New millenium, new frontiers.
International bankers, fund managers and credit analysts from such influential money centre institutions as Robert Fleming, Goldman Sachs, Societe Generale, ABN AMRO and Moody's Investor Sevice were all upbeat about the country's future prospects.
Their optimism was also echoed by Omani officials, who took the opportunity to explain the new reforms in capital markets legislation and banking and the ways in which the government is seeking to encourage private investment.
Fleming's used the occasion, which was organised by Muscat-based Events International, to fly in a high-powered team from London to launch its first financial report on the country, Oman: An Attractive Investment Opportunity. The six-page document covers both political and economic trends and notes that price-earning ratios (PERs) on the Muscat Securities Market (MSM) at the end of last year were at 11.0, slightly ahead of Egypt but well below those recorded in Saudi Arabia, Jordan, Lebanon or Morocco - all countries which have attracted, or are expected to attract, substantial foreign investment.
The advantage of such undervalued shares, the report adds, is coupled with impressive US dollar returns on equities, given the country's stable currency. In the first two months of this year, these rose by 5.5 per cent, compared with a fall of 6.9 per cent in Saudi Arabia and 7.3 per cent in Lebanon.
While Egypt reported the most important gains in dollar terms, 16.1 per cent, Oman still offered better returns than either Jordan or Morocco, which registered positive rates of about three per cent.
Although problems of low turnover and liquidity remain, Omani shares "offer an attractive investment opportunity," the report concludes. While "the economy has slowed" in line with other oil producing economies, Fleming's sees "grounds for cautious optimism for renewed growth and a recovery in internal and external imbalances in line with an oil price recovery from 2000. The stock market is efficiently organised and regulated," the report says, "and is priced attractively once more." New regulations that increase openness to foreigners, the report adds, "should help to increase activity in the market."
Omanis will be pleased to hear that such a favourable assessment by one of Britain's most respected investment banks is currently being circulated to 4,000 institutional investors around the world. Colin Craig, senior director at Fleming's, reports that these investors "account for about $100 billion of the $250 billion available" for investment in emerging market economies.
While sceptics might dismiss such optimism as more a reflection of the current doom and gloom in financial markets in Asia, Russia and Latin America, the sense that Middle Eastern stock markets have not only escaped such turmoil but stand to show significant gains in coming years is shared by other investment bankers, many of whom cite Oman as second only to Egypt in terms of its attractiveness.
Clark Anderson, vice-president of Goldman Sachs, paid tribute to Oman's "progressive central bank, new securities law, incentives for bank mergers, and tightened regulations," as well as its "transparency of accounts". He told the audience of some 100 bankers, businessmen, academics and officials that, in his opinion, "Oman is getting this balancing act right." It is developing its economy "in a way that allows it to remain Omani in character while prospering" in the broader global economic framework.
Sean Taylor, senior fund manager at Societe Generale, the big French conglomerate which has now joined forces with another huge French concern, Banque Paribas, had broad praise for the region as a whole, as well as Oman. "The Middle East held up well during the emerging market crisis because the fundamentals of many of the countries in the region were strong," he maintained. "Many countries had solid GDP growth, the results of reformation and earlier stabilisation programmes, stable currencies and positive real corporate earnings growth."
The area, he added, "has had historically high returns on equity and at very reasonable current valuations." The macro-economic environment is "also improving," he noted, "leading to declining real interest rates." All these factors, Taylor said, were "very positive" for stock market appreciation.
Oman, he went on to say, is "the most open market in the GCC region". This openness, he added, "has improved dramatically in the last few years." Other favourable signs, in his view, included the Sultanate's "transparency, especially in the banking sector," the lack of major problems for minority shareholders, the recent regulatory changes to the MSM and "the strong central bank".
While mergers and acquisitions needed to be encouraged to address the problem of too many small, undercapitalised companies in the market, and information on equities needed to be disseminated more equally, the MSM represented "good fundamental value". "Banks are attractively valued with price-book values under 1.5 and high returns on equity," Taylor remarked.
Utilities constituted "a good defensive play on a contracting economy," he added. Although profits were likely to be down in the service sector this year, "some well run companies will still make profits and are attractively valued."
