Oil IPO is latest step towards Oman’s emerging market status

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• OQEP listing could raise $2bn
• Potential boon for blue-chips
• Oman is on MSCI Frontier index

An Omani state oil company’s $2 billion initial public offering will boost the sultanate’s chances of eventually being reclassified as an emerging market by the world’s leading stock index providers.

If achieved, Oman’s blue-chips will receive sizeable inflows from passive funds that track the MSCI and FTSE emerging market benchmarks, increasing bourse turnover and likely company valuations too.

Oman’s state energy company, OQ, this month announced it would sell up to a quarter of its exploration and production subsidiary, OQEP, through an IPO that could raise up to $2 billion, according to media reports.

That would break the previous record set by OQ Gas Networks (OQGN), OQ’s pipeline business, which raised OMR288 million ($749 million) through selling 49 percent of its shares in an IPO last October.

OQEP will become the second upstream oil and gas company – after Abraj Energy Services – to list on Muscat’s bourse. As such, it will make the exchange more representative of Oman’s wider economy, says Hunaina Banatwala, vice president for institutional sales for Muscat’s Ubhar Capital.

Oil generates about 34 percent of the country’s GDP,  according to government data.

As well as raising money for the government, Oman’s part-privatisation programme also aims to help the country join the MSCI and FTSE emerging market indexes.

Bank Muscat, OQEP and Bank Sohar – once it completes a rights issue – will have market capitalisations above the $2.19 billion minimum needed for inclusion in MSCI’s emerging markets index, Banatwala says.

He adds that a country must have at least three listed companies of this size to be included in the benchmark.

OQEP’s flotation is “a major event that could eventually lead to Oman being upgraded to emerging market status,” says Joice Mathew, head of research at Muscat’s United Securities.

“Past history indicates that if the IPO price is right and if it is placed properly and marketed properly there will be more than enough demand from subscribers.”

More than $1.3 trillion in assets under management are benchmarked against MSCI’s emerging market indexes, while as of 2022-end ETFs tracking the FTSE Emerging Index had an AuM of $120 billion.

“The government-owned companies doing IPOs will attract more volumes, more turnover and so will become of interest to regional and foreign investors,” Banatwala says.

“Oman’s challenge has always been the size of listed companies – they’ve been too small for major investors. Now, though, we have larger companies listing with a strong track record of profitability and stable dividends.”

Last year 4.4 billion shares were traded on Oman’s bourse, up 3.5 percent versus 2022. The value of shares traded rose 14.0 percent over the same period to $2.6 billion. Despite these increases, Oman’s index fell 7.1 percent last year.

The traded value of shares was $1.3 billion in the first half of 2024, up 31 percent year on year, according to AGBI calculations based on bourse data.

This increase can be attributed partly to six Omani companies appointing liquidity providers to support trading in their shares: Oman Telecom Co (Omantel), Bank Sohar, OGQN, Abraaj Energy, Oman Arab Bank and Renaissance Services.

“Anybody who wants to get in can get in easily and likewise anybody who needs to get out can exit,” Banatwala says.

“Oman historically has struggled for liquidity. So, investors who wanted to sell had to do so at a significant discount in order to find a buyer and those who wanted to buy would have to pay a premium. That's not the case anymore, at least with these stocks.”

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As of September 16 Oman’s index was up 3.4 percent year-to-date, a performance only Kuwait and Dubai have bettered.

“When Oman joins the MSCI or FTSE watchlists, foreign investor activity should increase as foreign investors take positions ahead of a potential upgrade,” Mathew says.

MSCI typically announces each June whether it is adding any countries to its watchlist for a potential change in their market status.  

Next steps

Oman’s bourse has taken other measures to meet the emerging market index inclusion criteria. These include extending trading hours and increasing foreign ownership limits in most companies.

Discussions are ongoing to reduce the exchange’s settlement cycle from T+3 to a shorter time frame. T+3 means it takes three business days for a trade to be completed. T+2 is now common on bourses worldwide.

“We’re ticking all the boxes and it's just a question of time before Oman is put on the watch list for upgrade,” Banatwala says. “We understand it's a journey and it may take some time, but we’re headed in the right direction.”