30 May Interview with Haitham Salim Al Salmi, CEO, Muscat Stock Exchange
What has led to Oman’s strong economic recovery following the COVID-19 pandemic and previous oil crisis?
Oman entered in a new era of property and innovation with His Majesty Sultan Haitham bin Tariq’s recent transition to power and renewal of Oman Vision 2020 (National Program set by late Majesty Sultan Qaboos bin Said Al Said) into Oman Vision 2040 dedicated towards rejuvenating Oman’s economy and invigorating socio-economic standards of the Sultanate to create a sustainable ecosystem of national progress and its Nationals’ development simultaneously. Consequently, Oman’s GDP witnessed a remarkable growth of 4.5% only in the third quarter of fiscal year 2022 – according to the National Center of Statistics and Information.
Since, then the government has maintained a sound fiscal balance through the introduction of debt management and financial balance measures, such as; the introduction of tax systems, reduction in the overall wage bill, strengthening and supporting the private sector and restructuring the OIA (Oman Investment Authority) to implement economic diversification policies.
The Oman Investment Authority has brought a pool of local and international investments under one arm and focused contributions in certain segments, including the financial sector. Due to these measures, Oman’s budget has recorded a surplus for the first time since 2014, and debt-to-GDP ratio has declined substantially to 40.2% compared to an estimated 86%.
These major improvement that resulted in Oman’s credit rating change and boosted the confidence of international investors in the market are not a result of overnight quick solution, rather a dedicated approach towards hard work, inclusion and transparency that needs to be maintained, therefore the government launched yet another National Program for Fiscal Sustainability and Financial Sector Development called Estidamah in the January of 2023 to foster further economic growth and to promote the country as an attractive destination for investment.
What are the reasons for Oman’s increased focus on the public sector under the Vision 2040 initiative?
Traditionally, state-run entities have been the largest drivers of developing national Infrastructure, for instance, in Oman government sector contributed generously towards the development of telecom, utilities and logistics sectors in the early years. However, post pandemic private businesses played a vital role in accelerating economic recovery, therefore under Vision 2040 Omani government has introduced programs to increase public-private partnerships and enhance engagement of the private sector in developing infrastructure and improving public services.
Today OIA (Oman Investment Authority) is responsible for one of Oman’s most important programs under Vision 2040, which is to increase the private sector’s contribution to the economy.
Under the program, the public sector is gradually lowering government subsidies and allowing the private sector to take a leading role, while, private entities are keen to invest in new businesses and expand certain industries such as healthcare, education, logistics and digital transformation while actively using innovative technologies vital for economic growth that will also generate new job opportunities for Omanis.
Being an OIA subsidiary MSX is part of this divestment strategy, to liquidate government holdings, allow cash injections for newer projects and offer a piece from the pie for larger pool of investors, as we at MSX Provide an alternative divestment pathway for companies through initial public offerings (IPO’s) rather than selling to specific investors.
How have Muscat Stock Exchange’s (MSX’s) main responsibilities changed since it was privatized in 2021?
Muscat Securities Market established in the year 1989 as a government institution under CMA (Capital Market Authority) was transformed into a private entity in the year 2021 and turned into a closed joint stock company under the umbrella of the Oman Investment Authority called Muscat Stock Exchange.
The transformation entailed several key goals to support its role as an independent legal jurisdiction in the capital market industry to offset Oman capital markets development and progress, by improving the Sultanate’s investment environment with the application of top risk management policies and price-setting mechanisms; utilizing state-of-the-art technologies to manage its operations; and aligning with the international best practices applicant in global exchange avenues.
The conversion of Muscat Securities Market to MSX has provided it with the independence to strengthen its framework and hold a stronger supervisory role over listed companies and brokerage companies and enable the exchange to operate on commercial grounds.
The exchange is now free to activate newer revenue streams by reaping the benefits of Oman’s improved economic standing, hence, since transformation, MSX has recorded an increase of 17.6% in its main index in 2022, reflecting a growth in the price of listed companies and the restoration of the investors’ confidence in the market. In addition, the exchange witnessed a growth in annual trading turnover that reached 15% in 2022, up from $2.12 billion in 2021 to $2.43 billion and a general increase in securities prices that raised market capitalization to $63.1 billion, an increase of 7.45%.
