IPOs boost state finances
Share prices fall post-IPO
Investors shun Omani equities
Oman’s privatisation programme of state-owned companies has boosted government coffers and helped improve the sultanate’s credit rating, but it has brought little joy for equity investors.
Since the start of 2023, five state-controlled businesses have sold shares to the public in initial public offerings (IPOs), raising almost $4 billion in total.
These span four subsidiaries of OQ, the country’s oil producer and energy company, and the government-run Asyad Shipping.
The stock prices of all five companies now trade below their IPO prices.
“Foreign investors aren’t interested in Oman as an equity story,” says Hunaina Banatwala, head of trading at Cross-Alpha Investment Advisors.
OQ Exploration and Production (OQEP), which in October raised OR780 million ($2 billion) in Oman’s largest ever IPO, is the worst performer, losing a third of its value in the seven months since.
Omani officials have spoken of 35 state-owned companies going public by the end of 2027. Yet the dire post-listing performance of OQ’s subsidiaries makes it unlikely there will be any further IPOs this year at least, analysts say.
Oman’s most recent IPO involved Asyad Shipping, which sold 20 percent of its shares in February for $333 million.
The company struggled to sell all the available shares, only announcing the completion of the IPO several days after it closed. Usually such an announcement is made the following day.
Asyad even pledged to spend $26 million from the IPO proceeds to defend its stock price. However, the shares are still down about 8 percent versus their IPO price.
Asyad’s poor share performance contrasts with the market excitement when Abraj Energy Services completed in March 2023 Oman’s largest IPO in 13 years.
“Regional and international institutional participation was high, while retail investors were given a discount,” Banatwala says.
Abraj’s stock price surged on its Muscat bourse debut, rising 20 percent on large trading volumes that indicated strong demand. It now trades 6 percent below its IPO price.
Next came OQ Gas Networks (OQGN), which raised more than $770 million by selling 49 percent of its shares in October 2023 – the same month the Palestinian group Hamas launched its attack on Israel, triggering another Middle East war.
As a monopoly gas pipeline company with stable revenue, a generous and clear dividend policy and little correlation to oil prices, OQGN’s stock should have prospered after listing. It rose about 8 percent in the days following its bourse debt but soon slid below its IPO price.
“That OQGN struggled despite its strong fundamentals was telling,” Banatwala says. “The timing was wrong – foreign IPO subscribers sold immediately due to geopolitical worries.”
OQEP’s flotation followed next – to disastrous effect.
“The pricing was wrong, the dividend yield was not attractive enough and the IPO was very large for a stock market of Muscat’s stature,” Banatwala says.
Immediate selling pressure upon listing soured sentiment for OQGN, with domestic institutions among the biggest losers.
Yet soon after, another OQ subsidiary, OQ Base Industries, also went public, and raised almost $490 million by selling 49 percent of its shares.
“The company offered an even higher dividend yield, but the stock still fell on its first day’s trading – the few foreign investors in the IPO sold immediately and haven’t returned,” Banatwala says.
The declines in the recently listed companies’ stock prices have bolstered their dividend yields, but regional and international institutions remain reluctant to invest due to liquidity concerns, Banatwala says.
“It’s not necessarily easy to get in and out of these stocks,” she says.
“There are so many stocks in Saudi Arabia and the UAE that offer yields above 6 percent and which have vastly more liquidity and good earnings growth, so investors would rather buy those.”
Together with cuts to government spending, IPO proceeds have enabled Oman to slash its debt-to-GDP ratio to 35 percent in 2024 from 64 percent in 2020, according to S&P Global. The ratings agency in September restored Oman to investment grade status.
