Oman’s capital markets are positioned to play a crucial role in achieving the Oman Vision 2040 objectives, having made great strides in the wake of the Covid-19 pandemic. With the country in the middle of a period of wide-ranging reforms and strategic changes designed to accelerate private sector growth and enhance resilience, new opportunities are opening up to invest in Oman’s capital markets and finance the development of its economy.
Oversight
The Capital Market Authority (CMA), established in 1998, regulates the Muscat Stock Exchange (MSX). The exchange was previously called the Muscat Securities Market until it was rebranded in January 2021 following a royal decree and transformed into a local joint stock company. The regulator is also responsible for overseeing the Muscat Clearing and Depository Company, the insurance sector, and the Oman Centre for Governance and Sustainability. In addition to its regulatory responsibilities, the entity oversees the licensing and regulation of public joint stock companies, securities firms, insurers, brokers and credit ratings companies.
The authority is the enforcement body for a new Securities Law, which came into effect in June 2022. The CMA is due to issue associated executive regulations before mid-2023. The Securities Law forbids the issuance of securities under public or private subscription without the approval of the CMA. The law also allows for the formation of trusts – a new form of legal entity in Oman – and collective investment funds. Key provisions in these areas, as well as a framework for issuing green and social bonds, had yet to be finalised as of early 2023.
The Securities Law expands the restrictions on the types of financial activities that unlicensed entities are allowed to conduct, thus improving consumer and institutional protection. Fraud can now be better monitored and deterred through a progressive financial penalty regime. It also introduced crowdfunding for small and medium-sized enterprises (SMEs), and an investor protection fund to safeguard people doing business with CMA-licensed entities. In accordance with the law, the CMA is able to work with counterparties, such as partner regulators in other jurisdictions and agents, to freeze assets. The CMA also has the authority to compel suspect parties to provide testimony in civil and administrative investigations. Regarding short selling, as of February 2023 the CMA had no plans to introduce regulations on the matter.
Oman is not yet a party to the International Organisation of Securities Commissions’ Multilateral Memorandum of Understanding Concerning Consultation and Cooperation and the Exchange of Information. However, the Securities Law paves the way for the sultanate’s accession to becoming a signatory of this international benchmark for enforcing the regulation of securities markets.
The updated rules are expected to facilitate the expansion of Oman’s sharia-compliant capital market. MSX-listed companies can already issue sukuk (Islamic bonds). Indeed, in November 2021 OMINVEST announced it would issue perpetual sukuk worth OR52m ($135.1m) for shares of its subsidiary, Jabreen Capital. As of July 2022 the market capitalisation of bonds and sukuk on the exchange was OR4.5bn ($115.7bn), or 20% of total trading value. The amended legislation provides for a possible separate sharia market with enhanced regulations.
Financial Sustainability
Another development that indicates the importance placed on innovation in capital markets was the November 2022 creation of the Financial Sustainability Committee under the auspices of the Ministry of Finance (MoF), the key government body that oversees public finance. The committee is headed by the minister of finance and reports directly to the sultan. Beginning operations in January 2023 and set to continue through to 2025, the committee will diagnose challenges in the sector and propose solutions.
The committee will undertake a phased approach to overseeing the development of the financial market. The aim is to create a financial sector that is conducive to private sector development and meets the objectives of Vision 2040. These include raising the efficiency of capital markets, augmenting liquidity, expanding investment opportunities and creating a framework for public-private partnerships to alleviate the burden on public financing for important projects. There are plans to facilitate private placements of bonds and sukuk, as current regulations – such as the need to publish prospectuses in both English and Arabic – can be an impediment. The CMA would be a depository rather than an approver under a direct deal between issuers and recipients.
The sultanate is intent on achieving emerging market status, which will allow active and passive funds that use the emerging market indices as benchmarks to invest in the MSX and its constituent companies, of which there are 110. Oman intends to join the FTSE Russell Emerging Markets Index in 2023, having rapidly implemented key criteria for making the transition from its current designation as a frontier market. Moving forwards, the CMA is exploring plans to allow the MSX to become a self-regulatory organisation, a change that will enable the exchange to adapt more quickly to innovations. The move would also allow the CMA to focus on opening new markets and offerings, such as a commodities exchange or a spot market for electricity. There are also plans in the works for a potential SME board, which would fall under the remit of the MSX.
