OBG talks to Sheikh Abdullah bin Al Salmi, Executive President, Capital Market Authority (CMA)

Interview: Sheikh Abdullah bin Al Salmi

What measures is the CMA taking to ensure efficiency, transparency and governance?

SHEIKH ABDULLAH BIN AL SALMI: The CMA is a member of the International Organisation of Securities Commissions, which has issued 38 principles that we are obliged to comply with and implement. The CMA has also signed a number of memoranda of understanding and joint cooperation agreements with exchanges and regulators in other countries, so as to keep pace with developments and updates within the industry. This is to ensure that Oman’s capital markets meet global standards that will bring trust and confidence to investors.

A recent report by the Financial Sector Assessment Programme of the World Bank Group found Oman’s capital markets have shown marked development since 2003, particularly in the areas of transparency and efficiency. The CMA also has internal measures in place with which issuers and all market participants are required to comply. Failing to do so puts these companies under question by the CMA and punishment may be financial or imprisonment. In addition, Oman was the first in the region to introduce corporate governance and currently all of our listed companies are in compliance. As regulators, we are committed to fulfilling our mission of building a regulatory system that provides an attractive investment environment and improves investors’ perceptions of the market.

To what extent has instability in the region and in global finance affected investor sentiment?

AL SALMI: Capital markets are very sensitive to outside influences. In Oman’s case, the Muscat Securities Market (MSM) has been significantly affected since the beginning of the financial crisis in 2008. It has lost more than 50% of its value and trading volumes have dropped from OR15m ($39.1m) per day to about OR3m ($7.8m). Analysts attribute this to negative sentiment pertaining to regional and global markets. The openness of the MSM to foreign investors has made it more vulnerable to fluctuations in foreign markets, with “hot money” the first to be withdrawn. Since 2008, foreign investment has dropped from more than 30% of total market capitalisation to 23%. Internally, however, the inputs look a bit different. The economy is growing with strong government commitment to spending, and our local listed companies are performing well.

What steps are being taken to nurture the development of the equity market?

AL SALMI: Capital markets in Oman, like others in the region, are nascent, so when businesses need financing, they first approach banks for short- to medium-term loans, which can cause a mismatch in the longer run. To overcome this challenge, we must educate lenders and the public about the role of capital markets. The CMA is also reviewing its rules and regulations to facilitate the raising of funds on the capital market. In addition, more investment banks need to be established to help businesses finance projects through the use of equity or debt instruments such as bonds or sukuk (Islamic bonds). There also needs to be greater sovereign participation in regard to bonds. The fixed income market lacks a yield curve, which cannot be established unless the government issues bonds on a regular basis and discloses a plan for future issuances. The private sector can then be guided by this benchmark.

How might local brokerage mergers improve foreign investor confidence and market strength?

AL SALMI: Having well-capitalised brokerage firms with larger market shares would definitely add to investor confidence. Despite the fact that all brokerages here are in regulatory compliance, investors, mainly foreign, would prefer to deal with larger, established firms. For local brokerages, becoming stronger through mergers would improve profitability and boost resilience to shifting market conditions. It would also allow them to compete not only locally but also regionally and internationally. Thus, we encourage consolidation that will increase investor confidence and improve service.