March 2018 - Volume 12, No 136

March 2018: ’s National Museum hosts an exhibition from the Louvre for the first time in .

Summary

Equity Markets The TEDPIX and junior Farabourse (IFB) remained stable in Rial terms and gained 3.6% and 3.9% in US$ terms respectively in the month of February. The stabilized with IRR appreciating 3.5% against the US$.

Debt Markets The market witnessed an active month with the issuance of a number of Islamic T-bills and government Musharakah and Salaf notes. Total fixed income issued papers soared 37% in IRR terms, taking the value of issued papers to 10 billion US$ in the month of February.

Economic Review This issue reviews the recent updates from the Privatization Organization concerning the value of privatized and the latest updates from the of Iran regarding 9-month real growth in GDP constituents. In addition, we have included sections covering the latest macroeconomic data published by relevant organizations and senior macroeconomic strategists in a fact-sheet report, as well as an economic calendar released by local and international statistics centers.

1 Iran Monthly Table of Contents 3 Market Overview 3 Market Insight

4 Performance & Updates

7 Sector Insight

10 Overview

11 Market Snapshot

12 TSE & Junior Market Performance

13 Top Ranked Companies

14 TSE Statistics

14 FX Movements

15 Iran’s Fixed Income Market 17 Economic Review

17 Latest Updates

19 Macroeconomic Data 20 Iran’s Fixed Income Market 23

23 About Turquoise Partners

29 News & Views

2 Iran Investment Monthly Market Overview Market Insight March 2018 - Volume 12, No 136

Market Update

February saw the Tehran Exchange (TSE) bounce back from its January decline (which was the steepest monthly decline in EUR terms in almost 5 years), as the overall index rose by 7.3% in EUR terms. Similar to previous month, movements in the EUR/IRR were the primary driver behind this month’s moves, where the Rial appreciated by more than 7% versus the Euro to recover half of its YTD losses.

On the macro front, the (CBI) took a number of serious measures in February, namely raising rates from 15% to 20% for one-year deposits across the entire banking system, in an effort to curb speculative demand for hard currency in the free market. Uncertainty towards the -term sustainability of the nuclear accord beyond President Trump’s May 12th deadline has increased pressure on the Rial, which in turn has spurred the CBI to intervene Shervin Shahriari and support the currency. Chief Investment Officer

On the credit side, government T-bills suffered from the CBI’s tightening policies, where yields rose to their highest level in 6-months. As deposit interest rates appear to have stabilized around the 20% level, we expect this new norm of slightly higher yields for these listed debt instruments to persist.

Iranian T-Bills YTM

Turning away from the macro environment, and despite the uncertain geopolitical backdrop, fundamentals remain very attractive. Historically, a weaker Rial has boosted the bottom line of most TSE companies, with a time lag. Over the past twelve months, the Rial has depreciated by 18% versus the USD, yet the total earnings projections appreciated at a much higher pace of 28%. As currency continues in 2018, we expect to see a further increase in net profitability for the first half of 2018, especially with regards to sectors that benefit from a weaker currency, such as exporters and players. As the TSE’s Price to Earnings ratio hovers around its long-term historical average of 6x, we believe that the arrival of positive earnings in the coming months can lead to a re-rating.

3 Iran Investment Monthly Market Overview Performance & Update March 2018 - Volume 12, No 136

Performance & Updates

Summary - February 2018 (billion US$) 119 TSE & Farabourse Junior Market Free Float 21% TSE & Farabourse Junior Market Number of Listed Companies1 581 TSE & Farabourse Junior Market

TSE Index Performance (US$)2,4 3.6% (MTD)5 -1.8% (YTD) TSE Total Turnover (million US$)2 1,633 m$ TSE & Farabourse Junior Market (%) 3 11.7% TSE P/E 6.8 x

