VZCZCXRO7617
RR RUEHDE RUEHDIR
DE RUEHMS #0802/01 3290702
ZNR UUUUU ZZH
R 240702Z NOV 08
FM AMEMBASSY MUSCAT
TO RUEHC/SECSTATE WASHDC 0136
INFO RUEHZM/GULF COOPERATION COUNCIL COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 MUSCAT 000802 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PREL ECON EFIN MU
SUBJECT: OMAN FINANCIAL CRISIS UPDATE: NEW FUND TO BOLSTER 
EQUITY MARKET AS DEVELOPMENT PROJECTS FACE CLOSER LOOK 
 
REF: A. MUSCAT 749 
     ¶B. MUSCAT 722 
     ¶C. MUSCAT 384 
 
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SUMMARY 
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¶1.  (SBU) To help shore up local equity values, Oman will 
establish a $390 million fund with capital from the 
government, private sector and pension funds to buy shares in 
the Muscat Securities Market (MSM).  While the government 
claims that local banking institutions have passed on Central 
Bank offers to make available U.S. dollars, one new bank has 
delayed its launch due to the global credit crunch.  Amidst a 
cooling real estate market, demand for residential units in 
projects aimed at non-GCC buyers continues to soften with 
prices in some instances down from speculation-driven highs. 
Although officials insist that government infrastructure and 
development plans remain on-track, ambitious plans for 
construction at al-Duqm and elsewhere face an uncertain 
future.  End Summary. 
 
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LIFTING STOCK PRICES 
-------------------- 
 
¶2.  (U) The Omani government announced on October 20 that it 
planned to set up a new fund valued at 150 million Omani 
rials (USD 390 million) to help stabilize the sagging MSM. 
Oman's Minister of Commerce and Industry, Maqbool bin Ali bin 
Sultan, stated that the government would provide 60% of the 
fund's capital, with the remaining 40% coming from "the 
private sector and pension funds."  He further stated that 
the government "hopes the creation of this fund will return 
confidence in the investment climate."  According to the MSM 
website, the government has already invited some financial 
and banking institutions to contribute to the fund, which 
will be professionally managed "on a commercial basis." 
Reports suggest that a new entity may be created to manage 
the capital committed by the government, while contributions 
by pension funds and the private sector will be administered 
by one or more brokerage firms or banks. 
 
¶3.  (U) As currently envisioned, the stabilization fund will 
buy securities of MSM-listed companies, especially index 
heavyweights, and later sell the shares when there is 
reasonable appreciation, thereby providing liquidity for 
investors and earnings for the fund's contributors. 
Financial experts consulted by the local media cautioned 
investors not to expect a major upsurge in the markets as the 
aim of the fund is to steady the MSM and prevent panic 
selling rather than push the market higher.  The MSM, which 
on November 16 dropped to a 19-month low, down 50% from its 
peak value in May 2008, surged over three percent on November 
19 in anticipation of the government's unveiling of the 
stabilization fund. 
 
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NO NEED FOR DOLLARS? 
-------------------- 
 
¶4.  (U) While the MSM is in need of funds by investors, the 
Executive President of the Central Bank of Oman (CB), Hamoud 
bin Sangour al-Zadjali, told local press on November 16 that 
Omani banks were in good health.  Earlier, the CBO, in 
coordination with the Ministry of Finance, had decided to 
make U.S. dollar funds available to local banks through 
direct lending and reverse swap facility whereby banks would 
be able to buy dollars in exchange for Omani rials and then 
later sell them back for rials at specified exchange rates. 
According to Zadjali's press statement, however, no local 
banks had taken the CBO up on its offer for dollars.  Zadjali 
also told local dailies that it was "desirable" for small 
banks and insurance companies to merge in order to reduce 
their risks, and noted that the promoters of Oman Commercial 
Bank, scheduled for launch by the end of the year, had 
requested to postpone its start until mid-2009 due to the 
global financial crisis. 
 
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SOFTENING DEMAND FOR EXPAT-OWNED HOMES 
-------------------------------------- 
 
¶5.  (SBU) To the relief of many renters and prospective 
property purchasers, the rapid escalation of real estate 
prices in Oman has finally slowed.  While some development 
projects and properties remain in demand, apartment and villa 
sales in Oman's integrated tourism complexes (ITCs) - the 
 
MUSCAT 00000802  002 OF 002 
 
 
only locations where non-GCC nationals can own freehold 
property in Oman - are struggling.  It is estimated that 
roughly 65% of all properties so far sold at ITCs have been 
bought by local investors intent on re-selling them for a 
profit before construction is complete.  The credit crunch, 
falling equity values, and global economic slowdown, however, 
have cut deeply into the ITC target end-use market: affluent 
expatriate residents, wealthy foreign second home seekers, 
and perhaps speculative investors in emerging overseas 
markets.  (Note: Omanis and GCC nationals are unlikely to 
reside at ITCs since they can buy similar properties at less 
expensive prices elsewhere in the Sultanate.  End Note.) 
 
¶6.  (SBU) With approximately 40% of all properties sold in 
ITCs now estimated to be on the re-sale market, ITC 
developers face an oversupply of units.  A local buyer of an 
apartment at "The Wave" project near Muscat, the first ITC in 
Oman, lamented to emboff that she was unable to sell her 
property even at 15% less than what she paid for it.  One 
Muscat realty brokerage is listing over 20 units at The Wave, 
a stark turn-around from 18 months ago when eager buyers 
lined up as early as 4:00 AM on the day the first units went 
on sale.  As a result of this softening demand, it is likely 
that some of the 18 new ITCs planned for Oman may never make 
it off the drawing board. 
 
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DOWNBEAT ON DUQM 
---------------- 
 
¶7.  (SBU) In addition to ITCs, some planned 
government-financed infrastructure and development projects 
also face an uncertain future due to tight credit and 
declining oil revenues (ref B).  In contrast to officials who 
boldly proclaim that development will continue unabated, 
Minister of Oil and Gas Mohammed al-Ruhmi told press earlier 
this month that "the global financial crisis might cause 
delay in the refinery and petrochemicals complex in al-Duqm." 
 Contacts indicate that other building projects in al-Duqm 
(ref C) and elsewhere are being re-examined as the government 
sorts out its spending priorities. 
GRAPPO