Finance

BREAKING RECORDS
MSM is on a roller coaster ride this year. MSM-30 Index started the year at 5,581 points. It touched its peak in 2007 on November 26 at 8,419 points – a jump of over 50 per cent in less than 11 months.

A consistent growth in corporate earnings coupled with better transparency and disclosure norms have made Omani stocks attractive for regional investors. Almost all sectors, but specially banking and manufacturing, have been doing well, aided by a high oil income. In fact, the expectation of better corporate earnings continues to drive the market. Regional institutions, who did not take much interest in the MSM a few years ago, today have a positive outlook on the performance of the Omani market.

One does not have to look far to seek the reasons for this renewed confidence of foreign institutions in the Omani bourse. The country’s GDP growth stood at 8.3 per cent in June 2007. Also, the average net earnings of 30 leading companies, which represent the MSM 30 Index, soared by 29 per cent in the first half.
 
Reflecting the trend, the MSM general index soared to touch an all-time high of 8,419 points on November 26.

The market regulator – the Capital Market Authority (CMA) – has taken a series of measures to strengthen transparency and disclosure norms and thereby attract foreign institutional investors. The latest move was banning board members and top management from trading in shares of their respective companies during the period they possess material information undisclosed to the public.

In the case of financial results, the ban is between the end of every quarter and the day on which the company releases financial information to the bourse. All listed companies, barring holding firms, are required to announce financial results within 30 days of the end of every quarter. Also, the market regulator has decided to impose fines on those who fail to disclose financial and other information before the stipulated time. This fine ranges from RO1, 500 to RO250, depending on the type of violation. Earlier, fines on defaulting companies were decided by a disciplinary committee of the CMA on a case- on- case basis.

These new norms, which were introduced on October 1, are aimed at eliminating insider trading, which in turn will protect the interests of small investors. Other initiatives like the relaxation of IPO rules for newly established companies, new norms on corporate governance and the formation of the Investors’ Trust Fund for returning unclaimed dividend money have also helped gain the confidence of investing public. Last year, the CMA decided to allow newly-established companies to raise funds from the investing public, overturning the rule that only a three-year-old company could tap the capital markets.

Although the MSM is a well-regulated market, it does lack stock liquidity. In other words, regional institutions, which deal in large volumes, find it difficult to find large volumes. Barring a few companies with a large shareholder base, the stocks of fundamentally-strong companies in large volumes are not available on the MSM. In order to enhance market depth, CMA has appointed an international consultancy agency – AtosEuronext – to conduct a study on activating the bourse for another five years. This Paris- based consultancy agency has suggested sweeping changes on several fronts, including the introduction of new instruments, the privatisation and effective promotion of the bourse. It also mooted the introduction of derivatives’ trading as part of its bigger plan to enhance the depth of the market. The market authorities will study the proposal, along with feedback from intermediaries before allowing trading in derivative instruments. Presently, the MSM deals in two financial instruments – equity and bond.

The IPOs of Bank Sohar and Galfar Engineering and Contracting have also enhanced trading activity on the bourse. Bank Sohar’s RO20 million share offer was oversubscribed by more than five times early this year. The stock also witnessed much appreciation after listing on the bourse.

Similarly, Galfar’s RO60 million IPO was also oversubscribed by 13.5 times with the company raising RO873 million. The IPO collection was an all- time record in Oman’ s corporate history, even surpassing Omantel collection of RO700 million for its RO288-million issue. Galfar’s share offer received an overwhelming response from regional investors, specially institutions who were looking for quality stocks. The company offered 100 million shares to the investing public.

Three more companies – Takamul, Oman Merchant Bank and Oman Oil Marketing Company – are in line to tap the capital market. Takamul, an investment arm of the Government, is planning to float a RO20 million IPO. The Oman Merchant Bank, which received an initial approval from the Central Bank of Oman, is proposing to float an IPO before the year-end to raise part of its paid- up capital. Also, the Oman Oil Company announced earlier this year its plans to divest 3 per cent stake in the Oman Oil Marketing Company (OOMC). However, these companies have not yet finalised a timeframe for floating their issues.

The banking industry in Oman registered exponential growth during the first nine months of 2007. The net profit of the country’s commercial banks increased by 27.1 per cent at RO145.4 million in this period.

There was an increase in the deposit rate also, from 1.81 per cent in September 2006 to 1.99 per cent in September 2007. However, there was a marginal decline in the lending rates from 7.46 per cent from 7.46 per cent to 7.33 per cent in this period. Also, there was a marginal decline in the interest spreads from 5.65 per cent to 5.34 per cent.

As on September 30, 2007, the total assets of commercial banks in the Sultanate surged by 34 per cent to reach RO8.98 billion. While the increase in credit, which accounted for 64 per cent of the bank’s total assets, was 28.6 per cent at RO5.94 billion, the foreign asset portfolio went up by 35.8 per cent from RO1.37 billion to RO1.86 billion, thanks to the short-term interest rate differential in favour of US dollar and easy domestic liquidity conditions.

As for the private sector deposits, which constituted 80 per cent of the total deposits in the industry, the CBO said it was basically broad-based, with demand, savings and time deposits increasing by 45.2 per cent, 32.9 per cent and 16.9 per cent, respectively. At the end of September 2007, the core capital and reserves of the banks amounted to RO900.4 million.

The repository rate of CBO swelled from 6.33 per cent in September 2006 to 6.55 per cent in September 2007. The central bank’s certificate of deposit rate was lower at 3.09 per cent in September 2007 from 4.17 per cent in September 2006. The inter-bank rate of CBO stood lower at 2.6 per cent in September 2007 compared to 3.78 per cent in September 2006.

The broad money supply (M2) increased by 29.6 per cent to RO5.46 billion as on September 2007 while M1, which primarily denoted the currency held with public and demand deposits, registered a growth of 37.9 per cent the CBO report added.

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