Reform Agenda
In March 2022 the MSX announced that there were no longer limits on foreign ownership in joint stock companies. The aim of this decision is to increase the proportion of investment held by foreigners, which at the close of 2022 was 22.9% of the total. This figure primarily consisted of investors from the UAE, attracted to invest through roadshows and promotions. Following this, the MSX announced plans to introduce a market maker, with an eye to boosting liquidity and adding depth ahead of the listing of some 35 stateowned companies as part of Vision 2040 plans to widen the role of the private sector in the economy. In September 2022, amid a push to attract new listings, the exchange appointed Al Ramz, a leading brokerage and financial advisory firm in the UAE, and local firm U Capital as advisors.
The newly streamlined Oman Investment Authority (OIA) will facilitate the listing of state-owned entities. The OIA was created in 2020 when Oman combined its two wealth funds, the State General Reserve Fund and the Oman Investment Fund, as well as assets held by the Directorate General of Investments at the MoF. As of early 2023 the OIA had more than $40bn in assets under management across 40 countries. Investments are made in public and private entities, including in technology, real estate, mining and services. The majority of investments (61.5%) are in Oman, followed by North America (17%), Western Europe (9.3%) and Asia Pacific (4.7%).
In April 2022 the OIA announced it would divide its assets into two portfolios: the National Development Portfolio and the Future Generations Portfolio (FGP). The former comprises the assets of about 160 domestic companies that the OIA will manage to drive economic growth, support the budget through dividends and sell in line with a privatisation trend seen across the GCC. The FGP will manage foreign investment, including new investment opportunities in the UK in light of the drop in the value of the UK pound, as well as select local assets and real estate in a bid to secure sustainable revenue for future generations. Under the new structure, and in an attempt to stimulate private sector growth, the OIA plans to sell more than 20 assets with a value of around OR2.6bn ($6.8bn) before 2026.
Regional Cooperation
The MSX is leveraging Oman’s strong diplomatic standing within the GCC to develop new avenues to attract investment and draw on experience from regional partners. In December 2021 the exchange signed a memorandum of understanding (MoU) with Saudi Tadawul Group, the operator of the Saudi exchange, to strengthen bilateral cooperation. The exchanges will work towards an agreement to facilitate dual listings and common passporting, and develop best practices in environmental, social and governance (ESG) standards. The agreement also aims to share research and data. In a related measure, Oman is harmonising a programme to enable the issuance of green bonds, including a roadmap to govern the issuance of ESG-compliant securities, as well as how to treat and trade carbon credits.
Meanwhile, in May 2022 the MSX agreed on an MoU with its Iraqi counterpart outlining shared goals, as well as facilitating the exchange of information and the promotion of best practices. Moreover, in October of that year Oman and Bahrain signed a deal to establish the Bahrain-Oman Investment Company, which will provide a platform for joint private investment in the coming years. In a similar vein, in January 2023 MSX’s counterparts in Abu Dhabi and Bahrain announced that the Omani exchange had joined the Tabadul platform, allowing registered brokers to passport brokerage services among the three stock exchanges.
In March 2022 the CMA approved the licensing of the sultanate’s first global crowdfunding operator. Ethis is a sharia-compliant crowdfunding platform with existing operations in Malaysia and Indonesia. The move came after the CMA issued new rules on crowdfunding platforms in 2021, sparking interest from local and international financial technology companies. The regulation covers donations, rewards, equity and peer-to-peer (P2P) financing. Ethis offers equity and P2P options for potential investors to back new Omani companies.
Security
The CMA continues to work to improve the legislative and regulatory environment, such as by organising workshops on how to identify and combat money laundering and terrorism financing. The goal of these events is to nurture a risk-based approach, enhancing diligence and improving the reporting of suspicious transactions. Other workshops were conducted on targeted sanctions, cross-border customers and financial payments. The CMA continues to use its social media platforms to raise awareness about the ramifications of such crimes and their impact. Audits and risk assessments have also been carried out on selected companies.
On the regulatory front, In January 2022 the CMA invited specialist companies to submit proposals for a regulatory framework governing virtual assets. The first step of the two-part process will outline a legislative framework alongside related investor protections. The second phase will see the CMA train staff to improve their understanding of the space.
Performance
In 2022 the MSX recorded an annual gain of 17.6%, with the benchmark MSX Index closing at 4857.44 points, up from 13% and 4129.54 at the close of the previous year. The industrial and financial sub-indices rose 5.8% and 20.2%, respectively, over the course of the year, while the services sub-index dropped slightly by 0.3%. The MSX Sharia Index ended the year down by 5% after expanding by 1.6% in 2021. Market capitalisation reached OR23.7bn ($61.6bn) in 2022, up 7.5% from OR22.1bn ($57.4bn) the previous year. Around OR940.3m ($2.4bn) was traded, an increase of 14.9% from the previous year, across 134,475 trades. Market turnover reached OR940m ($2.4bn) in 2022, more than double the OR441m ($1.2bn) seen in 2020 and up from OR818m ($2.1bn) in 2021.
