Under Iran’s market modernisation programme, foreign investors are now
allowed to transact in the Tehran Stock Exchange (TSE) for the first
time since the Islamic Revolution in 1979.
Ahmad Ramezanpour-Nargesi, a member of the Parliament Planning, Budget
and Audit Commission, told The Banker that foreign investors are bound
by the same TSE rules on
purchase and sales of shares, as are Iranians, following ratification
of the new procedures in early November. “The policies have been drawn
up to encourage an increase in capital investment in the private sector
and to expand foreign investors’ participation in the stock market,” he
says.
Economists believe that significant efforts should be made to induce
foreign investors to commit capital to the market. “Higher capital
infusion into the market will be a boon to domestic production and
investment,” notes Saeed Leylaz, a prominent bourse veteran.
Although there are no laws prohibiting foreign investors participating
in market transactions, effective unwritten rules prevented activities
and proper regulations to facilitate and promote foreign investments
were not outlined. This has now changed.
New laws
Hossein Abdeh Tabrizi, the secretary general of the TSE, says that the
new law permits foreign investors to commit up to $3bn or the
equivalent up to 10% of the annual volume of transactions in the
exchange. “The foreign-owned shares can be redeemed for cash. Profits
and initial capital can be repatriated within three and five years,
respectively, from the date of purchase,” he says.
Individual investors and corporations can now carry out investments but
foreign investors can only purchase 10%-15% of the shares of the active
companies in the TSE.
The exchange, which lists 335 companies, was established in 1966 and is
under the formal management of the Tehran Stock Exchange Brokers
Organization, whose board appoints the secretary-general. It is open
for trading five days a week in a solely order-driven market in which
all transactions are executed under the principles of open auction.
Escape from fallout
The 9/11 fallout, which overshadowed the world’s economy, did not
affect the TSE. The average daily volume of transactions on the bourse
in the three months prior to 9/11 was $79m and two months later it
bordered on $87m.
Unlike some Iranian economists who say this steadiness proves that
Iran’s economy is stable and secure, Khosro Pour Memar, a prominent TSE
broker, says: “The main reason [for the relative calm] is that 75% of
the companies on the bourse are government controlled and are not
readily affected by external factors like the private sector is.” He
says the isolation of the TSE and its minuscule role in the region,
because of its “smallness”, effectively immunises it from the damage of
such events.
The range of price fluctuations is typically restricted to 5% daily.
After significant increases in the early 1990s, share prices levelled
off in 1998. In mid-1999, they started to rise again and in June 2003,
market capitalisation stood at $17bn, about 15% of gross domestic
product (GDP), and average daily trading reached $15m.
In 2002-2003, the TSE recorded a total return on investment of 51.2%,
consisting of an average weighted price increase of 34.7% and an
average weighted increase in dividend payments of 12.3%.
Mr Tabrizi puts TSE capitalisation at about $30bn, estimating that this
will grow to more than $40bn by the end of the Iranian year (March 19,
2004) and $100bn in four years.
However, the resolution that the International Atomic Energy
Association (IAEA) issued against Iran on September 12 caused a
significant downturn on the bourse. It led to pressure on Iranian
brokers, who expected Iran’s programme to enrich uranium could lead to
heavy sanctions by the international community.
“From the issuance of the IAEA resolution against Iran in September
2003 until the visit of EU foreign ministers to Tehran in November, two
months later, the TSE lost 54% of its share purchasers. The decline was
so bad that 25 million state shares could not find a single purchaser,”
says Mr Tabrizi.
However, he adds: “After Iran recently agreed to sign the additional
protocol of the nuclear non-proliferation treaty, the volume of
purchasers and transactions rocketed.”
Top five on the bourse
The top five companies quoted on the TSE are: cement factory Fars &
Khouzestan; three car factories, Iran Khodro, Saipa and Zamiyad; and
Iran Chemical Industry. Total share transactions for the five reached
104 million (worth $238m) in the 30 days from September 11 to October
11.
Commenting on the TSE’s isolation from other international stock
exchanges, Mr Tabrizi says that 10% of the shares of Iran Khodro
Industrial Group, the biggest Iranian car-maker, will be offered in the
international market through the Luxembourg exchange in the near
future. Also, the TSE and the Bahrain Stock Exchange have given
approval for a $500m bond for Iran Khodro to be offered on the Bahrain
Stock Exchange in the near future.