"Since I first came in 1994," commented Angus Blair of ABN AM RO, the Netherlands-based global investment bank, "there has been a big improvement. Intermediaries here are [now] well placed to help meet the market's demands."
Andrew Cunningham, vice-president and senior credit officer of Moody's Investor Services, told the audience that "during the last 10 years, Gulf banks have been transformed. Balance sheets have been rebuilt," he maintained, "and management improved." However, he also called for the establishment of a corporate bond market "which could provide a range of risk and returns". While some banks might regard such a development as a threat to their business, Cunningham said that in the medium-term, such a market "would assist in creating deeper and more diverse financial markets and bring benefits to the banking system".
David Wilson, resident partner in Muscat for the UK law firm, Trowers & Hamlins, focused his attention on Oman's potential as a base For international bankers, "given the country's general advantages as a place to live and work." Oman is also "ahead of the game," he felt, "in the development of its stock market," which he said had "attracted far more attention than other Gulf markets". It was also noticeable, he remarked, "that a number of companies are looking abroad either for general business opportunities or for new capital." Foreign bond issues and Global Depository Receipts (GDRs) "are attracting interest".
Noting that there was a perception in Oman that "cash is in short supply," Wilson pointed out that Omani government development bond issues "are still being oversubscribed". This, he concluded, "suggests that the cash is actually there but what is happening is that investors are being much more discriminating in picking reliable sources of income."
The Omani delegation to the conference was led by Minister of National Economy Ahmed Abdulnabi Macki, who is also in charge of the Ministry of Finance and head of the powerful ministerial committee on energy resources and financial affairs. He stressed the government's determination to diversify the economy and to attract foreign investment, as well as to encourage the private sector and to develop its human resources. Tax exemptions, soft loans and competitively priced leased land were part of the package being offered to the international business community.
Oman, he added, was also making "great strides in the framing and implementation of transparent economic, financial and fiscal laws, as well as effective regulatory structures". The 1998 Capital Markets Law, he noted, helped to put the Sultanate "in the vanguard of this movement in the Gulf region".
Ashraf Nabhan Al-Nabhany, the acting executive president of the newly established Capital Market Authority, emphasised the reforms which the government has been making to encourage both foreign direct and foreign portfolio investment. Oman, he noted, was about to be included in the index of emerging country stock markets compiled by the Washington-based International Finance Corporation.
The government was also acting to encourage privatisation and the creation of larger, more efficient concerns - moves which should help to increase liquidity oil the MSM. "We need stronger companies and more companies with foreign participation," he maintained, "and this will also help develop technology transfer, know-how and marketing."
Responding to criticisms that the government still limits foreign participation, Nabhany noted that recent changes in regulations allow foreign investors to receive the same tax exemptions and incentives as those provided to nationals from Oman and the other Gulf states. Foreign majority control of firms is now allowed, even up to 100 per cent, subject to ministerial agreement, he confirmed.
The Central Bank of Oman's executive vice president, Dr. Mohamed Abdulaziz Kalmoor, cited recent signs of a steady rise in oil prices and the lowering of interest rates to eight per cent as indications that the Omani economy was recovering. However, he dampened hopes that the government might lift its moratorium on new banks saying that if you had too many in the country, "you would have too much competition." Banks, he felt, would then "go for short-term assets, which are not creditworthy".
For the Sultanate, holding a conference attended by so many senior executives From international financial institutions - at a time when it is reportedly ready to join the World Trade Organisation (WTO) marked a new stage in its evolution as a player on the global stage. While the vote of confidence given to Oman's prospects, despite the current economic difficulties, came as a surprise to many in Muscat, the good news was more than welcome. It now remains to be seen whether this confidence is translated into more investment, from private local businessmen as well as from foreign funds, in the coming months.
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|Title Annotation:||Oman; 25th Anniversary Issue|
|Comment:||International bankers, fund managers and credit analysts attending a finance conference in Muscat, Oman, were very optimistic about the country's economic prospects.|
|Publication:||The Middle East|
|Date:||May 1, 1999|
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