Investors eye state energy firm OQ as Oman stock market poised for take off


Al-Monitor Pro Members


Samuel Wendel

Senior Market Research Analyst, Al-Monitor


Mar. 17, 2023

Bottom Line:

In the latest sign of investor demand for Gulf deals, Oman has welcomed its largest IPO in over a decade: the Sultanate’s state energy company OQ raised $244 million by selling a 49% stake in its oil and gas drilling business Abraj Energy Services, which began trading on the Muscat Stock Exchange (MSX) on March 14. The oversubscribed offering generated $2 billion in orders, which included unprecedented participation from retail investors and saw a unit of Saudi Arabia’s Public Investment Fund (PIF) join as an anchor investor. This has put Oman back on the radar for investors amidst a larger listing boom in the Gulf, with Abraj Energy’s IPO set to potentially fuel further activity in the Sultanate.

Background Facts:
  • Despite modest IPO activity in recent years, Oman plans to list 35 state-owned companies over the next five years as it seeks foreign capital to drive growth and diversify away from oil. In 2023 alone its wealth fund the Oman Investment Authority (OIA) reportedly plans to raise over $1.3 billion by exiting investments across eight sectors.
  • These plans emerged amid a Gulf IPO boom: as global markets reeled in 2022, the GCC delivered a record-breaking 48 public offerings that raised $22.9 billion, up from 21 listings totaling $7.7 billion in 2021, according to PwC.
  • The UAE and Saudi Arabia overwhelmingly powered those results by privatizing key state-owned entities, which saw both countries rank among the top 10 globally for IPO proceeds in 2022.
  • Yet, regional neighbors were largely missing from this listing spree. Oman was a minor exception by registering two IPOs in 2022 that raised about $70 million combined. That comes after Oman saw two IPOs raise a total of $20 million in 2021, according to Ernst & Young (EY).
  • Other GCC countries could produce more listings going forward, with EY telling Al-Monitor in January 2023 that it was working on IPO preparation projects in Oman, Kuwait and Qatar. 
  • Meanwhile, the UAE’s IPO pipeline continues producing in 2023: Abu Dhabi’s ADNOC Gas just raised $2.5 billion and began trading on March 13, with its shares rising upon its debut. The offering enjoyed record demand, generating over $124 billion in orders for approximately a 5% stake.
  • Abraj’s shares then debuted on March 14 and surged 16.87% on day one. The offering was originally expected to raise up to $500 million, as Bloomberg reported in 2022, but it’s still the Sultanate’s largest IPO since the telecom now known as Ooredoo Oman raised approximately $472 million in 2010.
  • Regarding demand, three anchor investors subscribed for 40% of Abraj’s shares at maximum price. That included the Saudi Omani Investment Company, which is a wholly owned unit of the PIF. Overall, 46% of institutional applications came from non-Omani investors.
  • The subscription process also drew 40,000 applications from retail investors, equal to 0.8% of Oman’s population. “This kind of a retail participation is unprecedented in Oman’s capital markets,” notes Joice Mathew, head of equities research at Oman’s United Securities, who added that retail demand was 0.75% of the country’s total banking assets.
  • Against that backdrop, Oman’s primary market is expected to be busy in 2023, driven by OQ and the OIA, reports Mathew. The wealth fund has announced intentions to list the gas pipeline company OQ Gas this year. That IPO could raise up to $800 million and potentially be a dual listing in Saudi Arabia and Oman, Bloomberg reported last year.
  • United Securities also expects a listing from water company Majis Industrial Services later in 2023 or early 2024. A few power generation and water desalination assets are also set to go public soon as part of contractual obligations.
  • Meanwhile, Oman is also working towards an upgrade to emerging markets status. Index providers MSCI and FTSE Russell currently include the Sultanate in their frontier markets indices, while all other GCC countries save Bahrain have reached emerging markets classification.
  • MSX’s CEO hopes index providers will add Oman to reclassification watch lists in 2023, according to a local media report. In order to achieve that upgrade Oman needs to meet market accessibility criteria alongside minimum size and liquidity requirements.
  • For instance, the MSX needs to feature three companies with a full market cap of at least $2.139 billion to meet company size requirements for emerging market status as of 2022. Currently, only Bank Muscat reaches that threshold.
  • Notably, Bank Muscat was the top constituent in FTSE’s frontier market index, with a weight of 3.28% in 2022. Overall, the 14 Omani companies included by FTSE represented a combined 6.8% of the index, the fifth largest share among the 22 countries it featured in 2022.
  • That said, per FTSE’s assessment of market quality last year, Oman had speculative creditworthiness and didn’t meet criteria for permitting stock lending or short sales and lacked a developed derivatives market.
  • However, Oman announced in 2022 that it would now allow publicly traded companies to be 100% foreign-owned, a move bringing it closer to joining emerging markets indices.
  • Additionally, the MSX appointed two new firms as advisers in September 2022 to help attract more listings and improve capital markets participation. In January 2023, Oman also joined the Tabadul platform, enabling its listed stocks to trade in Abu Dhabi and Bahrain.
  • Elsewhere, credit rating agencies Fitch and S&P both upgraded Oman late last year due to improved fiscal performance, which came as high oil prices helped its government buy back debt and register its first budget surplus since 2013.
  • Still, oil prices have retreated considerably since early 2022 and rising interest rates, high inflation, geopolitical issues, volatility in global equity markets and valuation adjustments could undercut GCC capital markets activity
  • Although the Gulf’s IPO pipeline is expected to remain active in early 2023, there are red flags: nearly half of companies that went public in MENA in 2022 delivered a negative return compared to their IPO price at year’s end, according to EY.
Alternative Scenarios:

