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Shares in Oman’s OQEP recover after poor debut

OQEP is the exploration and production arm of Oman's state oil company OQ Unsplash+/Getty
OQEP is the exploration and production arm of Oman's state oil company OQ
  • OQEP shares rose 3.4%
  • IPO raised almost $2bn
  • ‘A kind of panic’ took place

Shares in Oman’s OQ Exploration and Production rebounded on Tuesday, recovering some of their losses following a shock slump on the Muscat bourse a day earlier as dividend-seeking institutional investors took advantage of the sell-off to acquire at lower prices.

OQEP, the upstream subsidiary of state oil company OQ, raised OMR748.8 million ($1.94 billion) in Oman’s largest-ever initial public offering, which concluded in mid-October, according to AGBI calculations.

The IPO sold 25 percent of OQEP, or 2 billion shares. Of these, 40 percent went to institutions and 20 percent to anchor investors such as Oman’s pension and sovereign wealth funds.

Such investors paid OMR0.390 per share, but the remaining 40 percent went to individual investors and were priced at OMR0.351 per share – a 10 percent discount and part of government efforts to return some of Oman’s wealth to its citizens.

OQEP’s stock plunged 8.2 percent on its bourse debut on Monday, ending at OMR0.358. It recovered somewhat on Tuesday, rising 3.4 percent to end at OMR0.370.

“On the first day’s trading, there was some selling pressure from local individual investors who wanted to cash in their gains immediately and that dragged OQEP’s share price down,” said Joice Mathew, head of research at Muscat’s United Securities.

Strong buying appetite from GCC and Omani institutions drove Tuesday’s rebound, said Adel Nasr, United Securities brokerage manager.

Brent crude fell about 5 percent to $71.66 on Monday, which also weighed on OQEP’s stock that day, Mathew and Nasr said.

“Some institutional and retail investors sold, which created a kind of panic,” Nasr said.

That led some banks to force retail clients who borrowed to subscribe to the IPO to sell some of their stocks, he added. The IPO discount for retail investors meant they were still in profit and so the banks avoided making losses on this lending.

“OQEP is fine as long as oil prices remain above $60 and so we believe its stock rebound will continue,” Nasr said.

OQEP’s average realised oil price – the price at which it sells the crude it extracts – should be about $81 this year, Mathew said.

“At that level, the company can meet its spending commitments and at the same time maintain its dividend payments as expected,” he said, noting this should support its stock price longer term.

At Monday’s closing price, OQEP’s dividend yield was more than 8 percent. “That’s very attractive for many institutional investors as well as for individuals, so today there has been buying demand coming in at these lower prices and that’s driven the rebound,” Mathew said.

Oman’s index is up 5.6 percent this year, reflecting investor optimism that a wide-ranging economic reform and diversification programme will boost corporate earnings and eventually lead to the country obtaining emerging market status.

Before OQEP’s flotation, OQ’s pipeline business OQ Gas Networks went public last year, raising $749 million through selling 49 percent of its shares.

Abraj Energy Services – like OQEP, an upstream oil and gas company – raised $244 million in a March 2023 IPO.

“Oman is a fundamentals-driven market, so corporate earnings play a major role in deciding market direction,” Mathew said.

“There is modest earnings growth in most companies including the heavyweight banking sector, which is driving the market performance.

“Market sentiment is improving, while the recent IPOs have brought a sizeable number of new investors to the bourse. Many have continued trading after cashing in their IPO gains, investing in other stocks.”

This has boosted trading activity, which is generally positive for share prices.

Nasr predicted Oman’s index will make full-year gains of about 8 percent in 2024. “We’re getting foreign inflows into Oman’s market that we’ve not seen since 2011,” he said.

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