The Omani economy boasts several developments which make it easy to diversify the sources of revenues like huge tourism potential, oil reserves and the rise in young population. Among the indicators for the success of diversifying revenue sources is reducing the oil sector contribution to the Gross Domestic Product to 9 per cent in 2020, as well as plans to generate more jobs for nationals.

Oman’s market cap-to-GDP ratio is the lowest among the GCC nations. What actions or initiatives need to be taken to further increase Oman’s market cap-to-GDP ratio?

AL MARHOON: Oman’s current market cap-to-GDP ratio indicates that there is room for expansion on the MSM. For the last few years, we have been focusing on raising the ratio to that of the other international markets. We are not there at the moment, but our market cap is far exceeding Bahrain. Looking at the market capitalization in the GCC countries, the Muscat Securities Market has improved a lot over the last few years. This past year we had two IPOs. For the first time, Islamic financial services were allowed to operate in this country. Conventional banks were also allowed to open Islamic financial service windows. This helped existing commercial banks acquire additional capital. There has been a substantial IPO increase here. With the help of the government, we are on the right track and moving in the right direction. The Ministry of Finance is trying to convince more companies to join the MSM. This will increase our market cap-to-GDP ratio. There were some companies about to go public but, because of the financial crisis and weak market activity, they decided to hold back. We are trying to contact them to convince them to go public this year. Furthermore, the Capital Market Authority, along with the MSM, has identified certain government companies which are candidates for going public. 2013 will be a far better year for IPOs.
What programs or incentives are currently being implemented in order to convince more Omani companies to become publicly listed? Furthermore, what actions are being taken to ensure that these companies participate in the MSM rather than other well known global exchanges?

AL MARHOON: Family owned companies need to be aware of the benefits of going public. These companies initially think that their ownership is moved away from them. This is not the issue. They get more money because they will sell their portion of the company at a premium. They will get extra money, which can then be used elsewhere. They are creators and innovators that can do many things with the new money. This in turn will help the economy. The other thing is that you are able to know the value of your company. Most of the family businesses do not know how much their company is worth. However, when they go public and list they will be able to understand how much their company is worth. They can then go to the bank when they want to issue bonds. Evaluators or rating agencies will be more aware of these companies if they go public. Another benefit of going public is the governance. When you are listed you are required to follow certain governance. This is good for companies. They are resisting the governance and the disclosure. They do not understand how important transparency is for their representation. Also, many companies disappear after a few generations. If they become publicly listed, they will be able to see continuity in their business. These family owned businesses are major contributors to the economy. We want them to continue to help grow and develop the country’s economy.
Islamic financial products, authorized by the government in 2011, are set to take off this year. What impact will the introduction of Islamic financial products and services have on the capital markets here in Oman? What changes has this necessitated in the MSM?

AL MARHOON: Islamic financial services will not only add great value to the MSM but also to the economy as a whole. We have only had conventional banking in the past but there are certain segments in our society that like to deal with Islamic concepts banking. As a result, we will find many of the resources being diverted elsewhere. We hope that some of these funds and activities will help our economy. This is going to create competition between conventional banking and Islamic banking. This will help finance projects and small businesses. It will also expand our economy. These indexes are hoping that it will create an attraction to some people who want to only invest in Islamic based companies. We hope that Islamic financial activities will not only be focused on consumption but also on adding value to the economy.
How have rising political tensions in the Middle East and the global economic downturn impacted investor sentiment throughout the GCC? What initiatives is Oman currently undertaking in order to help regain investor confidence and increase trading volumes in the MSM?

AL MARHOON: If you look at the GCC economies, you can see that they are performing better than many of the countries where the crisis hit. However, I could not understand that the index is higher in these countries than in some of the stronger economies in the GCC. Our economies are expanding and our budgets are climbing. However, this has not affected our market activities, indexes, or the performance of our companies. This is something that I sometimes cannot understand. For example, Greece’s indexes are performing better than ours. This year will be a historical budget for Oman. We have big projects underway that are focused on the further development of our infrastructure. The projects in Oman are progressing and you can see improvements being made to the country’s infrastructure. The government is also encouraging tourism. Oman is moving and we hope that the MSM will move along with the expansion of the country’s economy.
To what extent do foreign investors participate in the MSM? How vital is their role and what actions are being taken in order to further increase foreign investment in the bourse?

