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Monday, 6 August 2012

All eyes on Oman's Islamic finance

Oman investors could not get enough of Bank Nizwa when the country's first Islamic lender listed its shares in June.

The initial public offering was oversubscribed 11 times as the novelty of a new listing appealed to investors on the smallest of Arabian Gulf exchanges. The share sale also sparked hopes of a rebound in sentiment on the Muscat Securities Market.
Now the fledgling bank is being watched closely by investors as the country reverses its policy on Islamic finance and starts to court new Sharia-compliant equity and debt issues for the first time. It also wants to encourage conventional debt listings.
"If the price does not hold up that will obviously put a dampener on other issues," said George Sandars, a partner at SNR Denton in Muscat. "But if it turns out to be reasonably successful it will help to improve sentiment."
But the 24-year-old exchangefaces a stiff task in stimulating subdued interest in Gulf equity markets hobbled by dwindling trading volumes and the closure of brokerages starved of the commissions needed to survive.
It's a familiar story for financial professionals in the Gulf.
The Muscat Securities Market has failed to break out of a narrow trading range of between 5,000 and 7,000 points for the past three years after peaking at more than 12,000 in June 2008.
"The market in Oman is not liquid by any means. Prior to 2008 there were lots of IPOs and private placements and although the economy as a whole stood up to the financial crisis fairly successfully, it had a very negative effect on equity markets," added Mr Sandars.
Oman's stock exchange is the smallest by market capitalisation in the Gulf. The Muscat Securities Market Index has fallen by about 4.5 per cent since the start of the year. Its main measure lists companies the collectively traded shares of which are worth less than US$2.2 billion (Dh8.08bn). By comparison, the market capitalisation of Saudi Arabia's Tadawul index is worth more than $570bn.
Muscat has an even lower profile for debt listings. Apart from government-issued paper, there are just nine bonds listed on the Muscat Securities Market, mainly from local banks. The government wants to change that and a recent study by the Oman Central Bank concluded there was a need to develop both a government security and corporate debt market in Oman. Ratings agencies such as Moody's and Standard & Poor's rate government debt and political risk.
Muscat recommended the enactment of an insolvency law to help speed the process.
While the crisis in Europe may have dented demand for Gulf stocks among institutional investors there, it could also represent an opportunity. Gulf company Islamic bond yields hit a record lowlast month as the worsening debt crisis in Europe encouraged investors to seek alternative homes for their money.
Average sukuk yields fell to as low as 3.66 per cent on July 17, according to Bloomberg data. Islamic bond sales have hit a record $17.46bn this year, which has not gone unnoticed by regional bourses - including Muscat - keen to capture a slice of this fast-expanding sector.
The latest listing of Oman's first Islamic bank on the exchange could encourage further listings and help to create a local market for sukuk, said Suleiman bin Mohammed Al Rashidi, the deputy director general of operations and market surveillance at Muscat Securities Market.
Oman had for some time been unique among Gulf states in not encouraging the development of Islamic finance in the country.
It reversed the policy last year partly to halt the outflow of Islamic funds at a time of internal political upheaval. Investors hungry for more fresh listings in Oman may not have to wait too long, with other IPOs in the pipeline.
A second Islamic lender, Oman Arab Bank, a unit of Ominvest, is expected to follow Bank Nizwa with a partial share listing this year subject to market conditions. Renaissance Services, a conglomerate based in Muscat, is also believed to be considering IPOs of parts of its operations.
(The National / 06 August 2012)

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