Although the Sultanate’s market regulator Capital Market Authority (CMA) has been taking several measures to strengthen the stock market, the slackness on the bourse is still continuing. However, the investor community expects a recovery in the coming months in the aftermath of a firm trend in oil prices and a steady recovery on economic front. In a move to allow real estate firms to mobilise funds, the market regulator has allowed establishment of real estate investment trust (REIT) funds. The real estate companies are expected to float funds to raise capital from the investing public this year. REIT funds are securities that sell like a stock on the bourse and invest in real estate directly, either through properties or mortgages.
Some of the real estate developers are also expected to create REIT funds to transfer part of their assets under the scheme. The new regulation, which was announced by the CMA in January, 2018, permits funds to own residential complexes with an area not less than 10,000 square metres. Real estate investment funds can mobilise money directly through issuance of bonds or sukuk up to 60 per cent of the total assets. Foreign investment is allowed up to 100 per cent, and the fund has to offer a minimum of 40 per cent of its capital to the public. REIT funds are allowed to establish special purpose vehicles to obtain tax exemption.
The minimum capital for establishing a REIT fund is fixed at RO10 million. The funds will be available for public subscription, and the special purpose vehicle has to distribute not less than 90 per cent of the annual profits to the holders of its units. The new regulation enables property developers to unlock their assets and allows small investors to invest in real estate projects. As per the new regulation, the funds can invest only in real estate projects that are 90 per cent complete. REIT funds, which will be listed on the Muscat bourse, will also attract foreign investment and create liquidity in the local bourses.
Among GCC countries, Saudi Arabia, Bahrain, and the United Arab Emirates have allowed the listing of REIT funds. The CMA will soon begin a marketing campaign to attract companies from within the country and outside to float REIT funds. 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 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). Another long-term strategy is to privatise the Muscat Securities Market (MSM), after bringing the bourse under the ownership of State General Reserve Fund (SGRF). CMA has also been taking measures to ensure timely, factual, transparent and complete disclosure of the material information by listed entities. Of late, trading in several companies, including few blue chip stocks, were suspended briefly on lack of complete information while disclosing board decisions and information related to contracts.
The penalty for incomplete disclosure include suspension of trading until full disclosure is made, while insider trading will attract a fine twice the value of profit generated from such a trade. In fact, CMA and the MSM are strictly practicing these policies now, which is in the best interest of the market. Also, the disclosure guidelines of the Oman bourse are much more prudent than some of the regional markets. But the bourse has been going through a bearish phase. The Muscat Securities Market general index – MSM 30 Index -declined by 10.49 per cent or 534.3 points year-to-date (May 24) to close at 4,564.45 points. Although there was a recovery in oil prices, which touched close to $80 a barrel, the local bourse is yet to recover. As many as 135 companies and bonds are listed on the Muscat bourse.Although the primary market witnessed better activity with at least five insurance firms floating shares on the bourse, the overall activity has subsided now.
Several other companies, including Mining Development Oman, Kunooz Oman Holding and Salalah Methanol, are contemplating to go public, but the slackness in the secondary market prompted the promoters to wait for the market to recover to get a better valuation.
Five insurance firms –Al Ahlia Company, Vision Insurance, Oman and Qatar Insurance, National Life & General Insurance Company and Arabian Falcon Insurance – have already listed their shares toward the end of 2017 and early 2018. 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. 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.
Another state-owned firm – Mining Development Oman – also plans to float an initial public offering on the Muscat bourse. 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 state-owned firm will carry out both downstream (such as mining) and upstream activities, which include 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 in line with 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 material 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.