Investors respond positively to Sur IPO

24 May 2015

Listings in Oman are driven by government priorities

  • Investors showing strong appetite for initial public offering (IPO) of Phoenix Power Company
  • Preceding five power companies to list achieved value creation of about RO260m ($675.9m) for investors
  • Majority of IPOs on the Muscat Securities Market are by state-owned or highly regulated companies in the energy, financial and telecoms sectors

Investors are showing strong appetite for the initial public offering (IPO) of Oman’s Phoenix Power Company, the owner of the 2,000MW Sur independent power project.

According to the local Al-Maha Financial Services, the shares, listed at RO0.11 ($0.29), could rise 30 per cent to RO0.14 after it closes on 8 June.

“There is quite a lot of interest,” says a Muscat-based financial expert. “Usually power companies in Oman are known for good listing gains, long-term returns and dividends.”

Before the IPO, Axia Power, part of Japan’s Marubeni, owned 50 per cent of the shares. Japan’s Chubu Electric owned 30 per cent, Qatar Electricity & Water Company owned 15 per cent and Multitech, part of the local Bahwan Group, owned 5 per cent.

It is a 15-year power purchase agreement (PPA), but the plant has a useful life of 40 years and it may be extended. The company is expecting a 7 per cent yield.

The preceding five power companies to list achieved a value creation of about RO260m for investors, according to Al-Maha Financial Services.

But while IPOs in other Gulf countries are highly sensitive to oil prices, the majority of IPOs on the Muscat Securities Market (MSM) are by state-owned or highly regulated companies in the energy, financial and telecoms sectors.

“In Oman, IPOs are largely driven by government initiatives and regulations,” says Mayur Pau, partner and Middle East and North Africa (Mena) IPO leader at London-based EY. “Government licences for these sectors are issued on the condition that companies list after a certain amount of time, so the level of activity in the IPO market is to a certain extent dependent on regulator and government priorities.”

Oman has long had plans to privatise electricity distribution companies as well as power generation.

“They have spent the past five years setting up companies that make a small profit so they can market and sell them off,” says a power sector consultant based in Oman. “The infrastructure and capabilities are in place to go to market, and they have done some work on how they might float them. MEDC [Muscat Electricity Distribution Company] will be first but it won’t happen for at least 18 months.”

Consumer subsidies and public resistance to reducing them are a major obstacle.

The flotation of private companies is also held back by several factors such as the ability of the small market to absorb flotations, and certain regulations.

“The relatively high free-float requirement is a consideration for some companies looking at an IPO on the Oman market,” says Pau.

This means the original owners have less control following the IPO. However, some non-governmental activity is expected.

“In Oman, we are seeing IPOs coming up; the recent ones have all had good returns and we hope that will continue,” says the Muscat-based financial expert. “The next one is likely to be TruckOman, but there are no details on the offer price or performance yet.”

TruckOman is a logistics company specialising in the oil and gas sector. The company, 94 per cent owned by the local Al-Yousef Group, has not released financial figures.

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