Domestic Bank Market
Oman has nine licensed domestic banks, including two Islamic banks. There are a number of full branches of foreign banks, of which four or five actively participate in the lending market to Omani corporates.
Aggregate domestic banks’ single obligor limits are in excess of USD3 billion for government-related entities (GREs) and close to USD2 billion for Omani corporates.
Domestic banks have the capacity to lend in domestic currency as well as US dollars.
Omani credit is extensively banked internationally. Participation is from regional, European, American and Far Eastern banks.
The domestic regulatory framework offers adequate flexibility for international banks to lend into Oman without a local presence.
Project/asset finance transactions with export credit agency guarantees are particularly well banked among international banks, as well as structured credit for GREs, such as pre-export finance.
A select number of domestic funds are shaping the market.
Overall, there is very limited overall participation but sizeable domestic debt funds are active.
As far as this firm is aware, there has only been one leveraged MBO in Oman, concerning Oman Investment Corporation.
Omani law is generally selected as the governing law when domestic banks are lending. However, English law is well established when non-Omani lenders are involved in the transaction.
Bilateral deals are generally governed by that domestic bank's lending documentation.
All syndicated loans are generally documented on the Loan Market Association (LMA) standard basis and the developed markets standard form is widely used as the precedent.
English language is used for lending finance documents but security documents that are registerable are documented in Arabic and English. In court proceedings, all documents must be in Arabic or translated into Arabic.
There is no information relevant to this section.
There is limited acquisition finance in Oman. One recent example is the Omantel acquisition of shares in Zein (financed through bank debt and a bridge to bond; the bridge to bond was subsequently taken out by international bonds (RegS/144a, 5.5 and ten-year maturities)).
Payment-in-kind (PIK) loans are not market as PIK interest creates regulatory issues.
Bridge loans are used when international bonds are envisaged.
The bond market is at an early stage of development. The banking sector in Oman, and, more recently, select GREs and the Sovereign are active in the international bond market. At this stage of the market's development, the bond market is a viable funding option for the highest-rated credits in Oman but it will take time for the lower-grade credit/high-yield bond market to develop.
Private placements and the loan note market are present but at early stages of development.
A typical intercreditor agreement will regulate a number of areas.
Generally, unsecured bonds do not co-exist with sizeable bank debt.
Transactions generally do not have interest rate hedging at the time of being taken out.
A borrower (and, in some cases, shareholders) will generally grant security in respect of the following assets.
Unlike some common jurisdictions, Omani law does not have a concept of floating charge. While the law permits a mortgage of a “commercial concern”, it also requires that the mortgaged assets are precisely identified in the mortgage. Therefore, it is likely that security over inventory that is not existing and specified on the date security is granted would be unenforceable. In addition:
It is not possible under Omani law for shares in a limited liability company (as opposed to a joint stock company) to be pledged. It is also common for financiers to take assignment of rights under contracts and specified and existing receivables. Assignments are, however, not a recognised form of security interest, in that the assignee will be an unsecured creditor on the assignor’s liquidation. Pre-liquidation, the assignment will take effect in accordance with its contractual terms.
A commercial mortgage is a contract between a mortgagor and mortgagee pursuant to which the mortgagor agrees to mortgage specified mortgaged assets as security for its obligation to the mortgagor.
The mortgaged assets should be specified and identified in the commercial mortgage documents and will typically include:
A commercial mortgage may include specified contracts, insurance policies and trade marks.
The mortgage document has to be registered in the commercial register of the mortgagor maintained with the Ministry of Commerce & Industry (MOCI) within 30 days of execution by both parties.
Registration of a commercial place is valid for a period of five years and needs to be renewed if required after this period. Renewal is presently effected by the mortgagee requesting MOCI to renew the mortgage upon payment of a renewal fee.
A pledge over shares in a joint stock company is effected by the pledgor and pledgee executing a share pledge agreement and a standard-form Arabic share pledge agreement (Standard Form Pledge). The Standard Form Pledge is registered and recorded on the shareholder register maintained at the Muscat Depository and Securities Registration Company.
Real property and buildings and fixtures on the mortgaged land are mortgaged by the mortgagor and mortgagee executing a legal mortgage. A legal mortgage is effected by way of application to the Ministry of Housing and by the physical presence of representatives of both parties and the production of certain documents. The mortgage is recorded electronically against the title deed and generally a copy of the legal mortgage is submitted to the Ministry of Housing after approval by the Ministry of Housing.
There are currently no restrictions on the granting of upstream security.
There are no legal restrictions preventing a target company from providing "financial assistance" in regard to the acquisition of its shares.
The acquisition will need to be approved by the shareholders of the acquirer and if the target is a limited liability company and not a joint stock company, by the shareholders of the target. If the target grants security to the financiers of the acquisition, then the security will need to be approved by the shareholders of the target.
There are no self-help remedies available in regard to the enforcement of security either by the secured creditor or through a third party like a receiver. An application to court to sell mortgaged assets must be made and any sale must, other than in the cases specified in the next paragraph, be by way of public auction. Generally, a court will not grant an application to sell mortgaged assets unless a judgment is obtained against the debtor.
In regard to a pledge of shares, the court may grant an order that the pledgee may acquire the pledged shares in payment of the debt provided the value of shares is determined by a court-appointed expert. The pledger may also agree at the time of enforcement that the pledged shares may be transferred to the pledgee on discharge of the debt. A licensed bank may also take possession of real property subject to a legal mortgage for a period of 12 months or such longer period granted by the Central Bank of Oman.
Guarantees securing all monies owing by a guarantor are generally taken and in certain cases the amount recoverable will be limited to a specified amount.
Generally, any guarantees require the approval of shareholders, subject to certain exceptions.
There are no requirements for guarantee fees.
Oman is a civil law jurisdiction and there are no equitable subordination rules. There are no laws that deal with subordination of debts. However, subordination agreements are common.
Creditors of a bankrupt company are permitted to seek claw-back of any payments made by the bankrupt company during the suspect period preceding the date of adjudication of bankruptcy.
Any transaction undertaken by a bankrupt company, other than the following, during the suspect period may be invalidated by the court as against the insolvent entities’ creditors if such transaction is considered to be harmful to the interest of the creditors.
Any application for the nullification of a transaction on the grounds set out above may be made by the receiver/trustee in bankruptcy within a period of 12 months from the date of adjudication of bankruptcy of the bankrupt.
The bankrupt company’s creditors may bring an action for recovery of damages suffered by them on account of harmful transactions.
The law provides the “suspect period” to be the period commencing from the date on which the bankrupt ceased making payments. In the first instance, the court will set a date from which it deems the bankrupt to have ceased making payments. The law further provides that the date for cessation of payments may not go back more than two years from the date on which the adjudication of bankruptcy occurred. The suspect period cannot, in any circumstances, precede the bankruptcy order by more than two years.
A debt buy-back is generally permissible for a borrower or financial sponsor under the voluntary prepayment provision (and subject to the restrictions that apply to voluntary prepayments) or otherwise with consent.
No stamp duty is payable in regard to the execution of finance and security documents. There are, however, security registration fees payable to the relevant government ministry.
Subject to some exceptions, non-resident withholding tax on interest payable to a foreign company without a permanent establishment in Oman is payable at the rate of 10% interest.
Thin capitalisation rules require a debt-to-equity ratio not exceeding 2:1 for interest to be deductible on borrowings between related parties.
There are no legal or regulatory requirements relating to bidder/certain funds concepts in relation to listed targets. However, if consent from a regulator is required, it is likely the regulator would want to be satisfied that funding is committed and agreements have been reached.
See 10.1 Regulated Targets.