Iran seeks investment in capital markets
New fund aims to attract €100m this year to Tehran bourses after lifting of sanctions
Iranian fund managers hope to give overseas investors more exposure to the country’s equities after the lifting of many international sanctions last week.
Griffon Capital — an Iran-focused asset management and private equity group established in 2014 — launched a general equity fund on Monday to attract foreign capital to pick the first fruits of the post-sanctions era.
Focusing on listed securities, the Griffon Iran Flagship Fund is the second of its kind. It aims to attract €100m this year at the Tehran Stock Exchange and Iran Fara Bourse — the over-the-counter market.
Homan Harandian, CEO of Griffon Capital said the potential to attract foreign investment was high in Iran’s capital market.
“There is room for many more companies like ours,” he said.
Charlemagne Capital, a UK asset manager focused on emerging markets, and Turquoise Partners, a Tehran-based investment, brokerage and advisory firm, launched a similar fund last year with $70m under management initially.
Iran’s nuclear negotiations with world powers over the past two years encouraged frontier and emerging fund managers to visit the country and examine a foothold in the TSE, which has a market capitalisation of $95.7bn and is trading at about 5.5 times earnings.
The shadow of international restrictions, notably on banking, is not completely gone as the US has not abandoned its non-nuclear sanctions, causing nervousness among investors about future penalties.
But now that many sanctions are removed, Iranian analysts insist, the capital market is a natural destination for European, Asian and Arab investors thanks to its more transparent regulations compared with others parts of Iran’s economy.
The stock exchange has welcomed the agreement. The TSE’s main index experienced a quick recovery last week after implementation of the nuclear agreement was announced, growing from about 63,500 to more than 66,000 after four months of fluctuations below the 63,000 level.
“The capital market is breathing again after about two years thanks to investors’ optimism,” said Payam Malayeri, head of asset management at Griffon Capital. The risk/reward ratio has become very attractive because the index has already had its dramatic declines, he added, while more oil sales by the central government after removal of sanctions means higher cash flow in the country.
Iran’s capital market investors hope the centrist government of President Hassan Rouhani will this year bring down banking interest rates that stand at about 20 per cent against an inflation rate of about 12 per cent, and help channel liquidity towards the TSE.
Iran is the second-largest economy in the Middle East and north Africa with an estimated gross domestic product of $406.3bn, according to the World Bank. Its young, highly-educated population, which demands high-quality consumer goods and decent healthcare services, is a promising characteristic of the country’s market.
Investors are keen to move into Iran’s consumer goods sector, and say the country could become a much bigger exporter, especially to other states in the region.
“Iran is not a market of 80m population, rather a 300m-strong market when you look at the surrounding markets which need Iranian products,” said one market analyst.
Griffon Capital plans to start marketing for its private equity fund next month and hopes to attract $130m for direct ownership stakes.
There is also good potential outside Iran’s capital market, such as the fast-moving consumer goods sector, said Mr Harandian, which need modern management skills, know-how and technology and could attract institutional investors and family offices.
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