Capital market: In consolidation mode

Five to six companies are planning to enter the market with share offers

MSM

The primary market in Oman will witness a hectic time with five to six companies, including fivenational insurance firms, planning to enter the market with share offers. As there was no public issue in the last one year or so, the new issues will give ample opportunities for investing public, who have been waiting for long to deploy their funds for quite some time.

Five insurance firms – National Life & General Insurance Company, Al Ahlia Company, Oman and Qatar Insurance, Vision Insurance and Arabia Falcon Insurance, which was previously known as Falcon Insurance– have either entered or entering the market with their share offers. The companies have already initiated the process by appointing issues managers and submitting prospectus with the Sultanate’s market regulator Capital Market Authority (CMA). These share offers are in line with a government stipulation for local insurance firms in Oman to float shares before August 2017. The Capital Market Authority had recently approved a request from local insurance companies to offload a 25 per cent stake belonging to promoters, instead of the normal 40 per cent disinvestment made in such IPOs.

In 2014, the Omani government had directed local insurance firms to float shares on the Muscat Securities Market within three years, besides raising their minimum capital to RO10 million from RO5 million.

 

Although the Sultanate has 22 insurance companies (11 locally incorporated and 11 branch operations of foreign firms), only four companies—Dhofar Insurance, Oman United Insurance, Al Madina Takaful and Takaful Oman—are currently listed. Of these, Al Madina Takaful and Takaful Oman are Islamic insurance firms.

 

The CMA has been encouraging mergers to make national insurance firms to make them financially strong to withstand competition and to take advantage of economies of scale. A higher capital base will make these institutions large enough to underwrite more risks and retain premiums within the country. Accordingly, Muscat Insurance and Muscat Life Insurance have recently merged with the group’s holding firm to make a single entity.  Another state-owned firm – Mining Development Oman – also plans to float an initial public offering on the Muscat Securities Market before the end of 2017. The company, which was promoted by four state-owned investment arms of the Oman government—the State General Reserve Fund (SGRF), Oman Investment Fund (OIF), Oman Oil Company and Oman National Investments Development Company (Tanmia)— said that the promoters will bring in RO60 million and the remaining RO40 million will be raised from the investing public through an IPO.

 

Mining Development Oman will be a holding company, which will create subsidiary firms for developing different types of metal ores/minerals, such as copper, limestone and gypsum. These subsidiary firms will have partners, who have expertise in developing different types of minerals. The newly-formed firm will carry out both downstream  and upstream activities, which include an exploration and extraction process. The company also plans to collaborate with the Omani private sector, whether as a partner, contractor, supplier or promoter of projects. The formation of a major firm for developing the mining sector is part of a larger government strategy since mining is expected to drive non-oil income, which is part of the diversification plan of the government during the ninth five-year plan period. Besides, it complements two other important sectors—the logistics sector and downstream industries. The Sultanate also has facilities at the Sohar and Salalah ports that will enable companies to export minerals.

 

Kunooz Oman Holding, a leading player in mining, quarrying, transportation and construction materials sectors in the country, also plans to float a share offer sometime in 2017. The company has obtained an initial approval to offer at least a 25 per cent stake in Kunooz Oman to the investing public through a share offer on the Muscat bourse.

 

Oman Investment Fund, a sovereign wealth fund, recently acquired 20 per cent of shares in Kunooz, which has a paid up capital of RO16 million. Apart from these plans, talks are also on to offer shares on some state-owned downstream energy firms to the public in a move to raise funds to cover deficit. The companies include Salalah Methanol Co and a state-owned drilling company. Although there were serious talks about diluting stakes in 11 state-owned firms for the last four years to partly cover deficit, there was not much progress on that front.

 

A sizable portion of the dividend money paid by listed companies this year will come back to the market by way of investment in primary issues. Companies listed on the Muscat Securities Market have paid a total dividend of RO418 million for 2016. MSM 30 companies alone, according to market sources, have achieved a 16 per cent growth in net earnings at RO630 million in 2016. As many as 130 companies are listed on the Muscat Securities Market, but a section of listed firms could not offer any dividend due to losses. And the net earnings of the corporate sector will be hit by a recent hike in income tax, power tariff of large consumers and service charges of customs department.

 

In fact, an increase in corporate income tax to 15 per cent, from 12 per cent has already started hurting the net earnings of companies in the first quarter of this year. Companies that have announced their financial results for the first quarter of 2017 said they have taken into consideration the revised tax rates. The increase in tax rate will have a negative impact on dividend distribution as well from this year. Withholding tax on dividends to non-residents might affect the distribution policy of power utilities as the majority shareholders of these companies are foreign non-resident entities.

 

In February 2017, corporate income tax in Oman was increased from 12 per cent to 15 per cent and certain exemptions in Oman’s existing tax law were scrapped with effect from the tax assessment year 2017. The government has also cancelled the tax exemption limit for companies earning a net profit of below RO30,000. Taking into consideration the condition of the small enterprises, some tax provisions were introduced specifically for them. Simple procedures for tax declaration, audit, tax assessment and record keeping were also introduced. The Muscat Securities Market general index – MSM 30 Index -declined by 5.45 per cent or 315 points year-to-date (April 24) to close at 5,466.61 points, mainly on account of a bearish trend in the oil market. Although there was a recovery in oil prices, which touched $50 a barrel, the market faces glut even now. The Oman bourse recovered almost seven per cent in 2016, thanks to a recovery towards the end of the year. The Omani bourse was the second best performing stock market in the Gulf region, after Dubai, which soared 12.06 per cent.


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