Oman: Trading Up

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A new law in Oman that makes an exception for businesses hoping to list a smaller share of their companies on the Muscat Securities Market (MSM) will likely be passed by the end of the year.

Current regulations in the Sultanate require companies that wish to go public to offload a minimum 40% stake on the market, but the new law would allow family-owned businesses to sell just 25% of their shares through initial public offerings (IPOs), a key aim of the new ruling. A similar exception was granted earlier this year, when the Omani cabinet and Capital Market Authority (CMA) allowed Oman Arab Bank to offload a 25% stake.

At the Second Annual Oman Capital Markets Forum, held October 3-4 at the Al Bustan Palace Hotel in Muscat, MSM’s director-general, Ahmed Saleh Al Marhoon, indicated that additional exceptions could be made even before the law is passed. “If any family business wants to go public before the new law is passed, exemption to offload 25% can be given as it was in the case of the Oman Arab Bank,” he said.

The new regulations will contribute to the MSM’s objective of encouraging the launch of more IPOs in a range of sectors. “The outlook is still limited, which suggests the need for more long-term planning by the government to encourage at least two to three new IPOs for different sectors to be launched each year,” Hassan Ali Jawad, the chairman of the board at MSM, told OBG. “High-networth individuals should also consider listing their family businesses. By going public, companies compete directly with international projects and contribute to the nation’s economic development.”

Marhoon said the new law will encourage many more small businesses to go public and will likely bring about a number of IPOs in 2012, adding that many family businesses have already approached the CMA to express their interest in selling shares. “There is a lot of cash in the country, a lot of cash with banks,” he said. “Banks and investors are looking for opportunities to invest in the market.”

In the power sector, at least, events are moving according to plan: four IPOs are expected in the power sector within the next two years, with the first from SMN Power Holding, which will list 35% of its total share capital on the MSM by October 25. Phoenix Power, the Al Suwaidi Power Company and the Al Batinah Power Company are also expected to list 35% of their shares by 2013.

In addition to Marhoon, the forum hosted many Omani business leaders and top government officials, including Darwish bin Ismail Al Balushi, the minister of financial affairs, who said that Oman’s economy is on track to grow 5.6% in 2011, as compared to 5% in 2010 and 1.1% in 2009. Al Balushi added that though many economists fear a recession will occur in 2012, stable oil prices – which are expected to remain around $80 per barrel – will help the government meet the goals of its eighth five-year plan, which aims to achieve an annual growth rate of 5%.

“We have witnessed a positive 6-7% growth on the MSM sector since last year. It shows that the capital markets slowly recovered from the crisis, as investors started to return and invest on the MSM,” Yahya Bin Said Bin Abdullah Al Jabri, the executive president of the CMA, told OBG.

Additionally, in a move that will add further depth to the market, in August the CMA said it would allow certain brokerage firms to engage in margin trading, a practice that has long been prohibited on the MSM since 1997. According to a scheme announced by the CMA in late August, buyers would be allowed to borrow up to 50% of their funds from a brokerage house in order to buy initial shares. Clear rules have also been set for the assessment of client portfolios and for the reestablishment of margins in the event of market fluctuations.

The MSM’s Jawad told OBG that although the benefits of margin trading could be great, it was formerly misused and was eventually banned in 1997. In order to prevent this from reoccurring, the practice will be limited to select firms chosen by the CMA based on financial performance and traded volumes. These firms would likely be reviewed each quarter to assess performance, approve new companies and potentially revoke the margin trading rights of firms with unsatisfactory performance.

Given the MSM’s intent to launch more IPOs and the presence of better-informed brokers and new technologies, the reinstitution of margin trading should be a boon to the market, Jawad told OBG. “While margin trading was dependent on brokers and banks [before 1997], the online system is now fully operational and traders are much more educated than before,” he said. “This re-introduction should increase the liquidity in the capital markets, in a context where more IPOs are being launched.”

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