What main elements make up MSX’s current growth strategy?
One of the first objectives of MSX as a new entity was to generate five-year strategy a roadmap aimed at upgrading the Oman market from emerging to developed. The GCC region encompasses seven countries, with five considered emerging or frontier markets. The plan’s objectives revolve around boosting liquidity and enhancing market capitalization, introducing newer investment products, adopting state-of-the-art trading technologies, boosting investor confidence and developing human capabilities. Our priority is to satisfy international requirements and upgrade to emerging market status within the next couple of years. This will aid in putting the exchange under the radar of international fund managers. This strategy in turn also supports our government’s economic diversification efforts.
The strategy also entails establishing solid communication channels between market stakeholders while addressing investors’ needs. MSX is also in contact with international fund and asset managers in London and Dubai to increase its visibility. MSX continuously strategically hosts several local, regional and international roadshows encompassing C-Suite from top-listed companies, government representatives, industry experts and global fund managers to present the growth potential of the Omani market and its attractiveness as an investment destination.
Soon well be in New York to meet global asset managers along with OIA to boost interaction between companies and stakeholders, as OIA has numerous plans to attract foreign direct investment (FDI) and bring new international players into the market.
A successful example is Oman Cement, which was joined by a Chinese company. In line with the government’s drive to up FDI, they decided to divest. It is a listed company, but in partnership with a foreign investor. Oman Investment Authority’s five-year plan involves divesting several companies. Now that two years have passed, there are around 30 companies it still aims to divest. These listings will enhance the market and generate cash for new opportunities. Oman’s new projects — including mining and solar — require massive amounts of funding and We at MSX want to position ourselves as their primary pathway.
What is MSX doing to drive growth of Oman’s small and medium-sized enterprises (SMEs)?
MSX is supporting the growth and sustainability of small and medium-sized enterprises under its new strategy. We signed a memorandum of cooperation with Small and Medium Enterprises Development Authority or Riyada in October 2022 to establish a specialized platform where SMEs could be listed with relaxed measures and disclosure requirements and trade on similar terms to other types of listed securities. Through our partnerships with both Riyada and Estidamah, we aim to create an attractive listing environment for SMEs, especially those operating in sectors that are perceived as high priority under Oman’s tenth five-year development plan.
MSX incorporates not only publicly traded companies but also closed joint stock companies. There are more than 300 companies listed, with 126 of them considered SMEs. We want to make sure we trace back these companies and ensure they are listed in the proper market. We are following a similar model as Saudi Arabia, which has created a giant SME market.
There are two platforms authorized for crowdfunding. We want to create an exchange platform where these crowdfunding platforms can register the projects they fund. We intend to link crowdfunding with an exchange platform that will record ownership and offer protection and a secondary market where investors can trade their shares. We have completed a feasibility study. Hopefully we will have an exchange for SMEs ready to be launched within 2023.
What strategic partnerships has MSX made with neighboring capital markets to solidify its base?
As part of its strategy, MSX has established several partnerships with regional exchanges to swap expertise and enhance cooperation in different topics areas related to capital markets. In 2022, MSX signed memorandums of understanding (MoUs) with the Saudi Exchange or Tadawul, Abu Dhabi Securities Exchange (ADX), the Bahrain Stock Exchange or Bahrain Bourse and the Iraq Stock Exchange. The objective of these MoUs is to enhance integration between exchanges in the region, position the region as an attractive investment hub and benefit from the diverse expertise available in each market. The MoUs signed with Tadawul and ADX have resulted in two major milestones. The first is the establishment of cross-listing with Tadawul, which was announced in late November 2022. The second is the launch of Tabadul Hub by ADX, which was joined by Bahrain Bourse. We have completed the testing phase, and Oman, Bahrain & Abu Dhabi are now connected. However, the ultimate decision of cross listing under both MoUs is made by issuers not with the exchange; we are just the infrastructure provider. We are in discussion with other markets in the region to engage in similar cooperative measures.
Why has the GCC region seen such a rise in independent public offerings (IPOs) in recent years?
