Debutante Issuer, Energy Development Oman, Successfully Closes Impressive Maiden US1bn Hybrid Ijarah/Murabaha Sukuk Issuance with Over Five Times Oversubscription
For a Sukuk issuance debutante, Energy Development Oman (EDO), the sultanate’s state-owned energy development utility, cut an impressive offering when it successfully closed its inaugural benchmark US$1 billion hybrid Sukuk Al-Ijarah/Murabaha on 17th September 2023.
The Sukuk certificates, which have a tenor of 10 years and mature on 21st September 2033, were issued by EDO Sukuk Limited, an exempted company incorporated on 8th September 2023 with limited liability in the Cayman Islands arranged by J.P. Morgan Securities plc and Standard Chartered Bank, under its unlimited trust certificate issuance programme. EDO Sukuk Limited acted as Trustee, Purchaser, Lessor, and Seller in the structure with EDO Gas, incorporated in Oman as the Obligor and EDO as the Guarantor of the Sukuk.
Energy Development Oman (EDO) was established in December 2020 by Royal Decree (2020/128) to pursue new growth opportunities and realise efficiencies in Oman’s energy sector. The company says it is committed to becoming a world-class partner for growth while driving a sustainable energy future and focused on developing the country’s energy and alternative energy sectors in line with Oman Vision 2040.
The company is wholly owned by the Government of the Sultanate of Oman and is the country’s largest and most significant crude oil and gas operation.
EDO had mandated Bank Muscat, National Bank of Oman, Abu Dhabi Commercial Bank, Bank ABC, Dubai Islamic Bank, First Abu Dhabi Bank, J.P. Morgan Securities plc, KFH Capital Investment Company, Mashreqbank and Standard Chartered Bank to act as joint lead managers and bookrunners for the transaction and to arrange a series of investor calls and meetings starting on 11th September 2023.
EDO launched the fixed rate senior unsecured Sukuk at the initial guidance price of 200 basis points (bps) over US Treasuries. Due to heavy demand for the certificates with the order book reaching over US$5 billion, EDO finally closed the transaction at a tighter spread of 165 bps over US Treasuries on the same day.
Investor participation was widespread, with over 175 orders received from investor accounts from regions all over the world including Europe, the UK, the US, the Middle East and Asia. The offering was consequently oversubscribed by more than five times, which according to the company reflected strong investor confidence in EDO as the national energy leader in the sultanate. The transaction was finally priced at a coupon of 165 basis points over US Treasuries which translates into a profit rate of 5.875% per annum payable semi-annually.
According to recently appointed EDO Chief Executive Officer, Mazin al Lamki, “this remarkable achievement highlights global investors’ unwavering confidence in EDO as Oman’s leading energy authority. With over 175 orders pouring in from around the world, it’s evident that our mission to bolster Oman’s energy strategy is resonating on a global scale. As part of our mandate and commitment to maximising financial returns and guided by the principles and objectives of Oman Vision 2040, EDO continues to develop and shape Oman’s energy industry, leading the way towards a cleaner, more sustainable future for our nation.
“We deeply appreciate our investors’ trust in us, highlighting our robust creditworthiness and our transformation into a fully integrated energy enterprise. Furthermore, this fresh offering aligns with EDO’s funding strategy to extend the debt maturity timeline in accordance with our capital structure and corporate objectives.”
The Guarantor has been assigned a long-term foreign currency rating of BB (positive outlook) by S&P Ratings and BB (positive outlook) by Fitch Ratings. This is similar to the ratings assigned for the Trust Certificate Issuance Programme and the Sukuk certificates. On 5 October 2023, Fitch Ratings in fact upgraded EDOs Long-Term Issuer Default Rating (IDR) and senior unsecured rating to ‘BB+’ from ‘BB’. The Outlook on the IDR is Stable. Fitch has also upgraded the rating on the Sukuk programme issued by EDO Sukuk Limited to ‘BB+’ from ‘BB’.
The Sukuk certificates were admitted for trading on the International Securities Market (ISM) of the London Stock Exchange on 20th September 2023.
At an Islamic finance forum in Oman in September, Ahmed Ali Al Mamari, Executive Vice President of the Capital Market Authority (CMA) Oman, in his keynote address confirmed that the Sharia’a compliant capital market has been able to achieve rapid growth since its inception in 2013, acquiring a 12% share of the total value of the capital market in the country, with a volume of RO2.9 billion (US$7.54 billion) at end 2022.
Al Mamari added that the CMA is working on developing an appropriate legislative infrastructure to regulate Islamic finance products through the capital market and Takaful services. An Islamic index was launched on the Muscat Stock Exchange for Sharia’s compliant listed companies, Islamic investment funds and sovereign and corporate Sukuk. The CMA he stressed is in the final stage of issuing updated bonds and Sukuk regulations as well as reviewing the code of corporate governance from the perspective of tripartite governance linked to environmental, social, and governance sustainability. It is also working on preparing a regulatory framework for venture capital funds and private equity funds – both Islamic and conventional.