The CMA is working to encourage domestic firms to carry out IPOs.
According to the Capital Market Authority (CMA), which regulates Oman’s stock exchange and related activities, 2015 has the potential to be a big year for new listings on the Muscat Securities Market (MSM). While details are still relatively scant, according to the government two privately owned firms are expected to issue initial public offerings (IPOs) in the next few months, and a handful of additional listings are forecast before the end of the year. “We are expecting some IPOs this year, and two may happen by summer,” Ahmed Saleh Al Marhoon, the director-general of the MSM, told local media in mid-March 2015. According to the bourse the companies currently planning to list include a family-owned business and a utilities firm.
This news follows on a mid-2014 announcement by the government that it plans to sell shares in 11 of the more than 65 firms currently owned by the state, with the majority of this activity expected to take place between 2015 and 2017. As part of this plan, in February 2015 the Oman Oil Refineries and Petroleum Industries Company (ORPIC) announced that it planned to float shares in the near future. “There are serious talks at the Ministry of Finance to bring in some of the companies for share offers, but we have not received any formal applications from them, [though] we have discussed it in general,” Abdullah bin Salim Al Salmi, the executive president of the CMA, reportedly told local media in late February 2015. With these new listings in mind, local investors are looking forward to a busy year on the local bourse.
Building up
the upcoming IPOs follow on from a relatively busy period in new listings on the Omani bourse. Indeed, from the beginning of 2012 through the end of 2014 eleven firms issued shares on the exchange, compared to just four during the 2010-12 period. In 2014 alone shares of five firms were listed on the market and all were oversubscribed, indicating a good appetite for new equities among domestic investors. This is widely regarded as a major improvement on the few years following the global financial downturn, which were marked by slow growth and very little IPO activity on bourses throughout the region.
Major new IPOs in 2012 included the new sharia-compliant financial institutions Bank Nizwa and Al Izz Islamic Bank, both of which were established after the Central Bank of Oman announced that it would allow for the operation of Islamic financial firms in 2011. Both IPOs were oversubscribed. Bank Nizwa, which was established by the CMA in an effort to jumpstart development in the sector, attracted RO681mn – 11 times the set rate – from share sales, while Al Izz raised RO46mn, 1.15 the expected amount.
Major share listings on the MSM in 2013 included the Dhofar Poultry Company in January, the Sharquiyah Desalination Company in May; Sembcorp Salalah – which owns and operates the Salalah independent water and power plant in the Dhofar region – in August; Galfar Engineering and Contracting in September; and, in October, two local sharia-compliant insurance companies, namely Al Madina Takaful and Takaful Oman Insurance.
Recent activity
The first IPO on the MSM in 2014 was the government’s early April issuance of shares equal to 19 per cent of the total value of the Oman Telecommunications Company (Omantel), the state-owned telecoms operator. The listing, which raised around RO204mn for the government and was 1.5-2 times oversubscribed, was widely seen as marking a renewal of the state’s effort to divest. The Omantel share sale has been under discussion since the government floated 30 per cent of the firm in 2005, in a sale that was oversubscribed nearly 2.5 times. A plan to list another 25 per cent of the firm was underway in 2007, but was subsequently put on hold in 2008 due to the negative impact of the international financial downturn on the market.
Other share sales on the MSM in 2014 included National Gas, which raised RO5.86mn in a sale of 20 million shares in mid-April; and Al Maha Ceramics, which sold around 40 per cent of its shares in an IPO that raised RO7.9mn in September. Two independent power producers, namely the Al Suwadi Power Company and the Al Batinah Power Company, floated shares in May. Al Suwadi owns and operates the Barka 3 power plant, while Al Batinah owns and operates Sohar 2 power plant, both of which are 750-MW plants located in northern Oman. Together the plants have generated around 30 per cent of the electricity used in the nation’s northern grid since they were switched on in early 2013. Though each plant is operated independently, they are both owned by the same international consortium, with major shareholders including the local Suhail Bahwan Group and the Public Authority for Social Insurance; the Japan-based Shikoku Electric Power Company and the Sojitz Corporation; and France’s GDF Suez. The sale of 35 per cent of both Al Suwadi and Al Batinah was required under the consortium’s agreement with the government. The former firm’s share sale was valued at around RO30mn, while the latter’s came to around RO32.5mn.
Challenging period
The new share sales come at a crucial time for the MSM. The rapid decline in oil prices since mid-2014 has had a negative impact on bourses throughout the Gulf region. From a high of around $115 per barrel in June 2014, as of 13 March 2015 the price of Brent crude, the international benchmark, had dropped to $55 per barrel, while the price of West Texas Intermediate, the American benchmark, was down to $45 per barrel. Like its neighbours in the GCC, Oman has worked to reduce its reliance on petroleum exports in recent years, primarily by diversifying its economy. However, oil revenues continue to account for a majority of government revenues. In 2015, for example, hydrocarbons are expected to make up 79 per cent of the state’s total income. Though this figure is down from 83 per cent in 2014, it is clear that Oman will likely continue to rely on energy revenues for some time to come.
The MSMs recent performance in regard to new listings is in line with other exchanges in the region, many of which have seen an uptick in activity in recent years. “In 2014 we saw some impressive offerings such as the amount raised by National Commercial Bank [in Saudi Arabia] proving that the appetite for IPOs in the region had recovered,” said Steven Drake, the head of PricewaterhouseCoopers capital markets division in the Middle East, in a report issued by the firm in February 2015. “With oil prices at relatively low levels and a number of regional market indices lower than we have seen recently, the real challenge is whether or not investor appetite will remain. We should soon know the answer to this question as scheduled Q1 2015 IPOs look to come to market.”
Growth drivers
As a result, the Omani government’s efforts to sell off stakes in 11 state-owned firms will be central to sustaining activity on the bourse. As is the case throughout the region, listed firms comprise only a modest selection of the country’s business community. As of early 2015 an estimated 90 per cent of the Sultanate’s corporate entities were not listed on the MSM. In addition to the 65 firms owned by the state, a considerable number of these private companies are family-owned conglomerates of various sizes.
ORPIC, which in early 2015 announced an upcoming share sale, is widely expected to be one of the first publicly held companies to list on the MSM in 2015. Longer-term, the government recently announced that it plans to restructure its corporate holdings into three large holding companies, each of which would then be partially listed on the local bourse.
The state has also recently moved to make floating shares more lucrative to local family-owned conglomerates. Many privately held companies have traditionally been wary of going public, largely due to a perceived loss of control associated with selling shares on the MSM. Many local family owned firms are managed somewhat informally and keep their profits and other financial data secret. By not listing, many of these companies are looking to avoid the mandatory financial transparency and corporate governance requirements associated with floating an IPO. In an effort to encourage new listings from this segment of the economy, the CMA is in the midst of amending the Commercial Companies Law to make listing easier and to allow private owners to hold onto a larger share of their company while still taking part in the formal capital market. Though the revised law had yet to be issued at time of publication, the CMA has already formally reduced the minimum listing requirements for two family-owned firms that have expressed an interest in launching IPOs in 2015. TruckOman, which is owned by the Al Yousef Group, a local firm, is in the process of preparing to sell shares on the MSM. “We have been given a special exemption by [the government] to float 25 per cent of the share capital in the IPO rather than the 40 per cent as is required by law,” Mohamed Musa Al Yousef, TruckOman’s executive chairman, told local media in mid-February 2014. TruckOman, a major logistics services provider, is expected to carry out the share sale before the end of the year. The Kunooz Group, another local family-owned conglomerate, reportedly secured the same deal from the CMA in early March 2015, and plans to move forward with a share sale in the near future.