Contrary to global trends, Middle Eastern markets have seen a large rise in the number of IPOs. One factor is the amount of growth witnessed by these markets as oil prices rise and activity returns to their respective prominent oil and gas sectors. This return to action has boosted investment confidence and appetite. Another factor is the desire of these governments to increase participation of the private sectors in their GDPs through the privatization of government entities. Additionally, stock exchanges are striving to add value and raise their contributions to economic growth and are undergoing reforms to promote their competitiveness.
In Oman, too OIA has announced its plan to support MSX under its five-year divestment plan, which involves divesting 30 national companies that operate in different sectors including oil and gas, logistics, food and beverages and real estate.
Can you give us a description of the recent IPO by Abraj Energy Services?
Abraj Energy Services, which operates in the oil drilling services segment, was listed on March 14, 2023, with a total offer amount of $243 million. The security saw a hike of 16.87% in its price on the first trading day. The offer size was oversubscribed by 8.7 times and ranked as one of the largest offerings in Omani history.
A High demand for company’s shares reflected a strong appetite from both local and international investors and trading activity in MSX witnessed a great boost, with an around $72.5 million increase in turnover in the first five days following the IPOs first trading day, constituting around 78% of the total market turnover and a company turnover ratio of 13% of paid-up share capital.
Ultimately, profitable listings with strong growth potential such as Abraj Energy Services aid in expanding the MSX Investor base and enhance our market depth.
Adding petroleum services to current sector mix on Muscat Stock Exchange is significant to Oman’s capital market development and diversifying investor portfolios, earlier we did not have energy sector represented on the exchange floor, Abraj has changed this landscape and in future OQ shall add to it by their recent announcement to float part of its shares on the MSX trade floor, which will create a perfect balance representing Oman’s major economic sector, Energy.
How are Oman’s special economic zones helping to boost investment inflows and drive industrial growth?
Currently, there are five special economic zones in Oman. Oman’s government has shown strong commitment to further develop and expand these zones as part of the country’s plan to diversify its economy away from oil. These zones provide a range of incentives, such as tax exemptions, accelerated setup pathways, streamlined regulations and existing infrastructure. As a result, it has become easier and cheaper for private firms to do business, leading to a surge in investments and revenue. With the right policies and implementation, Oman’s special economic zones have the potential to enhance Oman’s competitiveness, create employment and contribute to the country’s long-term economic sustainability. These zones are leveraging the fourth industrial revolution and focusing investment into the government’s key focus sectors such as logistics, tourism, manufacturing and energy. For example, the Special Economic Zone at Duqm is one of the government’s flagship projects. Its goal is to become a critical logistics and petrochemical hub for the region, and has seen investments pouring in from China, Saudi Arabia and other markets.
What is Oman doing to build up its renewables capacities and participate in the global hydrogen sector?
Oman plans to expand investment opportunities in renewable energy and become a global center for producing green hydrogen given the extensive availability of solar and wind resources and white land. The endeavor will develop social growth, build knowledge, increase industrial competitiveness and reduce the country’s dependence on hydrocarbons. Oman recently announced its hydrogen strategy, which involves raising more than $20 billion in investments. The program supports the government’s goal to have renewables take up 30% of the country’s energy mix by 2030. To this end, the government established Hydrogen Oman, which has signed six agreements with multinational corporations to develop green hydrogen projects over the next seven years. Once these projects are commissioned, operations will last for another 40 years. These projects cover an area of more than 580 miles and will collectively generate around 15 GW of electricity.
What role is MSX playing in driving green investment and stronger environmental, social and corporate governance (ESG) practices?
Introducing strong ESG measures is an emerging global trend in the international capital market arena. One of the first moves we made after establishing MSX was launching an ESG department dedicated to sustainable investment. The purpose of the department is to follow ESG principles and make sure our 108 listed companies disclose all ESG practices on the exchange. As Oman’s trading platform provider, MSX is in a unique position to support local issuers in building ESG practices. MSX regards ESG as part of its sustainable goals, and plans to maximize learning and development of ESG and sustainability concepts through regular training programs and workshops. Our ESG departments in coordination with GCC exchanges have unified regional ESG standards in line with global frameworks that have become the basis of an independent MSX ESG disclosure platform. This disclosure platform is one of the first of its kind in the region and along with its disclosure guidelines to support market participants in calculating their carbon emissions and other governance practices also makes it easier for companies outside of the exchange and even Oman to adapt these global sustainability standards.
