MUSCAT: The government must stop dragging its feet and speed up the privatisation process by launching Initial Public Offerings (IPOs) for its various state-controlled companies to stop the further decline of the Muscat Securities Market (MSM).
Signs of fear in the financial markets are spreading. The MSM has hit its lowest level in five years and investors are fast pulling out from the stock exchange to minimize their losses.
Share prices are tumbling down because of low oil prices. MSM investors felt demoralised when OMR175 million was lost in market capitalisation during the last two weeks, while the average daily turnover fell to OMR2.2 million this year from OMR5.6 million in 2015. The bad news is that foreign investors are exiting MSM, leaving huge investment holes in the stock exchange.
It is misguided to think that equity prices will bounce back and go upwards in the expectation that oil prices will reverse. Last Thursday, the International Monetary Fund (IMF) said it expects oil prices to decline further to a range between $15 and $25 per barrel this year.
Oil demand is a strong indicator of growth. While the government cannot do anything about oil prices, but it can restore investor confidence and give the economy a shot in the arm by floating new IPOs in the companies it owns.
The government can inject equities into the local market worth over OMR6 billion for investors in the Muscat Securities Market through different organisations under its control by relinquishing ownership of just 30 per cent from each company.
There are over a dozen companies that Oman can explore to offload shares of to the private sector. Candidate companies include the aviation flagship Oman Air, Oman Airports Management Company (OAMC), Oman Oil Refineries and Petroleum Industries Co. (ORPIC), Oman National Transportation Company (ONTC), Mining Development Oman (MDO), the Postal Services and power generation companies.
The decision to partially sell off these organizations to the private sector will increase efficiency and productivity. It will also reduce the financial burden of the government by sharing the management and costs with the private sector to reducing the fiscal deficit.
At the moment, subsidies awarded to loss-making state-owned organisations sap much needed funds from the coffers. Another advantage of giving an opportunity to the private sector to manage these companies is that it will cut down the corruption committed by state officials.
MSM has always been short of big liquid stocks since its inception in 1980. Low oil prices have just exposed its fundamental weaknesses. Only a few companies have been 100 free-floating. For most of private companies traded on the MSM, liquidity has always been an issue, a constant struggle for them when it comes to raising much needed funds from unwilling investors. However, government’s IPOs have always attracted investors, both foreign and local. For example, Omantel enjoyed an overwhelming interest and so did power companies, such as Al Manah and Al Kamil.
Traditionally, IPO buyers raise funds from financial institutions. With banks flush with money this year, they will be more than willing to support the sliding index of the stock exchange.
Investor liquidity will not be a problem this year because all leading banks have posted excellent net profits in 2015. The other opportunity to boost the ailing MSM, is for the government to encourage foreign companies in the Sultanate to offload shares to the public. Manufacturers in the Sohar Industrial Area and the Free Zones will be a good start.
This action will link MSM’s investors with other stock exchanges around the world and offer local shareholders a wider financial network.
The combination of both government and locally based foreign companies selling shares will make Oman a venue of financial choice for international investors. It will tap global markets and give MSM a much wider leverage and exposure. It will also arrest the flight of non-Omani investors selling their shares in the local bourse.