To reach an average 8 percent economic growth during the next five-year period, according to decree of the Leader of Islamic Revolution Ayatollah Seyyed Ali Khamenei, and following withdrawal of the financial embargo in January, the Iranian administration is shifting from a bank-based financial system into a more market-based one (i.e. switching the trend of financing away from banks towards securities market). This would create great plenty of opportunities and special incentives to entice overseas investments into the country in a bid to finance economic projects.
To capture a comprehensive view over the current conditions of the Iranian capital market, the Tehran Times conducted an interview with Amir Hamooni, CEO of Iran Fara Bourse (IFB), Iran’s secondary securities exchange. Following is the full text of interview with him.
How do you evaluate the general trend of IFB market after implementation of the nuclear deal, known as Joint Comprehensive Plan of Action (JCPOA), with world powers in January?
After the execution of the JCPOA and in the last three months of previous Iranian calendar year of 1394 (December 21, 2015- March 19, 2016), IFB could manage to attract up to 2 trillion rials (above $57.6 billion, at free market exchange rate) of foreign investments and has been successful to absorb the same amount during the first three months of the current Iranian calendar year (March 20-June 20, 2016), i.e., around 4 trillion rials (above $115 billion) of foreign investments has been absorbed by IFB as of the sanctions’ removal.
Overseas investors sought to enter IFB market by investing in Structured Financial Products and via purchasing securities and principals, interest payments of which are fully guaranteed by the Iranian government (including different types of sukuk and Islamic Treasury Bills (ITBs)). They also pursue their investment goals through forging partnership with Iranian companies in IFB that need to apply modern technology to accelerate their renovation procedure, among we can name Pakvash. The recent Henkel-Pakvash agreement (Germany’s Henkel – one of the largest household and personal care manufacturing companies in the world – purchased 30 percent of Pakvash for a total value of around €51 million through IFB). It is worth mentioning that some other similar contracts with foreign investors are to be finalized within the next few weeks and consequently, the total volume of attracted foreign investments to IFB would surplus 10 trillion rials (above $288 billion) over the past six months following the JCPOA implementation.
How do you analyze risk-return relations in domestic capital market at the present time?
Iran’s primary and secondary capital market indices (TEDPIX and IFX respectively), have always reflected the country’s economic situation, clearly. During the past six months, despite some specific occasions when some emotional responses have influenced the market’s behavior, the general trend of the market has been rational.
How do you consider the impact of Iran’s current political situation as well as its relations with international financial bodies on domestic capital market?
We cannot deny the challenges that we still face in our relations with some international banks or some other global entities according to some political issues; however, it is worth noting that the said 4 trillion rials (above $288 billion) of foreign investments, as an available example, has been attracted under such trying circumstances and the related financial transactions have been carried out through Society for Worldwide Interbank Financial Telecommunication (SWIFT). Our near future transactions will also be done under the same conditions, since it would take some time both for us and our foreign partners to remove obstacles on the way to increase and ease our mutual transactions.
Some experts voice concern that Iran’s bureaucracy and opaque ownership structures may hinder attraction of foreign investments. How do you think?
The money which is presently moving towards the Iranian capital market is smart, i.e. it is invested by those foreigners experienced, well-informed, in-the-know or all three. Overseas investors have a comprehensive overview of their Iranian partners as well as the country’s regulations. They will pave their way to Iran’s lucrative market as they did under the sanctions, when the conditions were much tougher. There are some power plants in Iran, technology and equipment of which were imported in sanctions era. They were established and put into operation under the same conditions and now they are taking preparatory steps to offer their stakes through a block sale on IFB. Smart money knows where to go and who to do business with. Now it is time for us to offer various investment opportunities. Of course, well-organized Iranian investment funds and banks as well as investment advisors and brokers are highly active in luring foreign investments in sectors which are in Iran’s economy’s favor and accord our own economic strategies and targets.
Iran’s Sixth Five-Year Development Plan (2016- 2021), which outlines government strategies in its budget planning for the next five years and is going to be finalized by the parliament, pays a specific attention to improving the performance of securities markets with the participation of domestic and foreign investors in a bid to finance economic projects across the country via attracted investments rather than through banking resources. Will this plan be a practical and efficient one regarding Iran’s conditions? Can it hit the set targets?
The situation is set to apply market-based financing system in Iran. By the JCPOA execution, the country has reached a historical turning point and in comparison with the past years, holds enormous potentials, including well-educated human resources in financial engineering, financial economics, accounting and etc., who can improve financial knowledge of the country in the future, as they did so during the recent years. As the available evidence proves, the IFB’s stake of financing the country’s projects has reached 30 percent at the present time, from the previous two percent when it started operation. This proves that seizing the current opportunities, IFB and of course Tehran Stock Exchange (TSE) can remarkably expand their share of financing in the near future.
Securities and Exchange Organization (SEO) membership status in International Organization of Securities Commissions (IOSCO) became final recently, what about IFB membership in the international body?
IOSCO is currently studying our membership request as an affiliate member. Our next step would definitely be to apply for World Federation of Exchanges (WFE) membership.
Iran has been inundated with the rush of foreign investors who want to find a foothold to Iran’s untapped market. What is your message to them?
Islamic Treasury Bills and Sukuk offer one of the best investment opportunities for foreigners. Iranian sukuk offer very high yields compared to European bond yields, providing a lucrative opportunity for foreign investors. We are trying to rate our debt securities to ease their investment.