By Samuel Kutty — MUSCAT — The total amount of rights issues on the Muscat Securities Market in 2012 has reached RO 203.7 million with the financial sector including banks and leasing companies taking the lion’s share of 76 per cent. The rights issues are being made mainly to meet the increasing requirement of capital base. “Introduction of Islamic banking is the key trigger for additional capital for banks while the leasing companies look for new capital through rights in order to adhere to the regulatory capital requirement,” says Suresh Kumar, Head of Research at Al Maha Financial Services.
Banks need to comply with minimum capital requirement of RO 10 million for Islamic banking window operation as per the Central Bank of Oman’s stipulation. Half of the listed banks look for capital through rights issue mainly to develop the necessary framework for the introduction of Islamic banking windows. At the same time 50 per cent of the listed players in the leasing space are looking for raising capital through rights to comply with minimum capital requirement of RO 25 million by 2016.
Although the Sultanate’s banking sector continues to maintain strong performance aided by higher credit growth, increasing contribution from non-interest income and stabilising asset quality. Yet the listed banks in Oman had been underperformers in the secondary market since the beginning of the year owing to expectations of lowering interest margins, impending competition from Islamic banks and concerns thanks to over-capitalisation levels in terms of lower return ratios in the short-term.
According to Said al Badai, DGM, Branches, bank muscat, “due to various regional and global factors, the banking sector in general has been facing pressure on Muscat Securities Market. Expectations of lower margins owing to pressure on interest spread, impending competition from Islamic banks have all contributed to this”.
The bank’s rights issue in July to raise RO 96.7 million was aimed at enhancing Tier 1 capital. The bank had offered 226.5 million shares at 427 baisa per share comprising a nominal value of 100 baisa, premium of 325 baisa and issue expense of 2 baisa per share.
According to the bank, the proceeds of the issue will be utilised for financing growth resulting from the credit expansion following general economic growth in Oman; capitalising Islamic banking business and enhancing capital adequacy ratio to enable readiness for adoption of Basel III when introduced.
Ahlibank’s issue of RO 25 million hit the market in July. The bank offered rights at 101 baisa per share which was at a deep discount to its market price.
Bank Sohar is planning to float a RO 10 million rights issue to boost its issued capital from RO100 million to RO110 million and also seek shareholders' approval for the issuing of 100 million shares at par value of 100 baisa per share, according to the bank's disclosure to MSM last week.
In the leasing sector, National Finance, Oman Orix Leasing and Al Omaniya Financial Services raised RO 5 million, RO 7.5 million and RO 10 million respectively in rights in the first and second quarters.
Renaissance Services issued 423,141,678 mandatory convertible bonds worth RO 43.2 million at an issue price of 102 baisa each on rights basis.
Transgulf Investment Holding has plans to launch a rights issue worth RO 3.3 million to increase the paid up capital to RO 10 million from the existing RO 6.69 million.
Meanwhile, Interior Hotels announced that Capital Market Authority has given permission for the priority issue of 30,010,500 right shares at 101 baisa per share.
Analysts believe that the market is reacting to rights issues and global financial market headwinds.
Maria Pinelli, Global Strategic Growth Markets Leader, Ernst & Young comments: “The second quarter results show relative optimism for capital-raising. However, this optimism is in certain markets and capital market activity continues to be hampered by lack of investor confidence and economic uncertainty. Balanced monetary policy in the developed and emerging economies will be important for investor and issuers’ confidence to return.”
The local bourse declined 5.83 per cent in July, the sharpest monthly decline in the last one year. And subsequently has shown a bounce back of 2 per cent in the first couple of days of this month.