AL MARHOON: The MSM is 23 years old. We are probably the only market from inception that allowed foreign investment in the MSM in Oman. Also, from the beginning all listed companies accounts had to be based on international accounting standards. This is a prerequisite to listing on the MSM. We do not have any restrictions on the MSM. On the contrary, the ratio for foreign investments was raised from sometimes 25%, 50%, and to 70% in the international trade. That is what is happening here. Foreign investment in Oman stands at roughly 22%-23%. We appreciate the foreign investment and we would like to see more of their influence. We have a lot of funds from Europe, but their magnitude is not that large because of our market size. We hope that as our market capitalization continues to grow so will foreign investments in the bourse.

How have regulations implemented by the CMA (Capital Market Authority) affected market activity? What initiatives are being implemented in order to help boost liquidity in the MSM?

AL MARHOON: We believe that proper governance and transparency will send a message to investors that their interests are being managed. We do not compromise on our governance. We were the first in the region to introduce proper governance and disclosure. We require all companies to be transparent. We have operated like this for the past 6 years. We have a link between listed companies and our website. As a result, every listed company can disclose anything. This does not mean that governance cannot be enhanced. It should be revisited from time to time because there are so many developments that need to be taken care of and addressed. We pay a lot of attention to governance and transparency. The CMA can go into areas and facilitate more trade in those segments. Proper governance is our main focus.
In 2012, anchor IPOs from Bank Nizwa and Alizz Islamic Bank strengthened the market. What is your general outlook for new IPOs in 2013?

AL MARHOON: I am very optimistic about 2013. I am hoping that market activities will improve because I know that there are some companies waiting to IPO. Also, the MSM and the CMA (Capital Market Authority) have identified several government projects that can release part ownership to the public and become listed on the MSM. These companies will create depth in the market and attract more investors. This in turn, will add to the activities in the MSM and help expand our economy.

At the governorates level, all governorates of the Sultanate experienced a decline in the average price in varying proportions during March 2013 compared to the previous month (February, 2013).

The inflation report released by NCSI pointed out that the expectations of IMF World Economic Outlook (WEO) indicate that inflation in the emerging and developing markets will hit (6.1%) during 2013, and (1.6%) in the advanced economies. It is clear that the rate of inflation is lower than the average in the emerging and developing markets, as the rate of inflation in India and UK is 10,39% and 2,8% respectively, in China 2,1%, USA 1,5% in March 2013 in comparison with March 2012.

A report released by the Food and Agriculture Organization (FAO) showed a 1% increase in the average of food price index in February 2013. The report attributes this to the rise of dairy prices by 10,9%, and sugar by 1%. In contrast, oil and fats decreased by 2,5% and meat prices declined by 2% during the same period, while grains prices remained stable in comparison with the previous month.

With regard to food prices in the Sultanate, the food stuff recorded a decline of (0.8%) in March in comparison with February 2013, where the prices of grain and meat decreased by (0.4%) each, while the prices of oils, fats and sugar increased (0.3%) (0.1%) respectively.

At the regional level, the report stated that the Sultanate ranked fourth in inflation rate at the level of the Gulf Cooperation Council after the Kingdom of Saudi Arabia, the State of Qatar and the Kingdom of Bahrain with (3.9%) (3.6%) And (3%) respectively, and the rate of inflation rate in the U.A.E. was (1%) during the month of March compared with the same period of the previous year.

The level of change in the consumer price indices in the GCC countries, the index recorded in March 2013 the highest rise compared to the previous month, in the Kingdom of Bahrain by (1.4%), followed by the State of Qatar (0.4%) and the Kingdom of Saudi Arabia (0.3%). the general index also rose by (0.12%) in the U.A.E., while declined by (0.3%) in the Sultanate of Oman during that period.

