Book-building — a price discovery mechanism increasingly used in stock markets around world — is now the norm for companies listing on the Muscat Securities Market (MSM) via an Initial Public Offering (IPO).
The first company to employ the book-building process in the upcoming launch of its IPO is Musandam Power Company SAOG (MPC), which owns and operates the first Independent Power Project (IPP) in Musandam Governorate. MPC, a partnership of Oman Oil and Orpic Group (70 per cent) and LG International (30 per cent,) is divesting 40 per cent of its equity capital via an IPO based on a two-phase book-building model next month.
“MPC will be first company that will test a new process that the Capital Market Authority (CMA) is launching. The objective is to overhaul the IPO process in Oman by introducing changes that will raise the IPO process that we’ve seen in the past to the best international practice,” said Abdullah al Hinai of BankMuscat, the Financial Adviser and Issue Manager for Musandam Power’s IPO.
Speaking at a press briefing on the upcoming public offering, Al Hinai said the objective behind the book-building mechanism mandated by the CMA for all new IPOs is two-fold. “One is to bring more transparency to the process, and secondly, to bring more efficiency in terms of price discovery.”
In line with the book-building process for the IPO, MPO’s public offering will be launched in two phases, said Al Hinai. “In Phase 1, the IPO will be done through a book-building process and this will be geared towards larger (institutional) investors who will subscribe a minimum of 200,100 shares and up to 10 per cent of the shares on offer. The price range is between a minimum of 260 bz and a maximum of 325 bz. Investors in Phase 1, covering 50 per cent of the total shares, will have to apply a price between these two price points.”
In a departure from the previous mode of public offerings, investors will be allowed to put in three price bids under the book-building process. Additionally, there will be allowed to amend and change their bids, but only for a higher number of shares or higher price or both. (They will not be allowed to reduce the number of shares or the bid price.) Furthermore, these bids will be posted on the MSM website, ensuring transparency in the process, said Al Hinai.
Upon the completion of Phase 1 and the identification of the price, Phase 2 gets underway. Covering the remaining 50 per cent of the total shares, this phase is primarily targeted at retail investors applying for shares of 200,000 or less (minimum application is for 1000 shares). The newly identified price will be applied to investors in Phase 2, he said, adding same clearing price will be uniformly applied to all investors at the allocation stage.
In another key feature of the book-building process, application forms from investors will be collected by ‘collecting agents’, comprising not only banks but also licensed brokers operating in the market.