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Oman Sovereign Domestic Sukuk Issuance Gathers Pace with Two Offerings in November 2020 Totalling OMR233m Including a Sukuk Targeted to Retail Investors

The Government of Oman represented by the Ministry of Finance (MoF) returned to the market in November 2020 with two Omani Rial Sukuk issuances – one an institutional and the other a debut retail offering.

According to data filed with the Muscat Clearing & Depository ‘Sovereign Sukuk Issue Four’ was issued on 11 November totalling OMR208.1389 million (US$541.3 million) whilst ‘Sovereign Sukuk Issue Five’ was issued on 24 November totalling OMR25 million (US$65.0 million). Both offerings were issued by Oman Sovereign Sukuk S.A.O.C., a locally incorporated closed joint stock company, on behalf of the obligor, the Government of Oman, under its Omani Rial Sukuk Issuance Programme, established in December 2019 and managed by Alizz Uslamic Bank, Bank Muscat (including its Islamic Banking Window, Meethaq), and Bank Nizwa.

The Sukuk Programme size, according to the prospectus, is unlimited, subject to the annual State Budget, any other statutory or other budgetary limitations on incurring indebtedness imposed from time to time and compliance with all statutory and other approvals required in connection with the issuance of Trust Certificates under the Programme or otherwise.

The OMR25 million issuance is a public retail Sukuk with a tenor of two years maturing on 24 November 2022 and a minimum subscription of OMR100. The issuance was managed by Maisarah Islamic Banking Services, a subsidiary of Bank Dhofar, and Ubhar Capital. The transaction was priced at a fixed profit rate of 4.75% per annum with a profit distribution rate every six months (May and November) until the maturity date of the sukuk on November 24, 2022. According to the Capital Market Authority (CMA) of Oman, the OMR25 million Sukuk was fully subscribed.

‘The OMR25 million Sukuk issuance,” stressed Moody’s Investors Service in a Sukuk rating opinion, “is credit positive for Oman’s Islamic banks and conventional banks’ Islamic windows. The government’s issuance of sukuk to retail investors increases Islamic finance penetration and awareness among the population and provides banks with Sharia’a-compliant instruments for liquidity management.”

The demand for Sharia’a-compliant financial products in Oman is strong, according to Moody’s, with Islamic banking assets under management projected to reach 20-25% of total banking assets in the sultanate by 2025. Islamic banking currently accounts for 14% of banking assets as of September 2020, up from 2 per cent in March 2013, a year after the introduction of the Islamic Banking Regulatory Framework.

The rapid growth of Islamic banking assets in Oman has outpaced the growth in conventional assets in recent years. “For Omani banks, the growth in the country’s Islamic banking segment will contribute to asset growth and profitability, particularly in an operating environment weakened by the coronavirus pandemic, low economic growth, weak hydrocarbon prices and slowing overall credit demand,’ added Moody’s.

Prior to the OR25 million issuance, the MoF successfully completed ‘Sukuk Issue Four’ on 11 November totalling OMR208.1389 million. The targeted size for the Five-Year certificates was OMR175 million. But due to strong investor demand the issuance was upsized to just over OMR208 million, with the final orderbook for the issuance reaching over OMR220 million. This issuance was distributed to institutional investors through a private placement exercise with a minimum subscription of OMR10,000. The transaction was priced at a fixed profit rate of 5.75% per annum payable semi-annually.

Prior to the November issuances, the MoF last issued ‘Sovereign Sukuk Issue Three’ – a Six-Year OMR200 million offering under the OMR Sukuk Issuance Programme -on 21 September 2020 at a fixed profit rate of 5.25% per annum payable semi-annually.

All three transactions were structured as Sukuk Ijarah (leasing Sukuk) offerings. The asset pool for the transaction comprised Omani Government undivided interests and ownership in the plot of logistics and commercial land in the Barka area. All the Sukuk certificates are listed for trading on the Bond and Sukuk Market of the Muscat Securities Market.

The rationale behind the sovereign retail public OMR Sukuk offerings is to ‘democratise’ the access of ordinary Omani investors to the capital markets through ultra-retail issuances with low minimum subscriptions. Several Gulf Cooperation Council (GCC) countries, Malaysia, Indonesia, Nigeria and Turkey have actively sought to encourage retail investors to participate in the Sukuk offerings, especially those related to funding infrastructure projects in the light rail and road rehabilitation and construction sectors.

The Omani Rial Sukuk Issuance Programme also forms an integral part of the strategy of the Government to enhance the depth and scale of the overall capital market in Oman, enabling it to play a more vital role in the economic development of country, as well as further developing Oman’s secondary Islamic capital market.

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