What new initiatives is Gulf Baader Capital Markets (GBCM) currently involved in?
ASRANI: We have established business in a number of functional areas. If I was to look at our business, broadly speaking, we have three key business areas; we have an asset management business, we have a brokerage business, and we have corporate finance advisory businesses. Each of them has different initiatives. When it comes to the asset management business, we don't encourage retail business and therefore tend to have a small number of accounts. But in terms of the Assets Under Management, we have a relatively decent size. We manage a number of portfolios from pension funds. We also have a very successful fund, First Mazoon Fund, under management. This particular fund won the Lipper Award in 2011 for being the best performing GCC fund in the five-year category, so we are pretty proud of that achievement. On the back of that, we intend to launch a fund this year. We will try to make it different from the conventional funds that are currently in the market.
What impact has the introduction of Islamic financial services and products had on the capital markets in Oman? How much of the market do you expect Islamic financial institutions to capture in 2013?
ASRANI: Quite likely it will expand the size of the market. These initiatives have come very, very recently. Oman was perhaps the last country in the region to get into the Islamic finance business. However, this business is well established in the region. We have seen the launch of two banks in 2012 through their IPOs. However, operations have just about started for one of them. It will be a slow development in the sense that they will have to compete with all of the existing banks that also have their own Islamic finance windows. So it will be tough competition for everyone. We think over a period of two years or so we might see 5% of the banking assets move into Islamic finance assets, and that will be a good beginning. On the capital market side again, it is something that we will have to see how it will develop. We expect some funds to be launched which will be invested on a Sharia compliant basis. We will also have to see if some of the brokerages turn into Sharia compliant businesses. We have recently seen the introduction of secured finance facility that is based upon the interest concept. That will be a no-go as far as Islamic finance is concerned. So we’d like to see what the corresponding product that comes in the Islamic finance segment.
How has the Muscat Securities Market (MSM) performed over the last two years? What are your projections for 2013?
ASRANI: If you look at the past couple of years, the MSM really hasn't done well. In 2011, the benchmark index was down by 15%. In 2012, MSM consolidated and ended up being 1.5% up. It was more or less flat. Actually, what we have seen is that over the last 5 years, the market has been very quiet. We saw the last boom in Oman in 2007. Since then it has been quiet. 2008 was a complete disaster. The MSM also came down after reaching an all-time high in May 2008. It fell by almost 40% on a year-to-date basis. It did bounce back in 2009 somewhere around 17% or so, but since then it’s been very, very lackluster. Therefore, now we have a situation where the market has been not performing well for the last 5 years. That doesn't generally happen, you normally see the markets have boom and bust periods. We have seen boom years from 2003 to 2007, and 2008 to 2012 have been very, very lackluster. From the valuation perspective, if we look at all the valuation indicators, like the Price-Earnings Ratio and Price-To-Book Ratio, the market is ripe for a rise, and we are hoping for a pretty decent rise in 2013. We will be surprised if the market doesn't go up at least in low double digits this year. That is at least what we are hoping for.
How reflective is the MSM of the overall composition of the economy? Which sectors/industries remain under-represented on the market?
ASRANI: That is one of the critical aspects of the market. The market needs a number of quality listings. Currently, the market is small, not just in terms of market cap, but also the Market Cap to GDP Ratio is very, very low. We have large segments of the GDP which are not represented in the market. 45-50% of the economy is oil based and that is not represented in the market, except a few oil marketing companies. We have large assets in the hospitality sector, which is a very important sector of the economy. Again those assets are not represented in in the market. We don’t have any real estate companies in the market, and we don’t have other important sectors as well. Additionally, unfortunately all of the listings that are happening at the moment are in the banking sector. The banking sector is already well represented. So what people need is listings from the manufacturing side because the services segment is also reasonably well represented such as telecom and power companies, they are all there. But the manufacturing side, and hospitality segments within the service industries, are the ones that are not represented. And again, real estate is another one. So what we need is listings from both the government as well as from the private sector. I mean large trading houses are privately controlled and they are profitable but people can't participate in those businesses because they are not listed. So for the market to develop, the most critical aspect would be the listing of some quality names.
What is your outlook for IPOs in 2013?
ASRANI: At the moment we don't see anything on the horizon in terms of IPOs except maybe a couple of power companies that might come to the market. Other than that, while our wish list is much bigger, whether we will see further listings or not is something that is not clear at this point of time. We hope something from the oil and gas sector comes, that would actually be very well received by the market.
From the valuation perspective, if we look at all the valuation indicators, like the Price-Earnings Ratio and Price-To-Book Ratio, the market is ripe for a rise, and we are hoping for a pretty decent rise in 2013. We will be surprised if the market doesn't go up at least in low double digits this year. That is at least what we are hoping for.
Where do you expect to see the most growth in your client base? What is your competitive advantage over other regional capital markets players?
ASRANI: I’ll be honest; we are not a regional player yet. We tend to be a significant player in Oman. We did make an attempt to expand our operations into the region by investing into a business in the UAE. Unfortunately, that didn't turn out to be a good investment. You know, we went when the market was booming and after that the real estate segment in UAE collapsed and that had its impact on other business. So we had to withdraw from that business. We might go for a different model for our regional expansion. It is an important objective of our company that we have to be a regional player. We can't afford to be just an Omani company because this is a relatively small market. Additionally, given the fact that we have a partnership with a very large German investment bank who is a major shareholder of our company, we have to be a regional player. So we are looking at the options. We might go for alliances with other prominent companies in the different markets rather than acquiring companies. We would also consider making investments into those businesses that might later turn into partnerships and thereby provide a regional platform to our clients here in Oman. Other than that, within Oman, as I mentioned, we have thus far remained an institutional player and that has been our focus. This includes corporate houses, companies, institutions, and high net-worth investors. Our retail business market tends to be relatively small. We might look at certain initiatives, which will expand our retail business. We have already taken one initiative in early 2013 and we believe we are the first company to do so. This initiative is to offer the security finance facility, which was introduced by the Capital Market Authority. They announced the guidelines in late 2011 but the actual implementation of those guidelines and amendments of those guidelines happened in 2012 and we have obtained the license and completed the legal documentation. We have started offering the facility to our clients. So that is one of the initiatives we have already taken for 2013.
To what extent do foreign investors participate in the MSM? How does that impact the capital markets?
ASRANI: Overall, foreign investors have approximately 15-20% of the market cap. But it's a misleading number because part of it comes through foreign direct investment, rather than portfolio investment in listed companies. We don't have separate numbers for direct investment and portfolio investment. So I don't know what the percentage of portfolio investment is. Foreign investment tends to be limited to a few stocks, probably about 5 or 6 that are slightly more liquid compared to others. Foreign funds didn't move out of Oman as they probably did elsewhere in the region. We didn't see any significant outflow in 2012. But from December 2012 and the early part of 2013 so far, we have a seen a return of foreign funds into some of the liquid stocks in the market and we are hopeful that this will continue.