be more syndicated or will be provided as a club loan.

“It depends on how much interest they generate and what the banks are prepared to do. This could result in a club of ten lenders, ”said the banker.

Oman’s finance ministry could not immediately be reached for comment.

CRITICAL STEP

There was some doubt that the Sovereign would be able to grant a loan this year, burdened by high levels of debt and a deficit that Fitch said in May could climb to around $ 12 billion in 2020, which equivalent to 18% of GDP.

There were fears that the government’s finances would hit a critical juncture and that its currency’s peg to the US dollar would become unstable within a year if it could not access external funding.

However, lenders have been willing to resume talks as the initial panic caused by the pandemic subsides and oil prices rise, aided by OPEC’s deal last month to extend production cuts to oil until the end of July.

“The market is improving. The sentiment is more positive and the cost of funds for lenders has come down, ”said a second banker.

Decent pricing and the short loan term of one year should also help pique the interest of relationship lenders.

“I think there will be enough appetite for US $ 2 billion. The pricing is attractive, but it will be limited to relational banks and those familiar with the Omani government, ”the second banker said.

SATURATION POINT

However, Oman is more vulnerable to fluctuations in oil prices than most of its wealthier Gulf neighbors and some banks remain cautious about further exposure to Oman, having already loaned it a large sum.

In March, Bank Muscat closed a $ 650 million loan, while in February, Oman Gas Co signed an $ 800 million facility. In the third quarter of 2019, the Ministry of Finance of Oman, the Oman Oil Company Exploration & Production and the National Bank of Oman also entered into loans of US $ 1.35 billion, US $ 1 billion and 300 million US dollars, respectively.

“It will be very difficult for some banks. The problem is not only the deterioration of credit and downgrades, it is also the amount of paper that has come out of what is not a very large country in recent years. Oman has been on a wave of borrowing left, right and center. How much can we really do? Did we run out of space within the boundaries of our country? We have to think carefully, ”said a third banker. (Edited by Claire Rukin)