Trustee: EDO Sukuk
Obligor: EDO Gas
Guarantor: Energy Development Oman
Size: $1 billion
Structure: Al-ijara/murabaha
Tenor: 10 years
Banks: JPMorgan and Standard Chartered (global coordinators, joint lead managers and bookrunners); Abu Dhabi Commercial Bank, Arab Bank, Bank Muscat, Dubai Islamic Bank, First Abu Dhabi Bank, KFH Capital, National Bank of Oman, Mashreq Bank (joint lead managers and bookrunners)
Date: September 2023
Institutional investors are almost always engaged by a good credit story and rarity value, so when Oman’s national energy champion emerged with its debut and the country’s first international debt issue since 2021, it was sure to draw strong interest and demand.
That is exactly what Energy Development Oman (EDO), the state-owned oil and gas company, saw in September last year, when it issued a $1 billion 10-year sukuk, marking its inaugural transaction on the international capital markets, as well as the first Omani government-related entity (GRE) to sell a dollar-denominated deal for two years.
The transaction attracted strong demand from investors in Europe and the UK, the Middle East and North Africa, the US and Asia, pushing the orderbook to a peak at over $5.5 billion – one of the biggest orderbooks of the year for a Gulf issuer.
Such interest enabled the issuer and its banks to tighten pricing by some 35 basis points from initial talk, leading to the transaction being priced at 165bp over 10-year Treasuries, one of the tightest spreads from an Omani GRE in the last five years.
At 5.875%, the issuer also achieved one of the lowest ever 10-year coupon or profit rates for an Omani sukuk.
Achieving good pricing was a key objective of EDO’s treasury team, together with raising a minimum of $1 billion, securing a diversified orderbook and establishing the company as a credible issuer on the global sukuk and conventional capital markets.
With [AAOIFI compliance] achieved, together with securing attractive cost levels and a benchmark size, EDO’s debut on the international markets was a resounding success
The banks involved were central to achieving those objectives, and, for those mandated as sukuk structurer, for incorporating some novel features in the transaction.
EDO’s sukuk structure is based on an ijara (sale and leaseback) and a commodity-murabaha component, which reduced the reliance on tangible assets to a minimum of 55%. The remaining 45% was structured as a commodity murabaha, which does not require physical assets.
The novel part of EDO’s sukuk compared with other standard ijara structures, is that the ijara assets are held by EDO Gas, a subsidiary company fully owned by EDO.
As a result, the ijara and commodity-murabaha agreements, along with the other Islamic documents, are signed with EDO Gas. To keep EDO as an obligor, the company provided an unconditional and irrevocable guarantee of EDO Gas’ payment obligations under the transaction documents.
In addition, the sukuk was also structured to be compliant with AAOIFI standards to ensure maximum interest.
With that achieved, together with securing attractive cost levels and a benchmark size, EDO’s debut on the international markets was a resounding success.
It is for these reasons, as well as the structural innovation, that this transaction is Euromoney’s best sukuk deal of 2024.
