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Investment climate to continue moving at a slow pace this year

Muscat - 

Alpen Capital, an investment banking advisory firm, offers a comprehensive range of financial advisory services to institutional and corporate clients across the GCC and South Asia from its offices in the UAE, Oman, Qatar and India. In an exclusive interview with Muscat Daily, Siraj Bhavnagarwalla, managing director of Alpen Capital LLC, Oman, talked about current economic trends and investment climate in Oman and the GCC region.

It’s been more than two years since we started seeing a drastic fall in oil price and its impact on GCC economies. How do you assess the current economic situation in Oman?

Oman, like other GCC economies, has been impacted by the drastic fall in oil prices over the last two years. Across the region, the GCC governments rolled out austerity measures including scaling back on subsidies to contain fiscal deficits. Oman has been no different. In an economy where government spending is the main catalyst for growth, lower fiscal outlays have adversely affected performance of the private sector.

The private sector is going through a cost rationalisation phase in order to adapt to the new reality of low oil prices, widely seen as the ‘new normal’. While the current economic environment remains tepid, the government’s relatively low external debt position allows it to remain committed to investing in priority infrastructure projects.

The sultanate’s plans for economic diversification, encouraging public-private partnerships (PPPs) to fund projects and fiscal/regulatory reforms are sound initiatives which, if implemented in a timely manner, are likely to have positive connotations for the economy over the medium term. Despite the modest recovery in oil prices, considerable headwinds still remain until oil demand/ supply equilibrium can be reached. For now, 2017 will be a year of consolidation for both the government as well as the private sector.

 

Oil prices moved up significantly since OPEC and non-OPEC deal in December 2016. With these developments in global oil market how do you assess the investment climate in the GCC and Oman this year?

Oil prices have recovered at a modest pace but we expect the investment climate in the GCC and Oman to continue moving at a slow pace this year. Activity will pick up closer to mega events such as the Expo 2020 in Dubai or the FIFA World Cup in Qatar in 2022.

The shift away from an oil-based economy has created opportunities in sectors such as retail, healthcare, hospitality and education and focused government/private spending on these areas. It will however take some more time for the investor confidence to return and for activity to resume in full swing in the region.

 

Oman’s banking system witnessed tightening of liquidity after reduced flows of government deposits and increased borrowing last year. How do you evaluate the current liquidity situation in Oman?

The liquidity situation has seen some tightening since early 2016. However, the government has since raised funds from international markets and their external borrowing programme is set to continue. Similarly, major government-related entities (GREs) have also raised funding from overseas. And most major banks have tapped international debt markets.

This has collectively reduced the stress on local liquidity. Meanwhile, local interest rates have increased, and given further increases expected in USD interest rate cycle, RO interest rates are expected to remain elevated over the medium term.

 

To what extent has the economic slowdown in the GCC affected investment banking industry in the last two years? What is your outlook on investment banking in Oman?

Investment banking industry in the GCC has been seeing a consolidation phase for the last couple of years. Business conglomerates with diversified interests are now picking two or three lines of business that they want to focus on and consolidating the rest. We are seeing a fair amount of mergers & acquisitions (M&A) activity in the region as also in Oman.

However, IPO activity has considerably reduced as equity markets have remained volatile and valuations have suffered. As far as the debt capital market activity is concerned, we expect to see a surge in 2017 with sovereigns favouring conventional bonds over Sukuk. As lending by banks has become costlier with tightening of liquidity and increase in interest rates, we expect an increase in the bond issuances in the region. The government’s economic diversification agenda should see increased investment banking activity in Oman.

Equity markets will see more action by way of new issuances from both public and private sector corporates. Debt capital market transactions could increase as regulators encourage corporates to tap the local markets and public-private partnerships fructify. The need to consolidate and focus on core competencies will lead to more M&A deals going forward. Investment banking activity has been relatively nascent in Oman [when compared to the larger regional markets] and we believe that the challenges thrown up by the current economic environment will result in more opportunities for the investment banking industry in the medium term.

 

How do you evaluate Alpen Capital’s business performance in Oman market, and which are your focus areas in the sultanate?

Alpen Capital has had a successful business model in Oman. We have focused on providing corporate finance and M&A advisory to large business conglomerates, corporates and institutions. We are active in raising structured debt/hybrid funding for our clients through innovative structures tapping into domestic/regional liquidity as well as debt capital markets.

On the M&A front, we leverage our extensive regional and South Asian presence and relationships to provide our clients access to these markets for both in-bound and out-bound M&A transactions. Our award winning sector specific research reports have been very well received by our clients and serve as a compendium of sector specific information in the region for investors and industry players alike.

 

Which sectors do you believe are the most promising and have great potential for foreign investors in Oman market?

We believe that Oman provides lucrative investment opportunities to investors in a wide range of sectors such as education, healthcare, hospitality, mining, manufacturing, retail, logistics, etc.

 

Alpen Capital has been active in the GCC-India corridor and is expanding its presence into new South Asian markets. What would you say about GCC investors’ appetite to see opportunities in South Asian countries?

We have been very active in the GCC-South Asia corridor having concluded several transactions in this sphere. We see a renewed interest from sovereigns as well as large business conglomerates in the UAE to look at South Asia as a suitable investment destination and they are open to exploring opportunities in specific sectors. We also have several large Indian and Sri Lankan companies talking to us on projects in the GCC. It all depends on the model of the business and the risk appetite of clients.

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