MSM hots up
Omani companies are lining up to raise RO400 million from the securities market in the coming months. With the MSM index crossing the 6k mark in May, the market in Oman is unlikely to be the same again. P Aneel Kumar finds out what makes the MSM attractive for companies as well as investors, and looks at the companies planning to come up with fresh offerings

As the mercury soars at the beginning of another sweltering summer, heat of a different kind is on the rise on the floor of the Muscat Stock Market. The Market is gearing up for action in the coming days, especially with the Capital Market Authority announcing recently that at least four public issues will see light in 2007. Without doubt, trading on the MSM is not going to be the same.

The market index, which recently soared past the 6,000-point mark, might achieve even greater heights if its breadth and depth are expanded and that is exactly what is going to happen in the coming days. Though the CMA has talked about only four IPOs in 2007, market sources believe that at least seven to eight companies will take the primary market route to raise funds. Thus, the total size of this fund-raising activity could breach the magical RO400-million mark. If this happens – and there are no reasons why it should not – then the Sultanate can easily enter the big league of nations whose capital markets, by virtue of their hyper activity, mirror their economic growth.

The Growth Index
Traditionally, as the numbers suggest, the capital market in Oman has not mirrored the nation’s booming economy. While the Sultanate’s nominal GDP grew at a rate of 17 per cent in 2006, it was even higher at 24 per cent in 2005. Against this, the MSM 30 Index registered an increase of 14.5 per cent at 5,581.57 points at the end of 2006 up from 4,875.11 points a year ago. Similarly, market capitalisation registered a 5.8 per cent growth in 2006 at RO6,220.80 million as against RO5,878.50 million in 2005. “At 32 per cent, the market capitalisation-to-GDP ratio in Oman is amongst the lowest in the world. In the developed countries, this ratio is as high as 110-130 per cent. With these new public offers, things might change for the good, making the MSM 30 Index truly reflective of the Sultanate’s economy,” says Sankar Kailasam, vice-president (research) at Gulf Investment Services Company.

The main reason for the MSM 30 not being truly reflective is that while the Sultanate’s economy is primarily based on the oil and gas sector, there are virtually no oil and gas companies listed on the MSM. “It is for this reason that we are encouraging more and more family owned, limited liability companies to go public. Many companies like Galfar are now coming up with public issues,” says Abdullah bin Salem Al-Salmi, chairman, Muscat Securities Market.

And his efforts are bearing fruit, if one considers the growing number of companies that are approaching the CMA for raising funds and that too with issue sizes that have not been seen earlier.

For obvious reasons though these companies do not want to talk about their offerings. But prospective investors are already readying themselves to lap up the forthcoming opportunities. But what are these opportunities?

According to market insiders, the size of this opportunity could be in the range of RO300-400 million. The duration: next 12 months. The players: About 6-8 companies, including Galfar, Oman Oil, Takamul, Oman Merchant Bank, Vision Fund, Al Omania Financials, Gulf Investment Services, Sohar Power, BankMuscat, Salalah Flour Mills and Qatar-Oman Investment Company. Expected response: oversubscription by a good margin. Initial response: surprise.

Yes, the market has been taken by surprise over the planned fund-raising moves. “Generally, the summers are very dull in Oman as far as activity in the market is concerned. But it is surprising to see so much action this summer,” says Hari Kumar Varma, vice-president (research) at Vision Securities. But, why the sudden buzz in action?

Touch-Free Market
The Sultanate’s securities market can be best described as a ‘touch-free market.’ Even when global indices, including those of the GCC markets, were heading south, the MSM 30 Index was growing steadily. “This market has a history of giving average returns of around 14 per cent. The size of the market too is growing steadily. Valuations and fundamentals are really good. At the macro level, oil prices are likely to sustain at higher levels. These are all positive signs for the markets in medium to long term, which these companies want to take advantage of,” says Ritesh Jesrani, head of research at Al Madina Financial & Investment Services Company.

Fuelling this is the overall boom that the Sultanate’s economy is witnessing. “As the economy grows faster, companies need more investments to cash in on the boom. For example, the construction and engineering company, Galfar Engineering and Contracting, is going public with its eyes set on huge infrastructure projects that the government has lined up. It will be easier for the company to bag big-ticket projects if it is listed,” says M Sundararajan, executive vice-president & head of corporate finance at Fincorp, the lead manager for the Galfar IPO.

