Business Outlook: Low Oil Prices, Stretched Finances

FINDING SOLUTIONS: Representatives of the International Monetary Fund, World Bank, Arab Monetary Fund and Saudi Finance Ministry discussed means to strengthen regional economies with the undersecretaries of Arab finance ministries on January 13.

BY Leila Hatoum

Oman plans to issue international sovereign bonds this year as a way to address its budget deficit, the country’s Undersecretary Minister of Finance Nasser Al Jashmi told Newsweek Middle East in an interview in Abu Dhabi.

Lazard, a well-known international financial advisory and asset management firm, has been appointed by Oman to advise it on this bonds issuance, which will tap into the international market.
Rising expenditure and a continued slump in oil prices—which have recorded their lowest level in 12 years this January— have stretched the state’s finances thin.

“We expect to have a deficit and we look at financing it from various sources be it issuing bonds and sukuk [Islamic bonds] or even resorting to our reserves… At first, we will issue a small tranche to test the market and in light of the [subscription], it will be followed by other tranches,” Jashmi said.

Oman announced its 2016 general budget earlier in January, forecasting a deficit of 3.3 billion Omani riyals, ($8.75 billion). One Omani official, who wished to remain anonymous, told Newsweek Middle East the budgeted deficit for 2016 may exceed the estimates should oil prices remain low.
The intended international issuance will be in the form of “bonds, not sukuk,” said Jashmi, who refused to speculate on the size of the issuance saying it all “depends on what will be agreed on in Oman’s financial plan.”

What is certain is that the total size of the bonds will exceed last year’s local sovereign Islamic bonds of half a billion dollars, as Jashmi explained the local market is limited to handling larger issues.
“We are looking at addressing the international bonds market because our local market is limited to handle such an international issuance,” he added.

Oman issued its first ever five-year sovereign sukuk, worth OMR 200 million, ($519.4 million), last year and received strong orders. It has recently completed another loan, a $1 billion five-year sovereign loan, which it presented in November 2015.

But Oman is not the only Arab country and oil exporter planning to issue bonds or even privatize some of their more successful sectors.

Amid the steep drop in oil prices, several Arab oil exporters, including Kuwait and Saudi Arabia have said they plan to issue bonds or hold an initial public offerings (IPO) to cover their deficits.

“Kuwait’s Finance Ministry is studying the possibility of adding an article to the 2016-2017 budget which would give the government the option to finance its deficit via borrowing from local and international markets next year,” Khalifa Hamada, Kuwait’s undersecretary minister of finance told Newsweek Middle East.

For this year, Kuwait will be financing its deficit from the general reserves, he said, adding that his country is not expected to issue any sukuk or treasury bonds in 2016.

On the other hand, leading Arab oil exporter, Saudi Arabia, have set several IPOs in the pipeline for this year.

“Aside from Armco’s IPO, we are setting an IPO for the Silos and Flour Mills, as well as the Saudi Arabian Airlines,” Sulaiman Al Turki, undersecretary of the Saudi Ministry of Finance for International Financial Affairs, told Newsweek Middle East.

Saudi sources claim Aramco’s IPO will only cover the company’s services rather than its upstream products.

Meanwhile, Younis Al Khouri, United Arab Emirates’ Finance Ministry’s undersecretary, told Newsweek Middle East that there were no plans by the federal government to issue any bonds this year.
The UAE has the most diversified economy among its gulf counterparts, with 30 percent of its revenues coming from oil.


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