Locally, the NCSI report showed a slowdown in the rate of growth of domestic liquidity from (17.5%) in October 2011 to (9.5%) in February 2013, resulting in a decrease in the inflation rates from (3.8%) to (2.3%) during that period.

The report indicated that, with regard to the level of change in the consumer price indices in the Sultanate for March 2013, the data show that the general index declined by (0.3%), compared with February of the same year.

This was attributed to decline in prices of personal goods, other services group and transport and communications services by (0,2%) each, and furniture and appliances by (0,1%). In contrast, the prices of of garments, textiles and footwear group increased by (0.6%), prices of house leasing, electricity, water and fuel group by 0,1% ,while, culture and entertainment services group and medical and educational services group remained unchanged during March 2013 compared to the previous month.

At the governorate level, the NCSI report showed that the consumer price index in March 2013 compared to the previous month saw a price decline in all the governorates with varying proportions. The General Index registered a decline in the North and the South A’Sharqiyah Governorates by (0.5%) and decreased in both the A’Dakhiliyah and the Dhofar Governorates by (0.4%) each. The North Al Batinah, the A’Dhahirah and the Al Buraimi Governorates decreased by (0.3%) each, and the index fell in the Governorate of Muscat by (0.2%).

“Total debt stood at USD 3.3 billion at the end of September 2012, up 2.3% compared to the end of December 2011,” the Kuwaiti bank said. “While total domestic debt increased to USD 1.4 billion from USD 1.2 billion in 2011, external debt declined by 2.7% during the same period.”

Job creation a priority

The government has been looking to diversify away from oil revenues for more than a decade, but the effort has gained urgency as Oman looks to create desperately needed jobs.

The government has initiated an expansionary fiscal policy for 2013-2017, with emphasis on capital spending. An OMR 12.9 billion capital investment plan is on the agenda with special focus on manufacturing and tourism.
Oman will see the addition of 2,000 hotel rooms by the end of the year as the sultanate aims to exploit its natural tourism potential.

Oman’s central bank has also instructed financial institutions to apportion 5% of their loan books to encourage the small and medium enterprises and local entrepreneurs. The country also implemented high minimum wage limit and restrict foreign labor to increase local employment opportunities.
“Furthermore, the government earmarked Duqm as the next growth city with investments worth USD 15 billion in petrochemical and infrastructure projects over the next 10 years. Other investments include railways (USD 13 billion), airways and port operations near the border with Yemen,” said Global.
From oil to LNG

The country’s liquefied natural gas production is also expected to rise to improve the country’s export prospects.
Oman’s crude oil production of 900,000 barrels per day is expected to rise incrementally to 1 million bpd in a few years.
The authorities are working on three major projects to offset output declines and extract production of an estimated 200,000 barrels of oil per day by 2020 at an investment of more than USD1 billion each.
“Oman requires increased natural gas supplies to meet the growth in its domestic consumption as well as its enhanced oil recovery projects (using gas to ease crude oil flows) and LNG export obligations,” said Oman Arab Bank in a report.
“Present production at approximately 3400 million cubic feet per day (cfd) is expected to rise to 4700 cfd by 2019 largely resulting from the Khazzan tight gas exploration being developed by British Petroleum at an estimated cost of USD 15 billion. Petroleum Development Oman presently supplies the country with over 90% of its gas requirement, mainly accrues from non-associated gas fields.”
The efforts are part of Oman’s Vision 2020 goal to reduce oil dependence by 9% and raise natural gas’ production by 10% by that time.
The International Monetary Fund (IMF) expects the country’s real gross domestic product to rise 4.2% in 2013, compared to 5% last year. The IMF estimates growth will pare down further to 3.5% in 2014.
The government hopes to accelerate growth by funding infrastructure projects such as airports, ports, roads, as well as developing the industrial estates, water and wastewater projects.

