Oman: An offer on capital markets

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A recent call to expand capital markets and broaden the country’s economic base appears to have struck a chord with Omani companies and a series of initial public offerings (IPOs) have been announced.

An article carried by the Financial Times in early April quoted a number of leading public and private sector officials as saying Oman would benefit from widening the scope of its capital markets to help fund economic development. Among them was Abdullah Al Salmi, the executive vice-president of the Capital Markets Authority (CMA), which regulates the sector. In an interview on April 11, Al Salmi told the paper that Oman’s capital markets were underutilised, “illiquid, shallow and small”. It was necessary for there to be more issuance to provide alternative avenues to finance large-scale projects and set benchmarks to price assets, he said.

Expansion on the bourse is a priority across the sector, with investor education one way to achieve this. As Hassan Ahmed Mohsin, the CEO of brokerage firm Horizons Capital Markets, told OBG, “There needs to be a positive increase in the awareness of the stock market in Oman today.”

Some routes are being opened as a growing number of Omani firms are looking to use IPOs or other instruments to raise funds, deepen their ownership pool and in some cases lighten debt burdens. One of these is electricity provider, SMN Power Holding, which has announced plans to sell 35% of its shares via an IPO before the end of the year, as per a contractual agreement with the government mandating a broadening of the ownership base of the company. Currently, SMN is jointly owned by the Abu Dhabi’s government-owned investor Mubadala and the UAE firm Kahrabel FZE – both of which hold 47.5% of the power generator’s shares – with Oman’s National Trading Company holding the remaining 5%.

Under the plan outlined in mid-April, the IPO will be held late this year after due diligence has been completed and a valuation of the offer set, with a view to the shares being cleared to be traded on the Muscat Securities Market (MSM) in early 2012.

Another firm to raise the prospect of launching an IPO is the Oman Arab Bank (OAB), which is currently the country’s only non-listed bank, with the Oman International Development and Investment Company holding a 51% stake and the Bahrain-based Arab Bank the remaining balance. In late March OAB said it was considering a listing, a prospect that was made more attractive with the recent change to the MSM’s commercial law that sees the barrier for IPOs lowered from 40% to 25% of total shares. “The minimum of 40% of stakes that was required for a company willing to go public has been reduced to 25% in early 2011, which is a major victory for the development of the capital markets,” Abdul Samad Al Maskari, the CEO of Al Madina Financial and Investment Services told OGB. “This reform should encourage more companies and family businesses to be listed on the stock market.” OAB is not the only financial sector player seeking additional funding, though other lenders have taken a different route. Two local banks, National Bank of Oman (NBO) and BankMuscat, have also recently announced moves to raise more funds through the markets, unveiling plans for $600m and $800m bond issues respectively.

One of the main ingredients for a successful IPO is a solid level of liquidity, which is in ready supply in Oman, although some suggest that regulations are hampering the usefulness of this asset. According to data issued by the Central Bank of Oman in early April, the total value of private deposits lodged with commercial banks reached $19bn at the end of January 2011, up by 11.4% year-on-year. This deposit level is roughly equivalent to the entire capitalisation of the bourse.

What is less readily available is investor confidence. Unrest in the broader region, combined with concerns over the sustainability of the US economic recovery, the increasing fragility of the Eurozone and the potential fallout from the devastating earthquake and tsunami in Japan are all weighing heavily on global markets.

It seems some or all of these factors may have come into play in late March, when an IPO by a subsidiary of Omani oil and gas services provider Renaissance Services was postponed. In early March Renaissance had issued a statement saying it planned to publicly list its largest unit – Topaz Energy and Marine – on the London Stock Exchange. Renaissance, which is listed on the MSM, said it aimed to raise $500m through the Topaz IPO.

However, by the end of the month, that change appeared to have been deferred, at least to some extent, with Renaissance announcing it was going to hold off on the IPO for the time being. Citing the “increasingly uncertain investment climate for new issues caused by international events” the company said the offering would go ahead, though at an unspecified date later in 2011.

“Given the recent crisis in the Middle East, we believe it has been hard for Topaz to attain such a valuation and thus would have resulted in any new equity injection being dilutive to current shareholders,” the investment bank EFG-Hermes said of the decision.

Closer to home, the withdrawal of the IPO saw Renaissance’s shares on the MSM dip, though by the second half of April investors had moved on from any disappointment and were buying back into the firm.

While confidence in the Omani economy remains solid, with most expectations putting growth between 4.1% and 6%, this expansion relies on greater involvement by the private sector, rather than state investments. Expansion in Oman’s capital markets should help answer the call for further development.

“There is now more money in the market, and this can create opportunities,” Haitham Salim Al Salmi, the general manager of brokerage firm International Financial Services, told OBG. “Financial services in Oman will continue to expand, steadily and slowly.”

The reduction of listing requirement is expected to open the door for a wider range of companies, and should the SMN Power IPO and others in the pipeline prove a success, more firms may be prompted to go public and more investors may be encouraged to share their capital.

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