* S&P downgraded Oman to junk status on Friday
* Bond prices fall, especially at long end
* Oman has been seeking $3.6 bln unsecured loan from China
* Beijing banker says funding cost to be affected
* But China MLAs have strong-enough balance sheets to handle
By Yan Jiang
HONG KONG, May 16 (IFR) - Standard & Poor's downgrade of
Oman’s credit rating to junk status has complicated the
sovereign borrower’s first visit to the Asian syndicated loan
The agency last Friday lowered the Sultanate of Oman’s
rating to BB+ from BBB−, with a negative outlook, saying the
country’s external buffers have weakened and are insufficient to
mitigate the risk from volatile oil-driven export revenues.
The downgrade came days after Thomson Reuters LPC reported
that Oman was seeking a $3.6 billion unsecured, five-year bullet
loan from Chinese banks. Bank of China, China Development Bank,
and Industrial and Commercial Bank of China are the mandated
lead arrangers, with the latter two also acting as bookrunners.
The deal pays an interest margin of 190 basis points over
the London interbank offered rate and banks committing $500
million or above will earn an all-in pricing of 210 bps over
Libor, based on an up-front fee of 100 bps.
“A downgrade by any of the three major agencies will affect
our internal credit rating and funding cost for the borrower,”
said a Beijing-based banker, adding that the existing price
level looks tight to many Chinese banks outside the big four
– Agricultural Bank of China, Bank of China, China Construction
Bank, and Industrial and Commercial Bank of China - and policy
“A downgrade of the borrower’s rating to junk will make its
loans hard to sell in the secondary market,” a second banker
In a swift reaction to S&P’s downgrade, Oman on Monday
obtained investment-grade ratings from Fitch for its bonds due
2021 and 2026. Fitch rates Oman at triple B, while Moody’s gives
the country a Baa1 rating, both with a stable outlook.
But the cash price of Oman’s short-dated paper
has dropped by between 0.125 and 0.5 cent on the
downgrade news. Long-dated paper was
hit harder and fell between 1.25 and 1.50 cents.
“Basically it’s been a resetting of Oman’s cost of funding,”
said a Dubai-based debt capital markets banker. “If Oman decides
to come to market, and they do need to come to market given
their fiscal position, then the pricing will be based on the
Oman is expected to issue U.S. dollar-denominated sukuk as
early as this month, bankers previously said.
The three Chinese MLAs (mandated lead arrangers) for the
loan have strong-enough balance sheets to finance the loan
without any extra joiners. Oman’s finance ministry is
self-arranging the senior unsecured deal.
The downgrade made Oman the second of the Gulf’s wealthy
oil-exporting states to drop below investment grade because of
cheap crude. All three major credit rating agencies cut Bahrain
to junk status last year.
“Oman has been trying to diversify its economy, but until
now, it’s still highly reliant on oil exports,” said the
Beijing-based banker. “Given the current low oil prices, banks
will have to exercise caution when granting loans to the
Oil reached a three-week high on Monday above $52 a barrel
after top exporters Saudi Arabia and Russia agreed to extend
output cuts until March 2018 to drain a global crude glut. But
inventories remain high and output from other producers,
including the United States, is still on the rise, keeping
prices at under half the record highs of 2008.
In the past two years, some sovereign borrowers with junk
ratings have successfully raised funds from the Asian loan
market, including the Democratic Socialist Republic of Sri Lanka
(B1/B+/B+), the Islamic Republic of Pakistan (B3/B/B), the
government of Mongolia (Caa1/B−/B−) and the Independent State of
Papua New Guinea (B2/B+, Moody’s/S&P).
(Additional reporting by Davide Barbuscia; Editing by Andrew