Oman hopes to emulate Gulf neighbours in IPO push

Muscat Stock Exchange

• Oman launches part-privatisation scheme after Dubai and Abu Dhabi
• Muscat Stock Exchange listings have been moderately successful
• Oman aims to list 35 state enterprises in the next five years

Oman has belatedly launched a renewed part-privatisation drive and plans to float stakes in dozens of state-owned companies, following the success of similar programmes in Dubai and Abu Dhabi.

The sales aim to boost Omani state coffers and diversify equity listings on the rebranded Muscat Stock Exchange (MSX) – until April 2021, the Muscat Securities Market. But lacklustre trading activity could hurt its efforts to be reclassified as an emerging market by indices providers such as FTSE and MSCI by the end of 2024.

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Eleven UAE initial public offerings (IPOs) last year raised a combined $14 billion, according to S&P Global Market Intelligence, as the Dubai and Abu Dhabi governments floated minority stakes in companies spanning industries including utilities, energy, real estate and transport.

Oman hopes to hit similar targets, albeit on a smaller scale. In March Abraj Energy Services, a drilling subsidiary of national oil company OQ, sold 49 percent of its shares in an IPO, raising $244 million in what was the country’s largest flotation since 2010. It received orders of $2 billion.

“Omani investors were very excited about regional IPOs and were waiting for Oman to begin too,” said Joice Mathew, United Securities head of research in Muscat.

“Abraj has decent growth plans and the IPO was well marketed and fairly priced – it will provide a significant dividend yield. All these factors contributed to the high subscription levels.”

Abraj’s IPO sold at a 10 percent discount for retail investors and the company also said it would pay a dividend soon after listing, which helped to swell demand.

There were some small-scale Omani IPOs in the preceding years before Abraj went public, including flotations by insurance companies, real estate fund Pearl and desalination company Barka.

“These IPOs were successful in that they were fully subscribed, but they didn't garner much retail participation and after listing haven’t seen much trading activity,” said Hunaina Banatwala, vice president for institutional sales at Muscat’s Ubhar Capital.

“The response for Abraj was unbelievable – from retail investors and local and foreign institutions.

"We hope and expect this heightened interest will continue for upcoming IPOs, because they’re good companies with strong profits and will be decent-sized offerings. Valuations, like with Abraj, should also be attractive.”

Utility listings

OQ Gas Network, another OQ subsidiary, has invited banks to pitch for bookrunner roles in its upcoming IPO, Reuters reported on March 27, citing unidentified sources estimating the sale could raise more than $500 million.

Abraj was the first upstream oil company to list on Muscat’s bourse, while OQ Gas Network will be the first midstream business to join.

“We foresee a good response, especially with oil prices holding firm,” said Ubhar Capital's Banatwala.

Oman’s sovereign wealth fund, the Oman Investment Authority (OIA), has reportedly also been mulling an IPO of its water company Majis Industrial Services.

“We expect Oman to see some IPO activity this year as the government looks to reduce sovereign debt and support ambitions for Oman to be added to emerging market equity indices,” said Akber Khan, senior director of asset management at Al Rayan Investment in Doha.

Unlike in the UAE, where governments often sell a single-digit percentage of shares in going public, Omani companies conducting IPOs will float at least 25 percent.

This is partly due to bourse regulations but also because the small size of the companies involved means selling single-digit stakes would not be worth the time or expense, nor be attractive to investors. As of March 31, Oman’s market capitalisation was $61.97 billion. That compares with Abu Dhabi’s $750 billion as of April 18.

In March 2022 the CEO of Muscat’s bourse said Oman aimed to list 35 state-owned enterprises in the following five years.

“It might be more like 20 to 25, but the direction is clear,” said Banatwala.

Prospective businesses are undergoing capital and board restructurings.

“Many state-owned companies rely on government support, both financial and organisational,” said United Securities’ Mathew. “There’s a lot of work going on in the background to get them ready to IPO – they need to be financially self-sufficient and install private sector-oriented management practices and processes.”

For Oman, selling stakes in government companies via Muscat’s bourse is “more difficult because of the lack of liquidity”, said Tarek Fadlallah, CEO of Nomura Asset Management Middle East in Dubai.

Market turnover in the first three months of 2023 was $497.1 million (191.40 million rials), down 43.9 percent year on year. Saudi Arabia’s bourse traded $71.9 billion in the first quarter of 2023, in comparison.

To boost activity, Oman’s market regulator will soon introduce new rules that will require companies seeking to go public to have a liquidity provider in place before joining the bourse.

“Once there are market making capabilities, investors will know there will always be an exit opportunity and that should increase participation,” said Banatwala.

Further IPOs will also diversify the bourse, said Banatwala, highlighting plans to add companies from the likes of the tourism, hospitality, healthcare, food and education sectors.

“The idea is to maximise the attractiveness of the market to investors,” added Banatwala.

Oman’s bourse was the Gulf’s second-best performer in 2022, although its main index is down 2.0 percent this year as of April 18.