Muscat-based United Securities says the government plans to “partially finance the deficit of the budget through issuing development bonds in the market, to encourage the domestic saving, and [by] enhancing the efficacy of utilizing the domestic savings in the local market.”
Oman’s minister for Financial Affairs recently told reporters the government may issue a dollar-denominated bond next year.
The GCC’s financial aid of USD 10 billion over 10 years will also help alleviate fiscal pressures on the Omani government. United Securities estimates some of the financial aid will be spent on a railway project, the Al Battinah express road project, electricity and water projects and infrastructure development in the Duqm region.

© alifarabia.com 2013

Total cash dividends paid by companies that are part of the index for the last nine years increased from RO 140 million in 2004 to RO 252 million in 2012, registering an impressive 80 per cent growth during the period. While the performance of investment holding companies continues to be impressive, the results from industrial sector including the cement companies are attractive to the investors.
At the session close last week, GCC and Arab were net buyers for RO 805,000 followed by foreign investors for RO 191,000 while Omani investors were net sellers for RO 996,000 worth of shares. The improving participation of foreign investors too signals their increasing confidence in the market fundamentals. After the previous three years of shying away from investing in MSM, foreign participation has been encouraging during the last year.

© Oman Daily Observer 2013

Source: Oman Daily Observer

Source: Oman Daily Observer

“This year we do not plan but maybe for next year, and this is not because of our immediate borrowing requirements but because we want to pave the way for the private sector,” Balushi said late on Saturday.

“We want to establish a benchmark,” he said on the sidelines of a meeting of Gulf Arab finance ministers in Bahrain.

Oman last tapped the international bond market with a $225 million (144.47 million pounds) eurobond in March 1997, when oil prices stood at around $20 per barrel. It sold a five-year bond at a premium of just 73 basis points over U.S. Treasuries.

Since then, oil prices have risen sharply, to above $100 at present, so the country – which currently depends on oil for 86 percent of its budget income – has not needed to issue much debt. With the exception of 2009, it has posted budget surpluses every year since 1998.

In recent years it has sold small issues of local currency development bonds, but the ratio of its gross government debt to gross domestic product was just 6.1 percent in 2012, the second lowest in the Gulf after Saudi Arabia, compared to a peak of 38.6 percent in 1998.

Balushi said his ministry had not yet decided on the parameters of the new dollar bond but it would be at least of benchmark size; typically, that means $500 million.

“We will see. It should be something reasonable to attract investors because if it is too small, investors will not be (interested) – we want to also attract a variety of investment.”

BUDGET

Since the uprisings elsewhere in the Arab world in 2011, pressure on Oman’s budget has increased as it has spent more to ensure social peace. Balushi estimated in January that the government would need an oil price averaging $104 to balance its budget this year.

The International Monetary Fund presented a bleak outlook for Oman’s public finances last month, predicting the budget could slip into a deficit of 3.8 percent of GDP as soon as 2015, with the gap widening to as much as 13.3 percent in 2018.

By re-establishing Oman’s presence in the international bond market, a sovereign issue could pave the way for regular deficit financing through bond issues several years from now.

Balushi said last month that spending policy would become more conservative in coming years. He insisted on Saturday that any forthcoming sovereign bond issue would not be in response to an urgent need, and he disputed the IMF’s analysis.

“This is based on a scenario that oil prices will come down from their level today and expenditure will take the same trend as in 2011, 2012 and 2013,” he said.

“We do not agree with this because we think that the trend of expenditure will not rise, because in 2011, 2012 there was some reason, but this reason will not continue and therefore expenditure will not go at the same level higher going forward.”

To diversify its economy beyond crude oil and gas production, Oman is spending heavily on industrial projects, including a multibillion-dollar scheme to transform the southern coastal town of Duqm into an industrial centre.

Creating a benchmark for Omani corporations to issue bonds could help them finance some of this construction. In March, partially state-owned Bank Muscat, Oman’s largest lender, priced a $500 million, five-year bond in its first dollar debt issue in nine years.

The Omani government has also said it plans its first-ever issue of rial-denominated sukuk (Islamic bonds) next year, and outlined issuance of 200 million rials ($519 million) worth of local currency bonds in its 2013 budget.

(Editing by Andrew Torchia)