In 2021 total net profit of MSX-listed companies fell 3.7% to $1.4bn, as a 28.2% increase in bank sector profits failed to offset falls in all other main sectors. In the first half of 2022 the total net profits of companies increased by 4.6% year-on-year to OR388.7m ($880.3m). Bank Muscat reported the biggest profit with OR99.2m ($257.8m), accounting for more than 25% of total profits of the listed companies on the MSX, as 74 companies booked gains and 24 recorded losses. Omantel was the second-largest earner, recording OR37.3m ($96.9m), followed by National Bank of Oman at OR22.1m ($57.4m) and Sohar International Bank at OR18.4m ($47.8m).
Planned Listings
Oman is keen to follow a Gulfwide trend of stock debuts after Saudi companies raised nearly $9.3bn in 2021 amid a flurry of stateowned asset listings on public markets. In Abu Dhabi there were nine listings that year, including a $1.1bn initial public offering (IPO) of ADNOC Drilling in October. Dubai has also embarked on plans to list 10 government-owned companies as it seeks to double the size of its capital market. In Oman, the CMA hopes the listing of Abraj Energy Services, the drilling unit of state energy firm OQ, will incentivise other state companies and investors to follow suit.
A strong IPO would play an important role in promoting the sultanate’s transition from a frontier market to an emerging market. In September 2022 Abraj selected EFG Hermes, National Bank of Oman and Ahli Bank to advise on its planned IPO, which is tipped to raise as much as $500m.
The OIA is also seeking to spin off government-owned OQ Gas Networks (OQGN), owner and operator of the national pipeline grid. In 2021 OQGN posted revenue of $409m, while earnings before interest, taxes, depreciation and amortisation was $200m, underscoring its viability as an IPO candidate. The IPO is structured such that retail investors can receive discounted pre-IPO pricing, and a greater proportion of shares are available at the pre-IPO stage. A regulatory structure is in place that makes it easier for investors to exit their holdings, as part of the authority’s efforts to widen participation in the market. New regulations are also in the pipeline to encourage greater participation from private equity and venture capital, should corporates wish to grow without going public.
The OIA also plans to list an unnamed manufacturing company and exit its holdings in two projects of Asyad Group, a $4bn integrated logistics provider involved in domestic infrastructure like deep ports and free economic zones. Projects and resorts under the Oman Tourism Development Company, the sultanate’s largest hotel investment group, are also slated to go public. In December 2022 the OIA clarified its plans, stating it expects to bring in $1.3bn from divestments in eight sectors in 2023.
In November 2022 Oman’s largest sharia-compliant real estate investment fund (REIF), Pearl REIF, debuted on the MSX in the largest IPO in seven years. The listing attracted strong participation, receiving subscription demand of over OR35m ($90.9m) against the issue size of OR23.3m ($60.6m), with the stock gaining 4.5% on debut.
Consolidation & Delistings
One of the most significant developments in the mergers and acquisitions space is the pending tie-up between HSBC Oman and Sohar International Bank, expected to be completed in the second half of 2023 pending regulatory approval. In November 2022 HSBC Oman’s board approved a binding agreement to merge all assets and liabilities to Sohar in a cash-and-shares deal that will result in the former being dissolved. The merged entity will likely have a market value of $2bn once the deal is concluded.
That same month Al Ahlia Insurance confirmed it had an offer from National Life and General Insurance Company (NLGIC), a unit of OMINVEST, for 47.5% of its issued share capital. Pending completion of the transaction, Al Ahlia will become a joint stock company and be delisted. NLGIC has owned Al Ahlia’s parent company, RSA Middle East, since completing a takeover in July 2022. Also that year, OMINVEST acquired a 56.1% controlling stake in Takaful Oman.
In terms of the wider deal-making environment, oil majors continue to explore divestments in the sultanate. For example, in 2021 BP agreed to sell a 20% participating interest in Block 61 to PTTEP of Thailand for $2.6bn. Otherwise, Oman has yet to accelerate a pipeline of planned privatisations following the first sale of a major state asset to an overseas investor in December 2019, when State Grid Corporation of China agreed to acquire a 49% stake in Oman Electricity Transmission Company in a deal valued at about $2bn. However, reports that Muscat Electricity Distribution Company was planning to follow a similar path by selling a stake, potentially to China Southern Power Grid, had yet to come to fruition by February 2023.