We are proud to announce that MSX is a UN Sustainable Stock Exchanges Initiative signee and holds several agreements of mutual cooperation with national bodies to promote the march of ESG and sustainability in home ground.
What has Oman done to make itself more of an attractive destination for FDI?
Oman is an attractive destination for foreign investors because of its stable political climate, skilled workforce and well-developed logistics infrastructure. A significant achievement in terms of attracting foreign investment is the removal of ownership ceilings; it is now 100% open. Aside from three state companies, all companies are 100% available to foreigners. Additionally, we removed the holding tax on dividends in early 2023, which was another obstacle we faced in attracting investors. We now need to focus on the liquidity of the market. 2023 holds numerous plans for liquidity boosting, including market listings, provisions, security lending and borrowing. By the time these are launched at the end of 2023, we should be at the same level as other GCC markets.
One of Oman’s main initiatives in terms of attracting international investment has been revising its tax disclosures to fit international requirements, which began around 2018. This is relevant for both the US and European Union markets as they require specific tax and financial information protocols to be followed for tax compliance. Our settlement model is now based on international settlement standards, and most companies follow adequate tax disclosure activities. MSX & OIA are also sparing no cost to assess that all upcoming IPOs to ensure safe investment options for all international investors as well as US & EU that US citizens. These measures can already be seen in the upcoming OQ IPO. While we are in talks with NASDAQ to upgrade our CSD platform to incorporate newer technologies for fostering improved services to our foreign investors.
How significant are close relations to Saudi Arabia in developing Oman as a regional investment hub?
While the world faced a global slowdown of their economies during the COVID-19 pandemic, the GCC remained a very attractive place to invest in — mostly driven by developments in Saudi Arabia. Omani-Saudi investment partnerships have displayed a robust upward trend in recent years, with both countries actively seeking to expand their economic cooperation. The two countries have signed 13 MoUs in various sectors such as petrochemicals, renewable energy, green hydrogen, mining and fisheries with a total value of $30 billion.
These agreements aim to create more opportunities for joint investments and promote knowledge exchange. Our long-established historic ties with Saudi Arabia have contributed significantly to the growth of these partnerships. We are certain this cooperation will continue to strengthen in the future and help create a larger market in Oman.
How significant is American investment in Oman, and what investment opportunities are currently available?
Historically, the United States has had strong economic ties with Oman due to its strategic location at the Strait of Hormuz, which is a major shipping lane for oil tankers. The Oman-US free trade agreement signed in 2009 has played a significant role in strengthening economic relations between the two countries. The US has invested in various sectors in Oman such as oil and gas, transportation and infrastructure development. American investors have a total investment of $57 million in MSX. This is distributed over different types of securities including bonds, public companies and closed companies, with a majority ownership in the publicly listed companies of around 94%. Of that, 57% is concentrated in the financial sector, 39% in the services sector and the remaining percentage in the industrial sector.
Oman presents several promising investment opportunities for international investors. The country is rich in natural resources, including minerals and oil and gas. It also has extensive port facilities, making it an ideal destination for international trade. Oman currently has many investment opportunities in tourism, mining, circular economies, logistics, agriculture, fisheries, manufacturing, healthcare, education and renewable energy. Each segment holds immense potential for investors.
What are your current top priorities as chairman of MSX?
Our top priority is to meet FTSE and MSCI requirements for a market upgrade. We plan to enhance liquidity levels by introducing market-making and liquidity-providing activities along with allowing securities to lend, borrow and short sell. We are working with the Oman Investment Authority and the government to pave the way for sizable and profitable private companies as part of their divestment plan. We aim to enhance MSX’s contribution to the national economy through our main initiatives such as launching an SME listing platform, facilitating accessibility to the market and establishing international linkages in parallel with our subsidiary Muscat Clearing & Depository.