Nick Simpson, Co-Managing Partner, Dentons, on changes to the financial market: Viewpoint

Viewpoint: Nick Simpson

Oman’s five-year plans have emphasised the significance of diversification and privatisation. Recently, the government launched the Tanfeedh programme to achieve these goals, as documented in its ninth five-year plan. The Tanfeedh programme entails a review of the strategic sectors, which means identifying areas for improvement and enacting a plan.

In addition to this, robust legislative reforms have been instituted to achieve the privatisation objective. The enactment of a new code of corporate governance for public joint stock companies is one such key initiative. The new code replaces the old code of 2002 and is aimed at further strengthening investor confidence in joint stock companies.

The new code requires that all board members be non-executive, and new directors are now required to undergo an induction process. The roles and responsibilities of directors are explained in detail and the description of an independent director has been amended to align it with global standards. The procedures for approval of a related party transaction have been tightened. The new code mandates the formation of a remuneration and nomination committee to design remuneration packages to ensure retention of senior management and nomination of suitable candidates in the event of a replacement. It also requires the chairman to ensure that the shareholders appoint an independent consultant for an annual evaluation of the board. In addition, the new code necessitates scrutiny of listed companies from a perspective of governance.

The Capital Market Authority (CMA) Decision No. 3 of 2016 issued on April 5, 2016 introduced the CMA’s long-awaited sukuk (Islamic bond) regulations. These mark the culmination of more than three years of drafting, redrafting and consultation with industry players both locally and internationally. The regulations provide for the licensing of the sukuk vehicle, subscription restrictions, form of prospectus, sharia certification and listing on the Muscat Securities Market. On the heels of the publication of Oman’s new sukuk regulations on April 5, 2016 came the introduction of new listing categories on the Muscat Securities Market. In May 2016 the CMA issued Decision No. E/5. of 2016, which amends certain provisions of the Executive Regulations of the Capital Market Law Decision No.1 of 2009. The amendments are brief but revise key provisions relating to the listing of shares and securities on the Muscat Securities Market based mainly on the financial performance of the listed entity. Among other changes, the requirements for listing on the Regular Market have been enhanced and the bond market has been enlarged to include sukuk issuances.

The introduction of sukuk to the bond market is significant and may reflect a recognition by the CMA of the importance of having a clear and efficient regime to accommodate and further stimulate the increased use of debt capital market financing in Oman and the greater Gulf region. This is a new market segment — the under monitoring market — that has been introduced for companies in financial difficulty, those deciding to dissolve or those changing their legal form. Balancing in-country value with privatisation is a key aspect of Oman’s five-year plan. Following the establishment of the Omani Authority for Partnership for Development (OAPFD) in 2014, the OAPFD regulations were amended earlier this year. The regulations aim for a collective effort between the foreign contractor and the government to achieve in-country value for Oman and primarily apply to infrastructure, military or security equipment contracts in excess of OR5m ($13m).

The above provides a helicopter view of the principle changes implemented by the Omani government that are aimed at bringing about a robust change in the economy to achieve the key principles of significant economic diversification and privatisation.