The Muscat Securities Market (MSM) is set to bounce back as a number of local companies prepare to launch initial public offerings (IPO) on the bourse over the next few months.
The MSM has been the worst performing of the regional exchanges since the beginning of the year. It has lost RO0.84bn ($2.18bn) in market capitalisation from January to the end of August. Market capitalisation at the end of January was RO10.95bn and was down to RO10.07bn for the week ending 8 September.
The MSM 30 Index, the local benchmark, has lost more than 16 per cent since the beginning of the year.
Like the rest of the region, the MSM has been affected by the contagion affects of the Arab Spring, the US downgrade and the European debt woes.The sultanate has experienced poltical protests this year. Demonstrations took place from January through to March with protesters demanding economic reform and an end to state corruption. But the protests were fairly muted with Sultan Qaboos bin Said al-Said quick to respond by announcing a list of reforms. While this put an end to the protests, it has done little to stop the downward trend of the bourse.
The government and Capital Markets Authority (CMA) are beginning to encourage further activity. The country’s commercial law states that companies need to float a minimum of 40 per cent of their capital in order to list on the MSM, but the Cabinet is currently reviewing the law in a bid to decrease the amount to 25 per cent.
Most recently, the cabinet approved SMN Power Holding to float 35 per cent of its stake in an IPO that is set to close on 10 October. Both Omanis and foreigners can apply for the RO24.59m IPO.
Oman Arab Bank (OAB) has secured the right to float 25 per cent, a first for the MSM.
Two more companies, Bank Nizwa and Al-Madina Real Estate, have expressed interest in going public. By lowering the minimum required to float, more family businesses will be inclined to list on the MSM and boost liquidity on the bourse.
Both OAB and SMN have opted for fixed price method as opposed to a book building process. SMN is offering its shares at RO3.520 per share.
“Book-building was not successful in Oman due to many issues and circumstances. For the most part it was not understood by retail investors and for it to be efficient and transparent, it requires an online option which is not available in Oman,” says Lo’ai al-Bataineh, deputy general manager of investment and development at OAB.
Yet even with these announcements, the MSM is likely to struggle. OAB announced it will be floating its stock sometime next year, without giving a deadline.
With the lack of liquidity, there is fear that the prices are too high compared to the market situation particularly for retail investors.