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Sentiment around Oman’s credit story remains upbeat since Fitch’s recent upgrade of the country to investment grade, which followed earlier upgrades by Moody’s and S&P Global Ratings.
To investors, Oman offers an attractive credit profile with spreads remaining tight relative to its peers. The sultanate’s fiscal discipline and economic diversification have driven strong investor demand, which has pushed bond prices higher.
For instance, five-year Omani sovereign bonds trade only about 25 basis points wider than Saudi bonds, despite Oman having a five- to six-notch ratings differential. This tightness reflects scarcity value and robust demand, but how sustainable is this?
Limited issuance has amplified the supply–demand imbalance, creating a vicious cycle: fewer bonds mean higher prices, which in turn discourages more issuances and broader participation.
“It is very much driven by the supply and demand dynamics,” said James Sadler, Head of Debt Capital Markets and Structured Finance at Oman Investment Bank. “If the government starts to issue more, it will likely push spreads wider.”
Recent sukuk pricing at aggressive levels underscores Oman’s comfort with current valuations. The government’s $1-billion seven-year sukuk in October landed at a spread of 60 basis points (bps) over US Treasuries, while initial price thoughts (IPTs) were around +95bps.
“I think right now the government is very happy [since] they were able to print the recent seven-year USD sukuk, which came at a very attractive level both in terms of their secondary curve and relative to the GCC peers,” Sadler added.
Similarly, the Oman Electricity Transmission Company raised $750 million from a five-year green sukuk at a spread of T +110 bps, tightening from IPTs in the +145 bps area.
Sadler said there is a certain degree of exuberance in credit markets across the GCC, fueled by a shortage of high-quality assets. Abu Dhabi and Qatar have also priced aggressively, suggesting that Oman’s valuations are part of a broader trend.
He anticipates a healthy correction in spreads next year: “not a crisis, but a constructive recalibration driven by oil prices, supply dynamics, and global macro factors.”
Supply constraints
Oman has pursued a liability management strategy by partially paying down existing debts using budget surpluses from oil revenues, and it expects to reduce issuances in 2025–26.
While fiscally prudent, this approach raises questions about the impact on market development and economic diversification. Reducing near-term debt could inadvertently constrain liquidity in both eurobond and rial-denominated markets.
Sadler said the Ministry of Finance and the Debt Management Office are likely to try to mitigate this risk by focusing on extending maturities—both internationally and domestically—to maintain depth in the yield curve.
“This could involve building out the term profile so that there is more liquidity in the belly of the curve, and revisiting long-dated issuance, as they last did in 2021,” he said, adding that if oil prices weaken, surpluses may not continue, potentially slowing liability management and increasing issuance.
Structural hurdles
Oman’s domestic rial debt market faces structural hurdles. Local banks dominate domestic debt holdings, but attracting regional and international investors is critical for market depth.
According to Fitch, the absence of links to international clearing systems such as Euroclear and Clearstream limits foreign investor access. Sadler said efforts to link Oman’s clearing systems with international platforms are in progress: “At the moment, sovereign domestic issuances are structured so that each new issue is created as an individual security with a new ISIN rather than tapping existing deals to create more liquid benchmarks. This is largely due to structural limitations within the system. These aspects can be improved to enhance liquidity, increase pricing transparency, and enable greater participation from foreign investors.”
Such changes could unlock significant interest from GCC and global investors in both sovereign and corporate debt.
The next chapter
Oman’s debt market is evolving gradually rather than dramatically. Ratings upgrades, fiscal discipline, and structural reforms provide a solid foundation, but challenges around liquidity, valuations, and diversification persist. Future developments will hinge on oil prices, policy flexibility, and the pace of market modernization.
“From a positioning perspective, we are neutral on Oman as sovereign credit spreads reflect the upside and bond valuations are in line with sovereigns rated a notch higher,” said Faisal Ali, a senior portfolio manager at Azimut in Dubai.
Given fair valuations, Oman is likely to attract investor interest due to favorable global fixed-income conditions and the country’s stable economic outlook, Ali added.
(Reporting by Brinda Darasha; editing by Seban Scaria)