1 160 companies are listed in Over-The-Counter (OTC) or off-exchange market named as “Base Market” in Farabourse junior market which trading of these companies are done directly between two parties. 2 Calculated based on market IRR per US$ exchange rates. 3 Calculated based on ending 1395 Iranian calendar year. 4 TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index). 5 MTD: 28 Feb 2018 Vs. 31 Jan 2018

The TEDPIX index and junior Farabourse (IFB) market remained stable in Rial terms and gained 3.6% and 3.9% in US$ terms respectively in the month of February. The foreign exchange market stabilized with IRR appreciating 3.5% against the US$. The TSE’s total trading volume declined 39% to 833 million US$, and trading on the IFB decreased 28% to 800 million US$ in February. The total number of shares traded declined in both markets by 23% on the TSE and 38% on the IFB.

Tehran & Junior Market Trade Valume1 - February 2018

Iran Farabourse (Junior Market) Trade Volume (million US$)

Tehran Stock Exchange (Main Market) Trade Volume (million US$) US$ Million

Source: Iran Farabourse Company All figures in US$ are converted from IRR at the free market rate 1 Trading volume month on month in US$ term - TSE includes mainly equity while Farabourse has more fixed income instruments and smaller equities.

4 Iran Investment Monthly Market Overview Performance & Update March 2018 - Volume 12, No 136

Tehran Stock Exchange Trade by Value

Monthly Change Total: -39% Average: -23% February Total: 833 million US$ Average: 46 million US$ No. Trading Day: 18

January Total: 1,372 million US$ Average: 60 million US$ No. Trading Day: 23 US$ Million

Tehran Stock Exchange Trade by Volume

Monthly Change Total: -22% Average: -1% February Total: 19,572 million shares Average: 1,087 million shares No. Trading Day: 18

January Total: 25,307 million shares Average: 1,100 million shares No. Trading Day: 23 Shares

Million

Source: Tehran Stock Exchange All figures in US$ are converted from IRR at the free market rate

5 Iran Investment Monthly Market Overview Performance & Update March 2018 - Volume 12, No 136

Junior Market Trade by Value

February Monthly Change Total: 800 million US$ Total: -28% Average: 44 million US$ Average: -8% No. Trading Day: 18

January Total: 1,107 million US$ Average: 48 million US$ No. Trading Day: 23 US$ Million

Junior Market Trade by Volume

Monthly Change Total: -38% Average: -20% February Total: 5.7 billion shares Average: 321 million shares No. Trading Day: 18

January Total: 9.2 billion shares Average: 403 million shares No. Trading Day: 23 Shares

Million

Source: Iran Farabourse Company All figures in US$ are converted from IRR at the free market rate

6 Iran Investment Monthly Market Overview Sector Insight March 2018 - Volume 12, No 136

Sector Insight - February 2018

6.1 Automotive 4.0 Metallic Ore 3.6 Other 2.4 Wooden Products 2.2 Paper Products

% Sector -5.6 Oil Drilling & Services 1 -6.0 Pharmaceuticals Performance -6.5 Engineering Services -7.6 Agriculture -11.2 Financial Markets Management

13.3 x Electric Machinery & Apparatus 13.1 x Motor Vehicles and Auto Pars 11.3 x Sugar 10.3 x Monetary Intermediation - Banks 9.1 x Computer & Related Activities

6.5 x Other non metallic Mineral Products 6.5 x Refined Petroleum Products & Nuclear Fuel P/E 6.4 x Basic Metals 6.1 x Pharmaceuticals 5.9 x Insurance & Pension Funding Except Compulsory Social

92% Machinery & Equipment 72% Insurance & Pension Funding Except Compulsory Social Security 57% Chemical & By Products 45% Food Products and Beverages except Sugar 45% Rubber & Plastic Products

-31% Other Non-metallic Mineral Products %Trading -34% Metal Ores Mining Value2 -43% Cement, Lime & Plaster -52% Computer & Related Activities -64% Fabricated Metal Products Except Machinery & Equipment’s

Source: Tehran Stock Exchange, Note: Sectors with more than 4 companies included (exp. Telecommunication) 1Growth of sector’s index month on month in IRR term. 2Growth of trading volume month on month in US$ term.

