MUFG Mitsubishi UFJ Financial Group Inc

By Carolyn Cui 

The Oman government sold $2.5 billion of bonds Wednesday, becoming the latest Persian Gulf state to tap the debt markets in a move to shore up its budget during a period of low oil prices.

The bond deal represented the country's first issuance in the international debt market in nearly two decades. The government sold five-year notes at a coupon rate of 3.625% and 10-year ones at 4.75%, according to a person familiar with the deal.

Yields on both portions came in lower than initial indications to investors, reflecting strong demand from both regional and international buyers. Total demand was about $7 billion, this person said.

This year, Middle Eastern governments have raised $20 billion from international debt markets, already a record year for debt issuance, according to data provider Dealogic. Abu Dhabi and Qatar tapped the markets earlier this year, raising $5 billion and $9 billion, respectively, while Kuwait is expected to issue $5 billion of debt in the weeks ahead.

Saudi Arabia, meanwhile, has indicated plans to sell $15 billion in global debt. That would be one of the largest sales ever by a developing country.

Oman is the largest Middle East oil producer outside of the Organization of the Petroleum Exporting Countries. With oil and gas contributing about 85% to government revenue, Oman was hit hard by the plunge in the price of oil since mid-2014.

Even after the government took steps to cut expenditures and remove fuel subsidies, Oman faces a 17% budget deficit for this year. The government tapped its foreign reserves, which stood at $17.5 billion last year, according to the International Monetary Fund, and borrowed from local and foreign banks before turning to the debt markets.

"It's a good deal, but the pricing is not cheap," said Anita Yadav, head of fixed-income research at Emirates NBD, a Dubai-based bank, referring to the Oman bonds. She said the yield on Oman's 10-year note is higher than on debt sold by Indonesia, which has a lower credit rating.

The Indonesian securities yield 3.84%, while the Oman yield is about 4.72%, near the coupon rate.

Citigroup Inc., J.P. Morgan Chase & Co., Mitsubishi UFJ Financial Group Inc., National Bank of Abu Dhabi and Natixis were the underwriters for the sale.

Write to Carolyn Cui at carolyn.cui@wsj.com

(END) Dow Jones Newswires

June 10, 2016 02:49 ET (06:49 GMT)

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