Local news

Musandam Power Company’s IPO subscription for phase 1 will start this week between November 3 to November 7. U-Capital Research recommends subscribe for the IPO. We estimate fair value at 308bz per share. U-Capital also recommends bidding in the range of 280bz-285bz per share. Musandam Power caters to the bulk of current and future projected electricity demand of the Musandam region. The company has no cash sweep mechanism and also has no pending litigation issues.

Galfar Engineering & Contracting announced that it has been awarded a contract for a value of US$16.4mn, bringing its total new contract awards to

RO171.7mn. This award for civil and concrete works at Ras Markaz Crude Oil Park Project (phase 1) has a completion period of the work at 12 months. Oman & Emirates Investment Holding Company and The Financial Corporation (Fincorp) have agreed to start discussions for a potential merger between the two financial institutions.

United Finance Company announced that its board has approved proposal to enter into discussions to explore a possible strategic collaboration with Taageer Finance Company, subject to approval of shareholders, regulatory authorities and Taageer Finance’s board. Depending on the outcome of this discussion, we believe that if the companies decide to merge, either through merger by acquisition or merger by combination, the total book value of the combined entity will be RO85mn, with combined entity surpassing Al Omaniya Financial Services as the second largest non-banking financing company (NBFC) in Oman in terms of total net financing asset.

World Bank issued Doing Business Report last week. Oman ranked fourth in the GCC and fifth in the MENA region on the Doing Business 2020 rankings. The sultanate improved its ranking by ten positions to reach the 68th position globally. Specific improvements made by the country included reforms for getting electricity, registering property and by upgrading infrastructure at Sohar Port. Oman also strengthened minority investor protection by increasing shareholder rights.

An analysis of Oman’s listed conventional banks’ financial statements of the first half of 2019 reveals that two banks: BankDhofar and NBO are relatively closer to the retail limit imposed by the Central Bank Oman (CBO) of 50 per cent. The other four banks are wellbelow the limit on retail lending. Inflation rate in Oman was recorded at 0.01 per cent in September 2019 compared to September 2018. Inflation rate when compared to August 2019 was however down by 0.56 per cent. The food and non-alcoholic beverages group witnessed a price rise by 1.64 per cent; furnishings, household equipment, and routine household maintenance by 5.16 per cent; health by 0.20; restaurants and hotels by 0.36 per cent; education by 1.99 per cent; and recreation and culture by 0.60 per cent. However, the prices of housing, water, electricity, gas, and other fuels fell by 0.28 per cent; transport by 2.57 per cent; communication by 0.32 per cent; and miscellaneous goods and services by 2.11 per cent in September 2019 compared to the same month of the previous year.

GCC markets

Among the GCC markets, Oman is the only market which was up last week while Saudi Arabia was the worst performer during the week.

As per the World Bank’s latest Ease of Doing Business report, almost all of the countries in the GCC witnessed improvements in their rankings for ease of doing business. The countries in the GCC adopted 35 reforms over last year to improve the business environment. These reforms form a major part of the efforts of GCC economies to diversify away from oil. Saudi Arabia was the most improved economy in the report and saw the biggest gain in its rank in the GCC, improving by 30 positions to rank at the 62nd spot. Bahrain ranked second in the GCC and MENA region with an overall global rank of 43. The country gained 19 spots as compared to its previous ranking. Kuwait witnessed one of the biggest improvements in its ranking. The country’s rank jumped 14 positions to 83rd. The UAE continues to top the GCC with an overall rank of 16th, sliding five spots as compared to the previous year’s 11th position.

As stated in our last report, the US Federal Reserve cut its benchmark interest rate for the third time this year last week. The Fed reduced its short-term borrowing rate, which influences a broad range of consumer and business loans, by one-quarter percentage point to a range of 1.5-1.75 per cent.

Being pegged to the US dollar, most of the countries in the

GCC followed Fed route and also slashed their respective rates. Kuwait reduced its discount rate to 2.75 per cent from 3 per cent. This was Kuwait’s first cut as it did not change rate in July and September.

Saudi Arabia lowered its repo rate by a quarter-point to 2.25 per cent, and its reverse repo rate by the same amount to 1.75 per cent. The UAE and Bahrain also cut benchmark rates by 25 points. Qatar central bank cut the lending rate to 4.25 per cent, the repo rate to 2 per cent and the deposit rate to 2 per cent.

Recommendation

As expected, the US Fed slashed the interest rate last week. This was the third rate cut this year of the four announced by the Fed at the start of the year. However, we believe the Fed is done with the rate cut for this year and we will not see interest rates going down further.

Regionally, the rate cut was followed by all the economies in GCC except Oman. The banking sector responded negatively to those cuts on the last day of last week. However, rate cut would be positive for other sectors as it would reduce the risk free rate and interest expense of leveraged companies.

Locally, the institutions would be gearing up to place their bids for the Musandam IPO, which would dry up the liquidity further for a couple of weeks.