Utility Sukuk – Omantel Broadband Services US$500m Sukuk

Debutante State-owned Issuer Omantel Finally Closes its Maiden Benchmark US$500m Sukuk in January 2024 After Short Delay Last October as Global Sukuk Market Set to Flourish Substantially in 2024

Debutante issuer, Oman Telecommunication SAOG (Omantel) became the latest state-owned company to enter the international market with a maiden senior unsecured US$500 million Rule 144A / Reg S Sukuk issuance.

In a disclosure to Muscat Stock Exchange, Omantel confirmed that “following the disclosure on 16th January 2024, Oman Telecommunication is pleased to announce the successful closing of its issuance of a Sharia’a- compliant Sukuk with a size of US$500 million.” Omantel was poised to issue the 7-year US dollar-denominated debut sukuk in October 2023, but that transaction was put on temporary hold after the company was forced to arrange a US$457 million bridging loan to settle the payment on its outstanding bonds.

However, on October 23, 2023, the company postponed the Sukuk issuance to a later date due to ‘unfavourable’ market conditions. At that time, the Sukuk proceeds were to be used to refinance Omantel’s outstanding notes of US$457mn, which were set to mature on October 24, 2023. With the postponement of the Sukuk issuance, Omantel secured the US$457 million bridging loan from an international bank with a term not exceeding six months to settle the outstanding bonds due.

The Omani Telco had mandated Citigroup and JPMorgan to act as joint global coordinators to the transaction with Bank ABC, Bank Muscat, Dubai Islamic Bank, First Abu Dhabi Bank, and Standard Chartered Bank to act as joint bookrunners, and together to arrange a series of investor calls with accounts in the UK, Europe, Offshore US, the GCC, MENA region and Asia.

The demand from a diverse group of Investors was robust with the order book reaching US$3.5bn – an eight times oversubscription, with the order book opening and closing on the same day.

According to Omantel, the issuance, which has a tenor of 7 years and matures on 16th January 2031, received significant interest from regional and international market participants, and the transaction was finally priced at a profit rate of 5.375 % per annum. The Initial Price Guidance was set at 5.625%-5.75% at the launch. Due to the oversubscription and strong investor demand, the yield narrowed to the final profit rate of 5.375% per annum.

The trust certificates were assigned an initial rating of BB+ by Fitch Ratings Ltd and a rating of Ba2 by Moody’s Investors Service. The transaction is listed on Euronext Dublin and the trust certificates were also offered to sophisticated investors outside the US in reliance upon Rule 144A and Regulation S under the US Securities Act of 1933.

The Sukuk certificates were issued by OTEL Sukuk Limited (OSL), a special purpose vehicle issuer incorporated in the Cayman Islands, on behalf of the Obligor, Omantel. Omantel’s obligations are in turn guaranteed by Oztel Holdings SPC Limited, a DIFC-incorporated entity.

The transaction, which settled on 24 January 2024, represents the inaugural international Sukuk issuance by Omantel (as the trustee). OSL is an exempted company with limited liability incorporated in the Cayman Islands and has been incorporated solely for the purpose of participating in the transactions contemplated by the transaction documents to which it is a party.

Ghassan Al Hashar Chief Financial Officer of Omantel commented on the transaction: “We are proud of a very successful issuance of Sukuk to our international investors. The Sukuk was significantly oversubscribed and Omantel managed to obtain a very good pricing.”

According to City international law firm Dentons partner Sadaf Buchanan, who acted for the joint lead manager in the transaction, “we are thrilled to have worked with the joint lead managers and the Omantel teams in supporting the delivery of this successful debut Sukuk issuance for Omantel. This was a landmark transaction not only for Omantel and Oman, but also for the wider region. The transaction is ground-breaking due to its use of broadband data services as the basis for the Sharia’a-compliant structure. This is a first in the region for a capacity-based structure using this asset and may form a blueprint for other telecom issuers internationally when considering tapping the international capital markets for their funding needs.”

Fitch Ratings assigned Omantel’s US$500 million senior unsecured trust certificates a final ‘BB+’ rating with a Recovery Rating of ‘RR4’ on 24th February 2024. The ratings are in line with Omantel’s Long-Term Issuer Default Rating (IDR) and senior unsecured rating. “Pursuant to the service agency agreement, the sale of broadband data services at the minimum sale price will be sufficient to fund the periodic distribution amounts payable by the trustee in respect of the relevant certificates” explained Fitch in its rating rationale.

The transaction was eight times oversubscribed, securing more than 130 regional and international investors, and achieving a profit rate of 5.375%. The transaction, according to Omantel, sets a strong benchmark with a strong possibility of more such Sukuk issuances coming to the market from both Omani and other issuers. The proceeds of the issuance will be used to repay existing financings totalling US$460 million and for general corporate purposes.

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