7 Iran Investment Monthly Market Overview Sector Insight March 2018 - Volume 12, No 136

Sector Insight: Banking Sector

Overview

The Banking sector is the fifth largest in the TSE with 11 listed banks and approximately $8 billion in market value. Accelerating digitalization in the commercial sector, in tandem with the government’s efforts to develop the telecommunication and infrastructures have aided growth in the banking and finance sectors. The value and volume of internet and mobile transactions are increasing rapidly every month. On the last day of the Iranian calendar year 1396 (March 19, 2018), the CBI announced that in the SHETAB and SHAPARAK payment systems (an electronic card payment and settlement system) the number of financial transactions reached 168 million and 197 million transactions in one day respectively.

According to the IMF country report on Iran, the financial and banking sector remains weak due to high NPL ratios and a fall in the adequacy ratio (CAR) from 8.4% in March 2012 to 5.8% in March 2015. Iran’s banking sector issues have been discussed and addressed in many economic seminars and articles by senior economic advisors and analysts over the past three years. As a result, the CBI started a restructuring process and brought most unlicensed financial institutions under its supervision, addressing an important source of financial instability.

CBI Actions to Reform Banking Sector

1. The CBI has requested all listed banks retain profits and raise capital and has started to impose on all banks and financial institutions the implementation of International Financial Reporting Standards (IFRS). In March 2018, the reopening for trading of the tickers of Bank Parsian and Bank Saderat on the TSE and junior market weighed heavily on the Banking sector. Bank Saderat, one of the listed government banks with capital of IRR 57,800 billion ($1.2 billion), increased its estimated loss per from IRR 245 to IRR 788 (-222%). Its ticker opened 50% lower at IRR 500 after 20 months of suspension. Bank Parsian also returned to the market after a 16-month hiatus with an EPS adjustment of -139% at IRR 1026 and fell 10%. The materialized losses for these banks are the result of CBI pressure to apply IRFS standards and add precautionary reserves.

2. Recent plans by the CBI to merge troubled banks is another major step in reforming the banking sector and is expected to be completed in 2018.

3. The government is working on the modernization and independence of the CBI and proposed the Banking Bill, which enhances the supervisory activities of the CBI.

4. Since 2016, the government started to issue market bonds to secure its payment arrears by the banks. Empowering capital markets, especially in the fixed income market, will help companies to use a new source of finance through the instead of solely relying on the banking sector. Historically, banks were the main source of finance in the country (over 90%).

8 Iran Investment Monthly Market Overview Sector Insight March 2018 - Volume 12, No 136

Top TSE Sector Market Capitalization (%) - February 2018

4% Motor Vehicles & Auto Parts 9% Telecommunications 15% 7% Basic Metals Metal Ores Mining

4% 15% 9% 7% 23% 7% 18% 9% 8%

9% Refined Petroleum 7% 23% Diversified Industrials 18% Chemicals 8% Other Monetary Intermediation

TSE & Monetary Intermediation (Banks)

Monetary Intermediation - Banks TSE Overall Index Normalised in US$

Source: TSE

9 Iran Investment Monthly Market Overview Company Overview March 2018 - Volume 12, No 136

Company Overview Bank Activity : Banks & Credit Institutions

Price (Cent) 4.5 Date: 20-Mar-18 52wk range (Cent) 4.5-5.8 Official US$-IRR 37,800 1 Ticker BKHZ Market US$-IRR 44,670

Industry Banks & Credit Institutions 1 This exchange rate has been used in this report to convert figures from IRR to US$. It should be noted that this Market TSE exchange rate is subject to fluctuation Source: Tehran Stock Exchange

