DUBAI/LONDON- Oman's return to the international bond market this week will be a test of its ability to convince investors that long-awaited fiscal reforms have started to put it on a sustainable financial footing.

The oil-producing Gulf state, rated below investment grade by all the major credit agencies, announced on Monday plans to issue bonds with maturities of three, seven and 12 years, in what would be its first global debt sale this year. 

Sultan Haitham, who became Oman's ruler in January, has made shaking up state finances one of his priorities. 

But investors would like to see more concrete steps being taken and, after a further sovereign downgrade last week, may require the new bonds to offer a significant premium over the country's existing debt. 

"The new sultan has done some good things - rationalising the number of ministries, the implementation of VAT, plans to generate additional tax revenues, and they still have sovereign assets," said Raza Agha, head of emerging markets credit strategy at Legal & General Investment Management.

"There is positive momentum but it will take time for that credibility to build."

According to a bond prospectus, Oman has begun talks with some Gulf countries for financial support. 

"I don't think this will actually be taken into consideration by investors unless there is a tangible announcement from Gulf countries with a tangible support package," said Zeina Rizk, executive fixed income director at Arqaam Capital.

Oman will likely price the new three-year bonds in the high 4% area, the seven-year tranche in the high 6% and the 12-year in the mid-to-high 7% area, implying a premium of at least 50 basis points (bps) over its existing curve, she said.

Two other investors, who did not wish to be named, said the paper could carry a 25 bps premium over existing secondary trading levels.

Sources have previously told Reuters Oman would target over $3 billion with the new deal. 

"If they take $3-3.5 billion, you will have a market indigestion for Oman, and I’m sure people will ask to be compensated for this risk," Rizk said.

(Reporting by Davide Barbuscia, Tom Arnold and Yousef Saba; editing by John Stonestreet) ((Davide.Barbuscia@thomsonreuters.com; +971522604297; Reuters Messaging: davide.barbuscia.reuters.com@reuters.net))