Bond investors may be fretting too much about Oman’s finances, according to the rating company that was the first to downgrade the sultanate to junk.
The nation will likely avoid a financial crisis and won’t need a bailout similar to the one that Bahrain got last year as its fiscal position improves, according to S&P Global Ratings. Oman’s dollar bonds continue to trade at a discount to similarly rated peers, even after rebounding from last quarter’s sell-off.
The market is “possibly overly reflecting concerns with Oman,’’ Trevor Cullinan, a credit analyst at S&P, said in an interview in Dubai on Tuesday. Oman won’t need “support at all this year and next,” he said.
Oman’s bonds due 2028 yield 6.9%, compared with 5.3% for South African debt of similar maturity. Both sovereigns are rated BB by S&P, which lowered Oman to junk in 2017. The sultanate’s debt yields almost 40 basis points more than Bahrain’s bond of similar maturity, and offers a 60 basis-point premium to Jordan’s security coming due 2027. Both nations are rated lower than Oman. Oman’s dollar bonds have gained 4.5% this year, surpassing its Gulf peers, after slumping more than 7% in the fourth quarter, according to Bloomberg Barclays indexes. Brent crude has rebounded 23% this year.
While Oman’s bonds offer “long-term value,” the debt of other Gulf nations such as Qatar is more appealing ahead of the inclusion in JPMorgan Chase & Co’s emerging-market bond indexes this year, said Sergey Dergachev, senior portfolio manager at Union Investment Privatfonds GmbH in Frankfurt. Oman has also been slow to implement reforms following the crash in oil prices in 2014, he said.
Fitch Ratings downgraded Oman’s debt to junk in December, fuelling a sell-off in the nation’s bonds. Moody’s Investors Service is the only rating company that has Oman at investment grade, though it’s just one level above junk and comes with a negative outlook.
“The key for Oman will be how fast they start some reforms on the fiscal front,” Dergachev said. “There needs to be a realization by the ministry of finance and central bank that its investment-grade rating is at severe risk by Moody’s.”
S&P has lowered the sultanate’s debt ratings by six notches since early 2015, reflecting concern over its finances, Cullinan said. Oman’s fiscal position is now improving and the currency peg is set to “remain in place for the foreseeable future,’’ he said.
Gantry cranes stand on the dockside at the Port Sultan Qaboos in Muscat. Oman’s dollar bonds have gained 4.5% this year, surpassing its Gulf peers, according to Bloomberg Barclays indexes.
