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.
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.
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.