Sohar strengthens capital with convertible issue

Sohar International Bank has closed its mandatory convertible bond issue at about OMR26.47 million, adding a fresh layer of capital support as the Muscat-listed lender pursues balance-sheet growth, cross-border expansion and stronger regulatory buffers.

The issuance covers 259.5 million mandatory convertible bonds and follows shareholder approval for Tier 1 instruments that are compulsorily convertible into ordinary shares at maturity. The transaction, worth about $68.8 million, is designed to reinforce the bank’s capital base without placing immediate pressure on cash resources, while giving shareholders a route to participate in future equity conversion.

The move comes after a period of active capital management by the bank. Sohar International completed a OMR130 million rights issue in 2024, one of the largest such transactions on the Muscat Stock Exchange that year, and later raised OMR200 million through unsecured subordinated perpetual bonds carrying a 6.75 per cent coupon. Together, these transactions point to a deliberate strategy of building capital depth as lending demand, wholesale banking activity and regional financial flows expand.

Mandatory convertible bonds occupy a strategic position in bank funding. They strengthen regulatory capital when structured in line with supervisory requirements, while eventual conversion into equity can reduce leverage and support lending capacity. For shareholders, dilution is a consideration, but the instrument can also help protect the franchise by supporting growth without relying solely on retained earnings or conventional debt.

Sohar International’s balance sheet has expanded sharply over the past two years. Total assets stood at about OMR9.13 billion at the end of 2025, up from OMR7.36 billion a year earlier. Net loans, advances and Islamic financing rose to about OMR5.76 billion, while customer deposits reached roughly OMR6.83 billion. Total equity climbed to about OMR1.15 billion, reflecting both retained performance and capital-raising activity.

The bank’s capital adequacy ratio stood at about 17.3 per cent at the end of 2025, above regulatory minimums and broadly consistent with its need to support credit expansion. Asset quality remains a key metric for investors, with non-performing loans at about 4.6 per cent and coverage above 130 per cent. These figures place the bank in a relatively stable position, though rapid loan growth can test provisioning discipline if economic conditions soften.

The transaction also fits into a wider shift in Oman’s banking sector. Credit demand has been supported by government-led investment, infrastructure activity, energy projects, logistics, tourism and private-sector diversification. Banks have been strengthening capital and liquidity positions as Oman’s fiscal profile improves and its sovereign credit standing benefits from lower debt ratios and firmer public finances.

Oman’s banking system is operating under a regulatory framework aligned with Basel III standards, including capital adequacy, liquidity coverage and leverage requirements. The Central Bank of Oman has also been pushing lenders to maintain prudent risk controls while extending credit to priority sectors. That balance is important as banks seek higher returns from corporate lending, Islamic finance, wealth management and digital channels.

Sohar International has also been widening its external ambitions. The bank received final approval to open a representative office in Hong Kong, a step aimed at supporting Asia-GCC financial links. It has also entered a strategic partnership with EWPartners to deepen commercial connectivity between Asia and the Gulf, indicating that its capital strategy is being shaped not only by domestic lending but by trade, investment and cross-border advisory opportunities.

For Oman’s capital market, the issue adds to a steady pipeline of bank-led transactions that have broadened the range of listed and quasi-equity instruments available to investors. Muscat’s market has traditionally been dominated by equities and conventional bonds, but banks have increasingly turned to rights issues, perpetual securities and convertible instruments to manage growth, capital efficiency and investor demand.