Upward curve

The Muscat bourse is seeing a healthy spike in new listings, with companies keen to sell shares and investors willing to buy them. Published in The Gulf, November 2013

Summer is often a quiet time on the Middle East’s stock markets, and when Ramadan coincides with the hotter months of the year there is usually even less happening. But in Oman at least the market for new listings has continued to grow. There have been two initial public offerings (IPOs) since June and several more are due to be launched before the end of the year.

The most recent deal was for Sembcorp Salalah Power & Water Company, which made its market debut on the Muscat Securities Market (MSM) on 8 October. The company, which owns and operates the Salalah Independent Power & Water Plant in the southwest of the country, raised RO53.1 million ($138 million) through the listing of 35 per cent of its share capital.

There was healthy demand for the shares, not least because the company says it plans to maintain a dividend yield above the MSM average in the years ahead. As a result the offer was “comfortably oversubscribed” according to the main parent company, Singapore’s Sembcorp Industries, and the price rose in the early days of trading.

“Local institutional investors were the main buyers after listing,” says Nandakumar Chenicheri, assistant vice president at The Financial Corporation, a local brokerage. “Significant demand was seen from pension funds who generally have a long-term view of holding the stocks which provide regular and high dividends.”

Sembcorp Salalah was the only IPO anywhere in the Middle East during the third quarter of the year, according to global consultancy firm EY, and the second in Oman this year following the market entry of Sharqiyah Desalination Company in June.

These deals are just the latest in what has been a growing trend for new listings on the MSM over the past few years. In 2010 there were no IPOs, the following year had one and 2012 saw two. With several more deals earmarked for the closing months of 2013 it means that this year the MSM could once again double the number of IPOs.

In part this is down to regulatory issues. The two utilities companies that have listed this year did so to comply with their project agreements with the government. Last year’s IPOs were also explained by regulatory changes and in particular the opening up of the Islamic finance industry. The country’s two new Islamic banks, Alizz Bank and Bank Nizwa, both listed their shares on the MSM to raise capital for their rollouts.

The two banks are now being followed by a number of Islamic insurance (takaful) companies. Al Madina Insurance, which is transforming itself into a takaful operator, is one. As part of that process it is expected to list on the stock market before the end of December. Takaful Oman, a new insurance firm, is also planning to list.

Stakes in non-Islamic financial stocks are also being sold to the public. Oman International Development & Investment Company (Ominvest) is expected to sell part of its stake in Oman Arab Bank, a joint venture with Jordan’s Arab Bank, later this year.

The government is also helping to fuel the market for share offerings. On 17 September Oman Telecommunications Company (Omantel) announced that the finance minister had decided to sell part of the government’s shareholding in the business through a public subscription that would be open to Omani nationals and institutions. Some 19 per cent of the company’s share capital will be sold off, although no date has yet been announced for that to happen.

Alongside the IPOs there have also been rights issues, including the sale in September of 47.5 million new shares by Galfar Engineering & Contracting, raising RO13.3 million in the process. A number of further IPOs are already in the pipeline for next year, with local brokers naming Al Khalili Group and Al Maha Ceramics as likely candidates.

Notwithstanding the regulatory issues, it is the desire by companies to raise capital to expand that is the main reason for new listings. And the share sales are often met by strong interest from investors as the IPOs are usually priced conservatively.

“Companies are coming to the market to raise capital and expand,” says another local broker. “IPOs in Oman are usually always profitable, so many people gain from them.”

Of course, there is always the danger that some investments could turn sour and indeed the stock market has not always performed strongly over recent years. The main market index, the MSM 30, suffered a steep decline in late 2008 before recovering most of the lost ground in 2009. The market fell again during most of 2011 and did not start recovering until August 2012. Since then the performance has been more positive and the index has risen by around 15 per cent so far this year, from 5,761 points at the start of January to 6,651 points by 27 October.

The current health of the stock market is being driven by growth in the local economy. Government efforts to diversify the economy away from a dependence on oil and gas revenues is leading to large investments being made in tourism, infrastructure and other areas. At the same time the country is also enjoying the fruits of high oil prices.

But as Chenicheri points out, despite the flurry of IPOs, stock market investors are only able to gain exposure to part of the economy. As in the rest of the Gulf, many large firms prefer to stay private. In Oman that means that certain sectors, such as retail, are not well represented on the market although the regulator, the Capital Market Authority (CMA), is trying to address that issue.

“This year we have seen a positive trend on the MSM. The volumes are improving and you can see a pickup in IPOs,” he says. “But the MSM is not representative of the Oman economy. There are a lot of private, family-owned businesses that are not listed. There are companies that are doing very well but don’t want to come to the market. The CMA is trying to encourage more family businesses to list but it is taking time and it will depend on their requirement for capital.”

More listings may well be needed before Oman can be said to have a truly representative and mature stock market, but the signs are that it is at least heading in the right direction.