Bank Sohar, the Omani lender in talks on a possible merger with larger rival Bank Dhofar, scrapped plans for a convertible bond issue and will instead undertake a RO40 million ($103.9 million) rights issue, it said on Tuesday.

The bank, the sultanate's fifth-largest by assets, had said in May that it would issue a mandatory convertible bond worth RO70 million ($181.7) to help boost its Tier 1 - or core - capital.

However, in a bourse filing on Tuesday, it said its board had decided against issuing the convertible "due to uncertainty regarding its eligibility as an additional Tier 1 instrument".

Instead, Bank Sohar will complete a rights issue, subject to regulatory approval, for a smaller amount as "this is the capital requirement to support the future growth of the bank," with a further 30 million rial issue possible in the future if the lender requires the extra capital.

Bank Sohar's Tier 1 ratio was 10.39 per cent at the end of the second quarter, with its total capital adequacy ratio - combined Tier 1 and Tier 2 (or supplementary) capital - at 13.90 per cent, according to figures on its website.

By comparison, the median Tier 1 capital ratio in the Omani banking system was 11.97 per cent at the end of 2013, according to Thomson Reuters data. - Reuters