Looking ahead, the Abu Dhabi investment holding firm ADQ and the OIA have reportedly identified investments worth $8bn in Oman, including new projects across sectors such as hydrogen, solar and wind, green aluminium and steel, as well as water and electricity transmission lines.
Sovereign & Corporate Bonds
Oman does not yet have sufficient sovereign bonds to create a yield curve, as doing so would require the issuance of multiple sets of securities with differing lengths of time to maturity. The government is exploring the establishment of a plan for sovereign bonds and sukuk. That being said, the CMA is exploring opportunities to expand corporate debt and bond issuance on the MSX. In 2021 Oman sold $1.8bn in nine-year sukuk, attracting over $11.5bn of interest in its second international bond issuance that year.
In April 2022 Omani sovereign bonds staged a rally following a ratings upgrade on the country’s sovereign debt by global credit ratings agencies. Standard & Poor’s (S&P) upgraded Oman’s rating to “BB-” from “B+”, with a stable outlook on the back of higher-than-expected oil income and encouraging progress towards reforms under Sultan Haitham bin Tarik Al Said, who ascended to the throne in January 2020. According to S&P, higher oil prices, rising hydrocarbons production and reforms helped to improve the country’s fiscal and external trajectory. Bond prices also rose at the time, with those due in 2032 rising to $1.15 on the US dollar, up from $1.14 to the US dollar prior to the upgrade.
Fiscal Discipline
In March 2022 Oman negotiated a $4bn loan with regional banks, refinancing a $2.2bn pandemic-bridging arrangement made in 2021 and demonstrating confidence in its finances. Indeed, the sultanate has made great strides in reducing its public debt burden, with the MoF pursuing a debt management strategy that delivered repayments worth about $4bn by March 2022, with a near equivalent sum paid in April of that same year.
Such fiscal discipline spurred further credit ratings upgrades. In August 2022 Fitch Ratings upgraded Oman to “BB” with a stable outlook. Explaining the change, Fitch noted that commitment to fiscal consolidation via the government’s medium-term fiscal plan in 2020-24 is expected to limit the deterioration of public and external finances.
Moreover, in October 2022 Moody’s Investors Service (MIS) changed the outlook on Oman to positive, reflecting the lowering of Oman’s debt burden and improvements in the country’s debt affordability metrics during the course of 2022, following an increase in international oil prices. “The prospect that oil prices remain elevated for the next few years affords the government additional time to advance its fiscal and economic reform agenda, increasing the likelihood that Oman’s structural vulnerability to cyclical declines in oil prices and its exposure to longer-term global carbon transition risks will be reduced,” the ratings agency stated. In September 2022 – for the third time in 12 months – S&P upgraded Oman’s credit rating to “BB” with a stable outlook, citing the improved balance of payments facilitated by fiscal consolidation measures and efforts to reduce the public debt.
The government hopes continued efforts to enhance Oman’s fiscal performance will result in additional credit upgrades. According to its “Guide to the State’s General Budget for FY 2023” published in January 2023, the sultanate would continue to improve its ratings and outlook over the course of the year. The ministry emphasised the importance of pursuing its fiscal consolidation measures in order to ensure sustainability and stability throughout the economy, as well as to protect the country against future external pressures – most notably a potential drop in oil prices, which credit ratings agencies have flagged as something that could have a particularly sharp impact on the local economy.
Furthermore, sovereign ratings upgrades had a positive knock-on effect on the creditworthiness of government-related issuers (GRIs). In October 2022 MIS revised its outlook on eight GRIs – including Oman Electricity Transmission Company, Dhofar Integrated Services Company, Omantel and Muscat Electricity Distribution Company – from stable to positive and affirmed their “Ba3” rating.
Outlook
Oman has moved swiftly to set in place the foundations for rapid capital market development. In recent years it has implemented a series of reforms aimed at facilitating investment, ensuring accountability and aligning local markets with international standards. As recent credit ratings upgrades indicate, investors are poised to build on the robust base in the medium term, furthering the sector’s expansive trend. This is further reflected in the fact that the collective wealth of the resident adult population is set to rise from $69.3bn in 2021 to $89.3bn in 2026, according to a July 2022 report from US-based Boston Consulting Group.
Such factors may lead to a steady expansion of the domestic pool of liquidity from which investors can draw. The population’s latent financing power and the government’s commitment and drive to see through rigorous reforms and encourage innovations mean that Oman’s capital market is one to watch among Middle Eastern and emerging capital markets alike.
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