Oman-based members of the ACT Middle East network participated in the recent GBSA Oman Debt Capital Markets Conference held at the Intercontinental Muscat on 4 February 2016. The event was attended by prominent regulatory, market and industry leaders and leading corporate finance and treasury executives.
In his keynote address, HE Hamood Sangour Al Zadjali, Executive President, Central Bank of Oman reassured the audience that the Omani banking industry was well capitalized and sufficiently liquid. He went on to state that government debt needs were not large or frequent enough to cause serious issues for local liquidity and although the market is subject to constant monitoring and stress testing by a liquidity monitoring committee. He noted that corporates have in the past exclusively relied on bank debt for all funding requirements. Going forward, it would be more appropriate for long term funding needs to be sourced from debt markets with working capital funding provided by the banks. Recent issuance of tier 1 instruments by banks and other tier 2 instruments that are Basel III compliant, is evidence that the funders and investors were taking note of the new requirements.
A macroeconomic update provided by Carla Slim from Standard Chartered Bank addressed the impact that current oil price levels are having on GCC economies. Forward markets for GCC currencies have begun to demonstrate the risk of a devaluation of currencies although Slim suggested that sufficient foreign exchange reserves were available to provide adequate protection for currency pegs. Specifically, for Oman, the relative size of the foreign reserves had to be considered in light of the size of the economy and its needs. Oman’s central bank can cover 80% of Omani Rials in circulation. Foreign currency reserves did not fall materially in 2015 but the likelihood was that the government deficit in 2016 would be funded by debt. Corporates would need to be aware of shifts in government spending.
A panel discussion then followed on “What do debt capital markets offer to Oman companies?” where panellists including Gary Slawther, Corporate Treasurer, Octal and Ravi Narayanan, GM Treasury, Omantel provided wide ranging views. Debt capital markets had developed later than elsewhere in the GCC but were catching up. A bond issuance framework was already in place and a draft Sukuk regulation was expected to be issued in Q1 2016. It was expected that the Sukuk regulation would provide more flexibility as the Sukuk contract would not be in a prescribed format or need to be rated. The absence of Omani government issuance has held back the development of a Rial yield curve however and potentially hinders Omani issuers in pricing appropriately. However, it was agreed that diversification of funding sources was a must-have in the current environment with the liquidity pressures the financial sector was facing. Although there were a limited number of corporate issuers locally able to adequately tap liquidity from pension funds and other sources, the need to look externally was also considered important. In certain circumstances, the localized nature of the credit story meant that Omani bond buyers would still need to be targeted. The panel highlighted that additional disclosures from issuers would require a change in mindset and corporate financial management. The criticality of transparency was reinforced for attracting a wide base of investor interest and obtaining competitive pricing and terms & conditions. The Oman bond market represents scarcity value with liquidity and demand still prevalent but pricing had moved in favour of investors. However, the absence of a secondary market is an issue.
The outlook for 2016 was likely to bring more issuers to market out of necessity. An active year at sovereign and corporate levels is anticipated. Pricing will be a function of timing of issuance and strength of credit story.
Blog contributed by Michael Clifford, Group Chief Financial Officer, Oman Oilfield Supply Centre LLC
