New IPO hopes for Oman’s bourse

With several initial public offerings (IPOs) on the horizon, Oman’s Muscat Securities Market (MSM) is looking to weather global economic volatility by deepening the country’s equity offering.

Two companies have already announced plans to list this year, and while officials have yet to formally indicate which public firms will also carry out IPOs, in mid-December Darwish Al Balushi, minister of finance, told media at least three state enterprises would be privatised in 2016.

The minister had previously hinted at the move, announcing in early 2015 that an extensive privatisation programme involving the sale of several publicly owned businesses would be conducted over the next three years.

“We hope to see government companies being privatised in the coming months,” Sheikh Abdullah bin Salim Al Salmi, executive president of Oman’s Capital Markets Authority, told media in late December.

While IPO activity in the broader GCC was muted in 2015, the successful listing of Oman’s Phoenix Power in June suggests there is continued investor appetite. The utility company’s issue was oversubscribed by 15 times, the strongest response for any float in the region last year.

Just six IPOs in total were carried out in the GCC last year, compared to 17 in 2014, with total capital raised falling by 86% year-on-year to $1.5bn.

New listings

One of the firms set to list this year is Falcon Insurance. The anticipated float, announced in mid-2015 by Al Anwar Holdings, which has a 51% stake in the company, would not only diversify the company’s ownership structure, but also raise capital levels in line with new regulatory requirements imposed last year.

Under the amended Insurance Companies Law, gazetted in mid-2014, insurers must convert to public joint-stock companies with minimum issued share capital of OR10m ($26m) – at least 40% of which must be floated – within three years.

Falcon’s offering could draw strong interest, with Al Anwar announcing in mid-January it had fielded an offer from an unnamed bidder seeking to acquire a sizeable stake in the venture.

The newly established Mining Development Oman (MDO), a joint venture between four state-owned agencies – the State General Reserve Fund, the Oman Investment Fund, the Oman Oil Company and the Oman National Investments Development Company – also plans to list this year.

MDO will conduct both up- and downstream activities in the mining sector, in addition to collaborating with private sector enterprises.

As promoters, the four agencies will own equal shares of a combined OR60m ($155.8m) in capital, with a further OR40m ($103.9m) to be raised through an IPO scheduled for the second quarter of 2016.

Broadening the base

In addition to boosting market liquidity and encouraging greater private sector involvement in the economy, the government and regulators are looking to leverage privatisation to curb Oman’s growing budget deficit, which is expected to remain in the double-digits as a share of GDP for the time being.

While the government aims to narrow the deficit by cutting public spending by 11% in 2016 and restructuring costly subsidies, the listing of state-owned companies could be another path to generating revenue in the absence of strong energy receipts, which have traditionally accounted for roughly 80% of government revenues.

However, the timing of the IPOs may be contingent on external events. The lifting of sanctions against Iran could exacerbate the ongoing decline in oil prices, which have fallen by another 10% year-to-date. This could add to greater pressure to regional exchanges, which have already reached multi-year lows on concerns of oversupply.

On January 17, the day after sanctions against Iran were lifted, the MSM 30-share index fell by 3.2% to below 5000 points, its lowest level since mid-2009. This tracked with weaker trading since the start of the year, with average daily turnover falling from OR5.6m ($14.5m) in 2015 to OR2.2m ($5.7m) in the first half of January.

Some companies may be looking to hold off on listing until later in the year, awaiting a rebound in investor sentiment and the time needed for markets to factor in Iran’s return to the global energy market.

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