Omani real estate developer Tilal Development Co has sold the country's first Islamic bond, a 50 million rial ($130 million) sukuk that could pave the way for similar issues by other companies in the sultanate.

Tilal's five-year sukuk, offering a profit rate of 5 percent and based on an ijara structure, a leasing arrangement commonly used in other Islamic markets, was privately placed with investors, arranger Al Madina Investment said on Tuesday.

"This pioneering issuance, along with the government's initiative to issue sukuk, will encourage other corporates to consider sukuk as an alternative source of funding," said Abdul Samad Al Maskari, Al Madina's chief executive.

About 95 percent of the sukuk, rated BBB+ by Cyprus-based Capital Intelligence, was placed with local investors including pension firms and banks, according to Mohsin Shaik Sehu Mohamed, head of Islamic finance at Al Madina.

Tilal, 40 percent-owned by sovereign wealth fund Qatar Investment Authority, will use proceeds from its sukuk to expand the Tilal Complex in Muscat, a flagship project which includes the Muscat Grand Mall as well as residential and office space.

Oman began to introduce Islamic finance last year, becoming the last of the six Gulf Cooperation Council states to do so. Extensive Islamic banking rules were released last December.

Oman's two full-fledged Islamic banks, Al Izz Islamic Bank and Bank Nizwa, were established last year and both have now started operations. Several Omani conventional banks have established their own windows for Islamic business.

The country is unusual in that a corporate sukuk has been issued before the first sovereign sukuk; the government has said it plans to issue a sukuk, which could arrive next year.

Al Madina and Bank Nizwa were lead arrangers on the Tilal deal, with Bank Dhofar and Qatar International Islamic Bank also participating as joint lead managers. – Reuters