June 26, 2013
Oman’s first corporate sukuk has received regulatory approval and the five-year, 50 million rial ($130 million) private placement aims to close next month, its lead arranger said on Wednesday.
The sukuk will be issued by Tilal Development Co and the proceeds will be used to repay existing debt and expand the Muscat Grand Mall. If successful, the issue could pave the way for other companies in the sultanate to sell Islamic bonds.
“We have already done our roadshows and also got some commitments from pension funds locally,” Mohsin Shaik Sehu Mohamed, head of Islamic finance at Al Madina Investment, told Reuters.
“Now the target is to close this deal. We are trying our best to close it in July.”
The sukuk, rated BBB+ by Capital Intelligence, will pay a 5 percent profit rate and use an ijara structure, a common sharia- compliant leasing arrangement.
Al Madina says it has other Omani sukuk in the pipeline, with one deal targeted for later this year. “We have two more in the pipeline – one government-related entity and one family-owned company,” Mohamed said.
Tilal Development is 40 percent-owned by sovereign wealth fund Qatar Investment Authority. Omani domestic investors such as pension funds and insurance firms have expressed interest in the sukuk and it could have a broader regional appeal, in particular from Qatar, Mohamed added.
A corporate sukuk could also be welcomed by local Islamic banks, which are eager for access to more sharia-compliant investment products while Oman’s Islamic money markets are underdeveloped.
Although the threat of monetary policy tightening in the United States is dampening issuance in other markets, the Tilal sukuk will weather that because of its specific client base, Mohamed said. “What we see is that it will be a private placement and most are sharia-sensitive investors.”
Oman began to introduce Islamic finance last year. The government has been laying plans to issue a sovereign sukuk, but that issue is expected to occur next year, according to the latest comments by officials.