With several companies floating their shares on the local bourse, local investors are having ample opportunities to deploy their funds
The Sultanate’s primary market has witnessed hectic activity with at least four national insurance firms floating shares on the local bourse. Although several other companies, including Muscat City Desalination Company, Mining Development Oman, Kunooz Oman Holding and Salalah Methanol, were contemplating to go public, the slackness in the secondary market prompted the promoters to wait for some more time.
Four insurance firms –Al Ahlia Company, Vision Insurance, Oman and Qatar Insurance and National Life & General Insurance Company, – have already listed their shares so far this year, while Arabian Falcon Insurance plans to tap the market soon. The new issues gave ample investment opportunities for local investors, who have been waiting for long to deploy their funds. Although the listing gains were limited, the issues were well received by the investing public.
These share offers were in line with a government stipulation for local insurance firms in Oman to float shares before this year-end. The Capital Market Authority had allowed 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 more than 20 insurance companies, only seven companies—Dhofar Insurance, Oman United Insurance, Al Madina Takaful, Takaful Oman, Al Ahlia Insurance, Vision Insurance and Oman Qatar Insurance—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 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, probably next year.
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 (such as mining) 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.
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 later. 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, earlier 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. Salalah Methanol, founded in 2006, is owned 90 per cent by state-run Oman Oil Co and 10 per cent by Takamul Investment Co, and has a methanol production capacity of 3,000 tonnes per day.
Oman has been considering privatisation of a wide range of state firms for several years but has not yet moved ahead with the programme.
Muscat City Desalination Company is also planning to float an Initial Public Offering (IPO) on the Muscat Securities Market (MSM) either this year-end or early next year. Muscat City Desalination Company (MCDC), which owns and operates the 42 million imperial gallons per day (MIGD) capacity Al Ghubra independent water project, has to divest a stake in the favour of the investing public as per an agreement with the Oman government. MCDC, which started operation in February 2016, was jointly promoted by Malaysia’s Malakoff International, Sumitomo Corp of Japan and Cadagua of Spain.
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. In fact, the net earnings of the corporate sector are getting affected by the hike in income tax, royalties of telecom and mining firms, 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 three quarters of this year. Companies that have announced their financial results so far this year 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 this year, 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.
Meanwhile, the Muscat Securities Market general index – MSM 30 Index -declined by 11.56 per cent or 673 points year-to-date (October 12) to close at 5,148.48 points, mainly on account of a bearish trend in the oil market. Although there was a recovery in oil prices, which touched close to $55 a barrel, the market faces glut even now. The Oman bourse recovered almost 7 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.
There is also a proposal to develop a separate bourse for small and medium enterprises with the help of Taiwan. However, the plan is getting delayed to the ongoing economic slowdown and the consequent sluggish trend in the secondary market.
Oman has over 90,000 small and medium units, which collectively contribute 13-14 per cent of the country’s gross domestic product (GDP).