While Sundararajan did not divulge details about the Galfar IPO, market sources believe the issue size will be in the range of RO60-70 million. “This offering has been in the offing for quite sometime. It is going to be one of the biggest IPOs after those of Omantel and Bank Sohar. The promoters are likely to offer 40 per cent of the company’s capital. The issue might also be opened to other GCC nationals, so the response is likely to be overwhelming,” says Jesrani. Galfar is a construction company with a total workforce of 23,000, revenues in excess of RO260 million and branches in Brunei, the UAE and Qatar.

Note: The details of size and instruments of fund-raising have been based on market sources data and are subject to change.

After Galfar, it could be the turn of Takamul – a still-to-be-formed investment arm of government-owned Oman Oil Company. This company will promote secondary downstream industries, specially those units using polypropylene, paraxylene, benzene and aluminium. Takamul will have a paid-up capital of RO50 million and an authorised capital of RO100 million. The promoters will hold 60 per cent and the rest – RO20 million – will be raised from the public. And like Bank Sohar – which raised RO20 million through an IPO earlier this year – Takamul does not conform to the CMA’s stipulation of continuous operations for three years before going public. But Abdullah bin Salem Al-Salmi says under certain unique conditions in Oman, some companies’ IPOs are allowed on a case-to-case basis. And there’s no doubt among brokers and investors, Takamul’s IPO will be a huge success.

Apart from the Takamul IPO, Oman Oil Company is also seen raising funds by divesting its stake in its flagship, Oman Oil Marketing Company (OOMC), which is ranked seventh in OER Top 20. “Oman Oil currently holds about 41 per cent in OOMC. It is likely to retain 24 per cent and divest the rest to the public. OOC is likely to raise about RO13 million through this divestment,” says Sankar.

Adding to these, at least two banks are also seen tapping the capital market later in the year or early next year. “While BankMuscat is most likely to raise about RO100 million, Oman Merchant Bank will offer RO50 million worth of shares,” say sources. “Actually, BankMuscat has plans to raise about US$500 million (RO200 million). It might raise about RO100 million in Oman and the rest as GDRs (global depository receipts). The proceeds are likely to be used for its international operations,” they add.

On its part, the newly formed Oman Merchant Bank – promoted by Dubai-based Gulf Merchant Bank – is likely to raise about RO50 million. The bank has an authorised capital of RO100 million, the minimum that new banks in Oman have to have.

“No doubt these are some of the highly anticipated issues. But we also look forward to smaller issues such as those of Sohar Power. This IPO is expected soon, and is likely after the government meets certain obligations as part of its agreement with the WTO. The details are still awaited,” says Jesrani.

Besides, the market could also witness some funds and rights issues. Vision has already started its open-ended Emerging Oman Fund, with a minimum size of RO2 million. “The primary objective of the fund is to achieve growth through capital appreciation and dividends by investing in equities listed and/or to be listed on the MSM,” the company says in its offer document. On the rights issues front, Al Omania Financial is raising about RO8 million. GIS too plans to come out with an RO3-million rights issue while Salalah Flour Mills is finalising the details of its issue, with market sources saying that the company is planning to raise half a million riyals.

Widening Horizons
Apart from these issues, other investment doors are also opening up for Omanis. For example, the newly formed Qatar and Oman Investment Company – with a capital of US$82.5 million – is likely to get listed on the Doha Securities Market. The promoters (Qatar Investment Authority and the Government of the Sultanate of Oman) have subscribed to 12 million shares, while the balance – 18 million – shall be offered to the public, equally in Qatar and Oman.

In all, as the MSM chairman puts it, it is a win-win opportunity for all players. But the real question still remains. Does the market have the capacity to absorb these issues? “It is a fact that of late the markets have not been performing well. For instance, the average return so far in 2007 is just about 5-6 per cent. Some of the bad experiences of Omantel IPO are still fresh in the minds of investors. But still, the valuations and fundamentals are very good. There might be some problem with regard to liquidity, but if properly managed, this short-term crisis can easily be overcome,” says Jesrani.

Whatever may be the expectations or anticipations of the players, the euphoria in the market is quite apparent. “More than US$26 billion worth of projects have been announced in Oman in 2007. The returns on MSM for the last five years have surged to 267 per cent. Why don’t we take advantage of this boom?” asks a banker.

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