Oman's Al Kamil Power IPO gets strong response

"We are encouraged by the response... The investors are enthusiastic," senior officials of the Al Kamil Power Company (AKPC) and Bank Muscat, the financial advisor and lead manager to the issue, told a news conference. Subscriptions are due to close on August 25.

AKPC was formed in 2000 following a competitive bidding process by the government to build, own and operate a 285MW open cycle gas-fired power plant in the eastern Sharqiya region as part of an ambitious privatisation plan for the sector. The power station, located in Al Kamil, 290 kilometres from Muscat, has been operating commercially since July last year.

The IPO, the result of a contractual commitment made by IPR to the Omani government to sell 35 per cent of its stake in AKPC, consists of 3,368,750 shares, offered at a price of RO1.690 per share plus 20 baizas to cover issue expenses. It is open only to subscription by Omani nationals and Omani incorporated entities.

"We believe it is a good price, a balanced price," said Keith Marsh, chief executive officer of AKPC, adding:

"We are very happy that the Al Kamil Power public offer has met with a warm initial response from the investing public in the Sultanate," he added.

Financial director Navneet Kasbekar, stressing the IPO's "potential upside for the investing public", noted that the issue price was 23 per cent below the Muscat Security Market's (MSM) price to earnings ratio and 35 per cent below MSM's price to book ratio.

He said the company intended to come out with a maiden dividend in December 2004, adding that the average dividend yield of about five per cent over the next five years compared well with MSM's average yield of 3.69 per cent.

Speaking about the company's financial performance, Kasbekar said it had recorded a "stable growth in assets, profitability and returns... Profits after tax is growing as we pay back the loans."

The company has entered into 15-year deals with the Ministry of Housing, Electricity and Water and Ministry of Oil and Gas for the sale of power (PPA) and purchase of natural gas, respectively. "These long term contracts clearly define and secure the cash flow streams of the company," Marsh said, adding:

"We are strongly supported by the government. We are very confident that our business will run smoothly over the contract period."

He also referred to tax and duty exemption enjoyed by the company and government guarantees to protect it from changes that might occur in the country's electricity and water law in the future.

Marsh observed that government projections suggested generation capacity in the Sharqiya region was likely to fall short of the estimated power demand in 2008.

He said the government might ask the company to install additional gas turbines to meet the shortfall, adding that provisions for extension had been built into the existing plant. "The shareholders' return is expected to enhance substantially after repayment of total debt in 2016," he added.

He said after the expiry of the current PPA contract, the management of AKPC "expects that the contract will either be extended or the power generated sold to an electricity pool, which may exist at that point of time."