Economic Update

Efforts to open up new avenues for investment in family owned firms in Oman are gathering momentum as the authorities step up a bid to steer more local firms towards listing on the sultanate’s stock exchange.

Data held by the Capital Market Authority (CMA), which oversees Oman’s stock exchange, shows that up to 90% of businesses across the Gulf region are family enterprises. While many of Oman’s firms are too small to list on the Muscat Securities Market (MSM), others have traditionally shown themselves reluctant to do so, despite efforts to highlight the benefits of going public.

Oman’s government, alongside the CMA, urged local firms to look at launching an initial public offering (IPO) or consider broadening their ownership base at a family business conference held late last month.

In a bid to galvanise the process, the government, together with the MSM, is considering the introduction of added incentives for family enterprises, such as a reduction in the number of shares that firms are obliged to make available in an IPO. “We are ready to give concessions whereby 25% can be viewed instead of 40%,” the Minister of Commerce and Industry, Ali bin Masoud al Sunaidy, said. “The cabinet was prepared and is still prepared, and if we have a serious group that wants to do such a transaction we are willing to have exceptions. But people have a reluctance to come forward in listing their privately owned businesses.”

The government will be hoping the proposal could allay the concerns of family-run firm owners who fear that going public will signal a loss of managerial control.

In another move, the CMA has suggested reducing the minimum capital requirement for a firm considering going public by as much as half. Al Sunaidy said this could give smaller firms the opportunity to list. “The law stipulates for a company to have a paid-up capital of OR2m ($5.2m), and we have a strong feeling that it may be way too high for these companies and we are thinking of revising it. I believe OR1m ($2.6m) would be an ideal sum,” he said.

Family firms have also been encouraged to restructure themselves into closed joint stock companies, which would give them the opportunity to benefit from capital markets agencies monitoring their performance and processes without necessitating broad public ownership. The move is expected to promote better management practices among firms by increasing their transparency and accountability, even though they are not public. It could also allow owners of family companies to adjust to co-management, possibly paving the way for an IPO at a later date.

Yahya bin Said Al Jabri, chairman of the CMA and the Special Economic Zone Authority (SEZA) at Duqm, told delegates attending the conference that going public would put family owned companies in a stronger position, while also benefiting the economy as a whole.

“Converting family firms to joint stock companies will lead to the development and growth of the national economy by expanding the base of the joint stock companies, enhancing the ownership base and diversifying activities,” he said. “This will lead to increasing revenues and GDP and activating the capital market through the entrance of new companies.”

Strengthening their position in the marketplace may well appeal to a growing number of firms whose owners will be mindful of the risks over time of closure. According to studies, only a third of family-operated firms survived into the second generation, with the number making it to a fourth generation standing at just 4%, local media has reported.

The MSM is one of the region’s smaller exchanges, registering a market capitalisation of OR11.7bn ($30.37bn) at the end of 2012 out of a GCC total of $776bn. Currently, there are 167 companies listed on the MSM boards, consisting of 70 from the industrial sector, 52 based in finance and 45 in services.

The government has yet to set a deadline for introducing its proposed reforms for firms listing on the exchange. However, should they be applied as mooted, the changed should pave the way for more options to become available on the local exchange, which should boost interest from investors and help the government in its bid to further develop the economy.