Services sector leads MSM decline

MSM30 closed the week down by0.40 per cent. Trading activity was lower as turnover and volume dropped by 8.4 per cent and 9.4 per cent, respectively. Foreigners were net sellers of approximately $2.1mn.

Market closed down led by Services Index which was down by (-3.19 per cent). While the Financial and Industrial Index were up by 0.02 per cent and 0.50 per cent w-o-w, respectively. Shariah Index closed down by 0.39 per cent during the week.

Insurance providers contacted by a local print media group confirmed that they are in discussion with the Capital Market Authority, among other authorities, about the scope of any COVID-19 related cost burden on them. Discussions have been ongoing between them, but they have not yet received any directives with regard to this issue. Insurers anticipate some announcement to this effect soon. The deliberations cover issues to do with, among other areas, patient cost-sharing, prior authorization waivers, co-pay, exclusions, and so on. Pandemics are typically excluded from health insurance coverage. Part of the reason why is because the risk is not well understood and therefore difficult to price. We will wait for the final outcome of the discussion between the regulator and insurance companies and will further analyse it once it is announced.

Various utility companies last week announced that they received letter from OPWP, communicating that starting April 2020 it will hold back the power capacity investment charge and water capacity investment charge over and above holding back of fuel charge payment. However, OPWP will continue to pay Power Capacity Fixed O&M charge, Water capacity fixed O&M charge, Electric Energy charge and Water output charge. Capacity investment charge is designed to cover the investment by the Company such as debt service, return on capital, tax payments, connection fees etc, and costs that are not indexed to inflation rates.

As per our estimations as many utility companies do not give the full revenue breakup, we believe the capacity investment charge revenue total for the year 2019 was approximately RO 230mn for the listed utility companies i.e. 37 per cent of the total revenue and approximately 60 per cent (average of companies which disclosed revenue breakup in the 2019 financials) of the total capacity charge revenue (capacity charge revenue is sum of capacity operation/maintenance charge and capacity investment charge). We believe this is a short term matter largely due to challenges posed by COVID-19 and low oil prices. As oil prices are on recovery path, and taking into consideration OPWP’s spotless track record, we believe this situation would be addressed appropriately taking all the stakeholders on board.

OPEC issued its monthly report last week. According to secondary sources, total OPEC-13 preliminary crude oil production averaged 30.41 mb/d in April, higher by 1.80 mb/d m-o-m. Crude oil output increased mainly in Saudi Arabia, the UAE and Kuwait, while production decreased primarily in Angola, Nigeria, IR Iran and Iraq. In addition to the agreed production adjustments that should take effect as of 1 May 2020, on 12 May, Saudi Arabia, UAE, Kuwait and Oman announced that they would voluntarily deepen oil output adjustments from June, by 1 mb/d, 100 tb/d and 80 tb/d, 10-15 tb/d respectively, in an effort to expedite draining a global supply glut and rebalancing the oil market. [Courtesy: U-Capital]


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