Macroeconomic impact


Oman, along with other Gulf bourses, witnessed a continued bearish phase, mainly on account of a phenomenal fall in crude oil prices and regional unrest triggered by the crisis in Yemen. Muscat Securities Market (MSM) dipped to a recent low, before recovering to 6,405.64 points on May 20, 2015 indicating merely a one per cent year-to-date gain. In fact, the market plunged to as low as 5,409.41 points in December 2014 on weak sentiment gathering momentum in the fourth quarter from as high as 7,484 points in the third quarter, indicating a fall of almost 28 per cent. This was triggered by a fall in oil prices, wiping out the early gains. Crude oil prices declined by more than 55 per cent to rule below $45 a barrel to touch a five-year low last year. Yemen crisis and subsequent bombing by Saudi-led coalition also affected investor sentiment in the Gulf region.

Collateral factors

However, stock market indices in the Gulf recovered in tandem with a smart recovery in crude oil prices in the second quarter of 2015. As much as 79 per cent of Oman’s government revenue is from hydrocarbon resources. An increase in natural gas price for industries, coupled with concerns on various proposals mooted by Majlis Al Shura towards the end of last year also affected the investor sentiment. Oman government has doubled the price of natural gas sold to industries located within various industrial estates, apparently in a move to enhance government revenue at a time oil price is falling.

Last year, Muscat bourse’s turnover touched RO2.27 billion amid a phenomenal volume of 6.71 billion shares changing hands. In fact, the daily turnover works out to more than RO9 million. Also, the market capitalisation of the bourse touched RO14.56 billion, up from RO14.16 billion posted in 2013. Market capitalisation surged ahead from 2013 onwards mainly due to a robust growth in most of the counters. The newly listed companies such as Al Maha Ceramics, two power companies, Sembcorp, Shariqyah Desalination Co, Al Madina Takaful aided the growth in both turnover and traded volumes on the bourse. According to MSM statistics, as many as 124 shares were traded on the bourse in 2014 – with 73 shares falling, 37 shares moving up and 14 stocks remaining intact.

MSM, which declined by 7.2 per cent last year, emerged as the second worst performing bourse among GCC states. Qatar emerged as the best performing bourse among GCC states (18.4 per cent), followed by Bahrain (14.2 per cent), Dubai (12 per cent), Abu Dhabi (5.6 per cent), Saudi Arabia (-2.4 per cent), Oman (-7.2 per cent) and Kuwait (13.4 per cent). Better activity is coming back to the bourse with the recent public offer of Phoenix Power Co, which raised RO56.3 million in June, 2015. The issue received better investor response as power firms in Oman are known for offering compelling listing gains in their initial public offerings. Besides the listing gains, these companies also have a proven track record of value creation, offering returns in the form of capital appreciation over a period of time. The previous five listed power companies made a value creation of around RO260 million to the investors.

The defensive business model and steady cash flows have helped the Omani power companies to pay regular cash dividends to investors, offering a superior dividend yield as compared to the market. For instance, Phoenix Power Company has projected consistent dividend payments, offering an attractive average annual dividend yield of 7.3 per cent between 2015 and 2019 at the issue price of RO0.110 per share. This compares with an average dividend yield of 5.9 per cent for other power companies listed on the MSM. As the largest power plant in Oman, the contracted plant’s power capacity of 2,000 megawatt represents 27.8 per cent of the main interconnected system.

Privatisation process

Investors are also waiting for more primary issues from Oman’s state-owned companies. Oman government is set to divest its stake in several state-owned firms, in a move to cover an unprecedented budget deficit of RO2.5 billion in 2015.

The semi-government or state-owned companies that are identified for privatisation include Majan Glass, and Muscat Electricity Distribution Company. Further, Oman Oil Company, the investment arm of the Oman government, may sell shares in some of its subsidiaries to the public. Oman Oil’s subsidiaries include Abraj Energy Services, Oman Gas Co., Oman Trading International and Salalah Methanol.

The government will divest its stakes in these companies either by way of an initial public offering or selling ownership to strategic partners or a combination of both. The planned privatisation programme of a number of state-owned firms is under preparation and would be carried out in the next three years between 2015 and 2017. Last year, Oman government said the plan was to divest stakes in as many as eleven state-owned companies via initial public offerings in an apparent move to spur stock market trading and pass on the benefits of corporate earnings to the nationals. Like in the previous divestment programmes, priority will be attached to profit making companies. The successful conclusion of divestment of 19 per cent state ownership in Oman Telecommunications Company (Omantel) a couple of years ago is an encouraging sign for the authorities to proceed with the plan, which is also supported by the fact that the financial system has ample liquidity.

Oman government has already announced floating of its maiden sovereign Sukuk issue of RO200 million, which will be through a private placement. The government sees the debut sovereign Sukuk issue as a benchmark transaction that will form a key milestone in the evolution of the Sukuk market in Oman, while providing an essential domestic liquidity management instrument for Omani Islamic financial institutions and an alternative to conventional financial institutions. The sovereign Sukuk is primarily aimed at addressing the need of the nascent but fast growing Islamic financial sector in Oman. The Sukuk will serve as a domestic investment and liquidity management instrument to Islamic financial institutions in the country. Once the government issues sovereign sukuk, private entities will also enter the market. This, in turn, will eventually develop a vibrant sukuk market, which is important for the overall development of Islamic finance.

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