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CMA moots 'golden share' concept for state-owned firms

MUSCAT -- The Capital Market Authority (CMA) has mooted an innovative method to encourage state-owned companies to divest stakes in favour of investing public. The proposed method, called 'golden share', will allow the government to have veto power, even with a minority shareholding in strategically important companies, CMA Executive President Yahya bin Said bin Abdullah al Jabri, told reporters of the Oman Daily Observer, its sister Arabic daily Oman and the Editor-in-Chief of Business Gateway to the GCC, which is popularly known as the Golden Book of the Sultanate of Oman.

Oman Establishment for Press Publication and Advertising (OEPPA) , publishers of Oman Daily Observer and Oman, are media partners of the Business Gateway to the GCC. "This (Golden share) is working in European countries. Even if the government owns only 10 per cent share, they have a veto power," Al Jabri said, adding: "This gives more comfort to the government while selling shares to the public. This is one way in which we can increase the number of initial public offerings on the Muscat Securities Market ." "We are actually studying the proposal," he noted.

"We hope to see the government reducing its stake in several state-owned companies like Oman Flour Mill and Oman Cement ," the CMA chief noted. Al Jabri said that the market watchdog is also studying a proposal to bring down the minimum portion of holding to be diluted by family-owned companies, while entering the primary market with initial public offerings. The present law stipulates that companies raising funds from investing public will have to offer a minimum of 40 per cent equity capital to the public.

"Many family-owned businesses do not want to lose control. There is a lot of hesitation from family-owned business in offering 40 per cent stake to the public," he noted. "We are going to suggest that this can be brought down to 20 or 25 per cent. So that the family will not lose control," Al Jabri elaborated. The CMA chief said that such companies would be given exceptions in rules and regulations applicable to listed companies during the transition period of first three years. "These companies do not have proper disclosure norms or corporate governance. "They will be exempted from announcing financial results on a quarterly basis. They may be allowed to come out with financial results in every six months," he said.

However, after three years, these companies will have to abide by all rules and regulations applicable to listed companies. "We would like to see that the owners of family-owned businesses are comfortable, while diluting their holding," he said, adding: "This is only a proposal to encourage family businesses to float initial public offerings." The successful IPO of Galfar Engineering is a lesson to the family-owned companies. Attributing the major reasons for the recent boom on the MSM , Al Jabri said the better performance of the corporate sector aided the boom. "For instance, the banking sector has done very well..... That has an effect on share prices, which is also reflected on the index," he added.

Saying that the market is liquid, Al Jabri noted that the daily average market turnover has touched more than RO 20 million now from RO 2.5 million a year ago. "Also, we have seen a discipline on the part of people who run the companies. They are co-operating with CMA regulations. We don't see any resistance that we used to be the case in the past. They have noticed that all these measures taken by the CMA are for their benefit," the CMA chief noted.

"We have drawn a line on the responsibility of the board, the executive management and the shareholders," he said. Al Jabri also noted that countries across the world are trying to bring in more transparency and stringent corporate governance norms. There has been a tremendous growth in foreign direct investment (FDI) in the Sultanate in the last three years. The recent development of industrial projects in Sohar enabled the Sultanate to create a better image of an investor friendly country, which also helped MSM to attract portfolio investment.

By A E James

© Oman Daily Observer 2007