National Bank of Oman raised $500 million in a debut bond issue on Tuesday, with significant demand from investors allowing the lender to price the transaction with only a slim new-issue concession and at a cheaper rate than competitors.

The sultanate's second-largest lender by assets raised funds at 135 basis points over midswaps, at the tight end of its final guidance of 140 bps, plus or minus 5 bps, given earlier in the day. It had set initial price thoughts in the mid-100s area on Monday.

The deal, rated BBB plus by Fitch and A3 by Moody's, carries a coupon of 3.125 percent and comes with a reoffer price of 99.177, the document showed.

NBO joins other firms from the Gulf Arab region in tapping bond markets for the first time in 2014, at a time when borrowing costs have tightened thanks to increased interest from foreign investors and turmoil in other emerging markets.

Investor orders topped $1.6 billion for NBO's issue, a source with knowledge of the deal said, speaking on condition of anonymity as he was not authorised to speak to the media.

Such high demand allowed NBO to virtually-eliminate the new issue premium which borrowers are normally expected to pay to encourage investors to sell existing investments in favour of purchasing the new transaction.

"The issuer took advantage of the wave of interest for regional bonds. Being a debutante and a smaller player, NBO should have left more for investors," a Gulf-based investor said, declining to say whether he bought into the transaction.

A banker away from the deal compared Tuesday's issue from NBO with a bond sold in July by Commercial Bank of Qatar , which owns 35 percent of NBO and is rated two notches above the Omani lender.

The CBQ deal is currently trading at a Z-spread of 100.16 bps, according to Thomson Reuters data. Given that two notches difference should equate to an additional 30 bps on the price, this leaves a very slim new-issue premium, the banker said.

Meanwhile, a comparison with the only outstanding bond from an Omani lender, Bank Muscat's 2018 paper, pointed to the NBO issue pricing at a cheaper rate than an equivalent new deal from the sultanate's largest bank.

The banker calculated a new issue from Bank Muscat would have priced at around 150 bps, based on the current deal's z-spread of 108 bps as well as allowing for additional spread for a two notch upgrade and 10 bps for an extra year on the tenor.

Credit Agricole, HSBC, National Bank of Abu Dhabi, and Standard Chartered arranged NBO's maiden transaction.

The Omani bank is the latest Gulf-based borrower to complete a debut offering at a time of favourable markets, after Etisalat , National Bank of Ras Al Khaimah, the Emirate of Sharjah and Emaar Malls Group.

Deals from Gulf credits will begin tapering off now ahead of the Muslim festival of Eid al-Adha, which begins at the end of this week.