Scenario 1: As the Gulf’s IPO boom fades, Oman delays additional 2023 listings

Broader global turmoil hurts local economies and sees IPO activity in the UAE and Saudi Arabia slow down and valuations adjust. Abraj’s shares underperform in coming months and the OIA taps the breaks on public offerings in the short-term.

That said, massive investor demand for shares of ADNOC Gas points to continued regional momentum, which should allow Oman to push its privatization plans in coming months.

Scenario 2: A big year sees Oman added to emerging markets watch lists in 2023

Buoyed by Abraj, Oman’s government ramps up additional listings, headlined by a mega IPO from OQ Gas. Market depth improves and Oman introduces additional reforms aimed at achieving an upgrade to coveted emerging markets status. That sees leading index providers include the Sultanate on watch lists in 2023 ahead of a reclassification in 2024.

However, Oman’s market is still small compared to key Gulf neighbors. Gaining access to emerging markets indices will require the MSX to improve liquidity and add multiple other mid cap companies into the mix alongside Bank Muscat. That will be no small feat in 2023 alone.

Conclusion - Most Likely Scenario:

Oman produces additional IPOs in 2023 as the OIA capitalizes on investor demand for regional equities. Keep an eye on OQ Gas: its successful listing could deliver another landmark IPO and crown Oman as a key regional dealmaking hub in 2023. That should see it move closer to emerging markets status, even if upgrades to watch lists likely remains out of reach in 2023. Broader economic strife could also easily impact timelines, valuations and investor demand, but beneath that uncertainty are signs that Oman is motivated to use capital markets as an engine of national growth. Either way, the potential is evident: recent Omani IPOs only drew attention from domestic investors, but Abraj prompted regional and international investors to look at the country, reports Mathew. Plus, local participation was promising too. “This should reignite the domestic retail participation in the market, resulting in liquidity improvement and better price discovery process,” said Mathew.

Contributor Background:

Samuel Wendel is a senior market research analyst with Al-Monitor covering economic, tech and business trends across the Middle East. He has previously served as a journalist with Forbes Middle East and Wamda, where he reported on key industry developments spanning a range of sectors in the region.

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