Volatile oil prices, coronavirus fears pull down MSM

MSM30 Index closed the week down by 9.11 per cent w-o-w, largely on account of fears of an increase in coronavirus cases and a price war between major oil producers. All sub-indices closed down, led by the Financial Index, which closed down by 8.67 per cent w-o-w followed by the Services Index which closed down by 7.23 per cent w-o-w and the Industrial Index which closed down by 7.20 per cent w-o-w. MSM Shariah Index closed down by 5.99 per cent w-o-w.

Units of Aman Real Estate Investment Fund — the first Real Estate Investment Fund (REIF / REIT) in the Sultanate — will be listed on the MSM on Sunday, March 15. Subscriptions into the Fund had closed on March 1, 2020 after two sets of extensions to allow for customers to consider investing in the maiden REIT. Subscriptions covered 50 per cent of the 100 million units offered for public subscription at a total value of RO 10 million. Aman will distribute 90 per cent of the net income to investors holding units in the fund at 7 per cent dividend in two semi-annual payments. Aman offered 25 per cent of the assets of Sandan Industrial Estate at Halban, which is owned by Sandan Development. The company agreed to the lease of the properties for five years.

Central Bank Oman approved Sohar International Bank (BKSB)’S cash dividend of RO 0.003 per share and stock dividend of 3 per cent, maintaining the total pay-out as proposed by the Board earlier while changing the composition of the dividend (3 per cent Cash and 3 per cent Stock from Board’s proposal of 6 per cent cash). The proposal is subject to shareholder approval at the AGM.

Bank Dhofar’s dividend proposal for 2019 has been reduced to 3 baisas cash per share from an earlier 7 baisas per share, subject to shareholder approval at the AGM. We believe that the CBO has approved a smaller dividend payment in order to let the bank maintain its capital adequacy ratios. As at 2019-end, the bank’s Common Equity Tier 1 stood at 12.59 per cent, Tier 1 Capital Adequacy Ratio stood at 16.4 per cent and Total CAR at 17.86 per cent, which are above the minimum regulatory requirements but with a higher than sectoraverage NPL ratio (at 4.75 per cent of gross loans) and much lower than sector-average provision cover (at 78 per cent), it is prudent for the bank to reduce pay-out as of now in order to shore up capital for any future rise in delinquencies.

National Biscuits Industries announced that it was exposed to an online fraud when a transaction of Euro 169,799 (RO 70,090) was carried out from its accounts. The Company has initiated legal measures to recover the above amount. Meanwhile, the company has strengthened its internal control system including its IT control framework to avoid recurrence and minimise risks.

Sohar Port & Free Zone Authority announced that it has received investment of RO 10.4 billion till date. The number of vessels that were called into the port reached nearly 3,200 vessels, 900 of which were in the last quarter of the year. During 2019, dry bulk was valued at over 36 million tons, liquid bulk at over 15 million tonnes and breakbulk over 1 million tonnes. There are also plans in the pipeline for the expansion of Sohar Freezone, which in turn, will increase its capacity to bring in prospective investors.

Small and Medium Enterprises in Oman continue to grow supported by government friendly and supportive laws for the entrepreneurs in Oman. SMES in Oman have grown from 32,441 in December 2018 to 42,698 at the end of 2019, growth of 14.5 per cent. During 2019 around 5409 new SME were started. Of the total SMES, majority are located in Muscat Governorate at 33 per cent, followed by 16 per cent in Al Batinah North and 13 per cent in Ad Dakhiliyah. Of the total number of SMES, 6 per cent are of medium size in nature while the remaining 94 per cent are small.

Oman’s import and local production of natural gas during 2019 amounted to 46,190 million cubic metres (mcm) compared to 45,721 mcm during 2018, growth of around one per cent. In terms of use, power generation, industrial projects and oil fields requirement was at 7,453 mcm, 28,751 mcm and 9,776 mcm, respectively. Regionally, all GCC indices closed down by led by Dubai and Abu Dhabi.

Saudi Arabia and other big oil exporters that make up Opec had agreed on March 5 to further cut their oil output by 1.5 million barrels a day to December 2020, in an attempt to shore up the price of oil as the new coronavirus wreaks havoc on the global economy. But that agreement was conditional on the support of Russia which ultimately balked, ending the two-day Opec meeting in Vienna with no new agreement and sending crude prices into free-fall.

The fall was further aggravated by aggressive increase in oil production by Saudi Arabia and the UAE. Saudi Aramco announced that it received a directive from the Ministry of Energy to increase its maximum sustainable capacity (MSC) from 12 million barrels per day ( million bpd) to 13 million bpd. UAE’S ADNOC announced that it plans to increase its oil production capacity to 4 million bpd by the end of 2020 and 5 million bpd by 2030 after new oil and gas finds. We believe, if oil will continue to sustain at current levels, the shale oil production which amounts to 8-9 million bpd will be impacted immensely ultimately aiding in oil price recovery. (Credit: U-capital)