Flurry of IPOs, right issues to spur MSM growth

17/03/2012 08:37 AST

In line with the momentum on the global stock markets, the Muscat Securities Market, too, is set to see some exciting activities this year. The milestone for the first half of 2012 will be the initial public offerings (IPO) by the new-float Islamic banks and right issues by leading financial institutions. Also important is the upcoming first quarter corporate results, which are expected to be a catalyst for the performance of the local bourse.

Oman’s first Islamic bank, Bank Nizwa plans to float RO 60 million through initial public offering while Al Izz Bank, the second player in the domain plans to raise RO 40 million from the market. The public offering of Oman Arab Bank (OAB) is likely to have a book size of RO 25 million. Analysts are of the opinion that there will be a huge pent-up demand for these IPOs as the market spread has been positive and the breadth titling towards gainers since the beginning of the first quarter.

“Now with the buying interest seen across the counters amid improved overall trading activity, the bourse is witnessing the much needed confidence among its participants,” says Joice Mathew, Senior Manager at United Securities. The liquidity in the local bourse is more than enough for its deep connection with institutional and retail investors, he adds. At the same time some major banks are coming out with either right issues or private placement of shares in the coming quarters aimed at raising the capital adequacy ratio for meeting the anticipated asset growth.

BankMuscat, the biggest financial provider in the Sultanate, is planning to raise RO 100 million through rights issue sometime in the second quarter of this year. Ahlibank with a capital base of RO 80 million, is planning right issue to the tune of 250 million shares to its existing shareholders.

BankDhofar recently raised RO50 million subordinated loan, while Bank Sohar announced its plan to go in for right issue to the tune of RO 10 million. The Central Bank of Oman had recently announced that the minimum capital requirement for Islamic banking window operations is RO10 million for conventional banks. Commercial banks also need to comply with the apex bank’s norms for minimum capital requirement of RO100 million.

The CBO’s approval for Islamic banks to start businesses and the consequent permission of the Capital Market Authority to float the IPOs are expected to absorb a large section of liquidity valued at millions of dollars lying unused in different banks. Studies have found that nearly a third of Omanis prefer to stay away from conventional banks and many do their Islamic banking business in other countries.

According to reports, more than RO 2 billion is semi frozen money or interest free deposits. This amount accounts for one-third of the total deposits at local banks. The reports also say two-third of the Omani society prefer to deal with financial solutions that are Sharia compliant. Islamic banks and window operations are expected to get up to 10 per cent of the market share of the total banking assets in Oman within few years.

According to Kanak Sundar, Senior Research Analyst, Gulf Baader Capital Markets, investors will find these Islamic bank IPOs as a safe haven for using the long-term retail money lying idle in the form of interest-free deposits in banks. A number of conventional banks are also launching Islamic banking business through a ‘window’ operation.

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Oman Daily Observer