The investment mood in the market has changed positively in the month of June following political developments of recent weeks. Although the first one-to-one meeting between Iranian and US officials in almost three decades as well as a meeting between Iran’s top nuclear negotiator, Ali Larijani, and the EU’s foreign policy chief Javier Solana did not produce a tangible solution to Iran’s nuclear dossier, the willingness to continue with the negotiations in both sides has resulted in more stability and optimism in the Tehran Stock Exchange. This optimism resulted in more balance in supply and demand of stocks and got rid of some of the heavy sell-off queues formed in the previous month. However, it fell short of attracting new liquidity into the market as the volume of trade remained low averaging around $20 million and mainly limited to large institutional investors.
One of the major events of the TSE during June was the Initial Public Offering (IPO) of Iran’s largest aluminium producing company, IRALCO, in accordance with the new wave of privatization that began in early 2007. IRALCO was valued at around $220 million on the day of listing (11 June). However, only 5% of the company was offered in the first stage. In terms of size, IRALCO was much smaller than the previous two companies that went public which meant that its offering had less impact on the overall market and drained less liquidity from the market than the other IPOs. An analysis of the company and the IPO can be found in the IPO and Privatization section of the newsletter.
Another significant event was the decision by the regulatory body of the Bourse to lower some of the pricing regulations imposed on listed companies. All listed companies on TSE observe a cap on their daily share price change (±2%) and a minimum trade volume threshold which means a certain number of shares need to be traded for the price to observe any change at the closing. This minimum number of stock, called “base volume”, is a percentage of total outstanding shares. This means that for a large company to observe any significant share price change, a large number of shares need to be traded daily and in a slow market, it could take days and even weeks for a share price to reach its balanced value. In June, the TSE Corporation which regulates the bourse decided to lower the Base Volume of large companies by 50% which has significantly increased their manoeuvrability and liquidity. Market analysts and experts believe that this move was a first step to gradually rid the exchange of the many limiting regulations that have occasionally locked the trading of some of the listed companies and reduced overall liquidity on the market.
The best and worst performing sectors of the market during the month of June were Metals and Petrochemicals respectively. The total value of the petrochemical sector dropped by 0.6 percent to stand at around $4 billion This was mainly due to the government plan to stop raw material subsidies which used to be provided to petrochemical complexes. The government provides the raw material to the petrochemical companies at a 30% discount compared to Persian Gulf FOB prices. Although the plan to stop these subsidies has not been implemented yet, the market is expecting it to materialize within the next few months which could significantly impact earnings of the listed companies which use these subsidies (mainly Isfahan and Arak Petrochemical Companies). The rise in share prices of metal producing companies was mainly driven by gains of the two largest listed companies, National Iranian Copper Industries Company (NICIC) and Mobarakeh Steel Complex (MSC). NICIC distributed 20% dividend without observing a share price loss during June which was mainly due to the rise in international copper prices while MSC saw its share price grow by 14% in the same month. The gain of these giant companies resulted in a 2.3% increase in the index of the metals sector, which made it the best-performing sector of the market. The chart below illustrates the performance of the market indices during June. The TSE Price Index (TEPIX) fell by around 2% while the TSE Price and Dividend Index (TEDPIX) grew by around 0.7%. This is due to the fact that it is now the Annual General Meeting (AGM) season for most listed companies at which usually high dividend pay-outs are announced.
About Turquoise: Turquoise is a boutique investment bank based in Iran with offices in Tehran and London. Turquoise publishes Iran Investment Monthly with the aim of keeping its recipients updated on the latest macroeconomic developments in Iran, providing an in-depth analysis of the Tehran Stock Exchange as well as introducing new financial products and private equity opportunities to potential investors. For more information please visit: www.turquoisepartners.com/iraninvestment
