According to a bit of market gossip, the pension funds have colluded together and agreed not to buy Dhofar Power's shares in order to keep the price low after the shares were listed. The IPO was at 1.42 rials a share. According to all analysts the fair value of these shares should be no less than 1.9. And yet except for the first day when the share touched 1.9 for a split second, it has been trading in the low 1.7s for all of the last week on very thin volumes. Dhofar Power is one of those "buy and hold" shares that pension funds love so much. It's an electrical utility that has a guaranteed income for the next 20 years. They will be paying dividends twice a year. Once the price reaches 1.9 to 2.2 it will stay there for years without fluctuation. This isn't a share for speculators. But it's obvious that the funds aren't buying.
So why aren't they buying? Currently at the present low price the number of shares on offer is very low. My estimate is that there must be around 4 or 5 million shares out there in the hands of Average Joe investors who bought them with the hope of selling at around 2. They might be willing to sell at 1.8 or 1.9, but not at 1.7. The pension funds are trying to keep the share low until these average joes give up and put their shares on offer at lower prices. That's when the funds will pounce and buy all what's on offer in one fell swoop.
Good for the pension funds, since they get to keep their buying cost low. I totally understand a fund manager's efforts to buy at the lowest price possible. But let's remember that these are government pension funds, not commercial investment funds. Don't they have any social responsibility? Is it ok for a government entity to be screwing the market this way?
The whole country is holding its breath for the Omantel IPO which is coming next month. People are selling assets and taking loans to free up cash for that IPO. The government is selling off 30% of Omantel's shares, of which the vast majority (21%) will be sold to Omani individuals. The conventional wisdom was that you buy the shares in the IPO at 1.3 each and then as soon as it's listed pension funds will buy them from you for more than 2 rials. And then 3 months later when foreigners are allowed to buy the share will go up even higher.
But if the pension funds play this dirty game again, then don't expect the share's price to go up by much until October or November. According to a broker: "don't expect the funds to allow the price to go to 2. They want it below that." If you're borrowing money to buy in the Omantel IPO, don't expect to sell quickly unless you have lowered your expectations. If not, prapare to pay interest or lock your funds for at least 4 months (the one month IPO subscription period + 2 to 3 weeks allocation and listing period + 3 months Omani only trading period).
If this is true, liquidity is going to be very tight in Oman this summer as 300 million rials will be locked-in with this IPO until the share price reaches a reasonable profit threshold.