Performance Stock Data TSE Overall Index & Middle East Bank Market cap (m$) 268

Shares outstanding (million shares) 6,000 Free float 92% Financial year end 20-Mar 1 Avg. daily value traded ($) 103,515

Avg. daily volume traded (million shares) 2 P/E 6.1 X

1 Average approximate daily values taken over a period of 12 months

Middle East Bank Key Data Overall Index March March March

Normalised Index in US$ (Million US$) 2017 2016 2015 Normalised Index, adjusted for and increases 101 71 46 Highlights Net 45 39 25

EPS (Cents) 1.1 1.0 0.6 • Middle East Bank has an experienced and conservative management Dividend 4% 8% 7% approach and has the lowest share of bad amongst other Iranian banks. • It has the lowest NPL amongst all banks of 0.5%. Key Ratios • The bank has a well-trained financial team in its risk management March March March department made up of Sharif University graduates. 2017 2016 2015 • The Central Bank of Iran (CBI) has taken major steps to bring Iran’s P/B 1.7 2.4 1.6 banking regulations in line with the latest Basel accords and International P/Sales 1.9 7.0 5.3 Financial Reporting Standards (IFRS). In 2017, the bank recorded Capital ROA 3.4 3.9 3.3 Adequacy Ratio, Basel-III Foundation-IRB of 12.6%, where the minimum ROE 31% 26% 17% requirement for the banking sector is 10.5%. Source of data: Company Financial Reports All figures in US$ are converted from IRR at the free market rate

Company Information

Middle East Bank was established in November 2012, focusing on wholesale banking, corporate Major banking, , virtual banking, management, and financial instruments for Iranian high net worth individuals. Retail 92%

No. 2, 5th St., Ahmad Qasir (Bucharest) Avenue, Tehran, Iran Postal Code: 15136 45717 P.O. Box:15875-4445 Tehran, Iran Phone: (+9821) 4217 8000 E.mail: [email protected] Source: Firouzeh Asia Brokerage, Turquoise Partners 10 Iran Investment Monthly Market Overview Market Snapshot March 2018 - Volume 12, No 136

Market Snapshot - February 2018 Iran & Regional Markets

Iran: A 20 Year Snapshot, Asset Class Returns in US$ (%) P/E Multiple Comparison MSCI Morocco 22.2 Far outliers GOLD Near outliers Kuwait 14.5 Qatar 12.2 Median Mean MSCI Arabian Markets 14.1 Shade: 95% confidence PROPERTY MSCI GCC Countries 14.1 MSCI Egypt 12.5 Near outliers Far outliers Saudi Arabia 15.0 TEDPIX UAE 10.4 Iran 6.8 Returns in US$ (%) -40 -20 0 20 40 60 80 100 120 140 Turquoise Iran Fund 5.7 Sub Fund B/C, as of ending February 2018 TEDPIX Tehran Exchange Dividend Price Index All figures in US$ are converted from IRR at the free market rate

Iran & International Markets

3 4 Tehran Stock Exchange MSCI Emerging Markets MSCI Frontier Markets

Average P/E Average P/E Average P/E 6.8 15.5 15.9 1 1-Year Performance in $ 1-Year Performance in $ 1-Year Performance in $ 6.3% 30.5% 29.7% Annualized 10 Year in $ 2 Annualized 10 Year in $ Annualized 10 Year in $ 8.9% 2.7% -0.9%

23.1 Chemicals 27.4 Information Technology 45.7 Financials 14.8 Basic Metals 24.5 Financials 13.6 Telecommunication 9.28 Refined Petroleum 9.9 Consumer Discretionary 11.0 Consumer Staples 8.8 Telecommunications 7.5 Materials 7.0 Energy 7.8 Monetary Intermediation 7.2 Energy 6.3 Real Estate

Sector Breakdown (%) 36.29 Others Sector Breakdown (%) 23.63 Others Sector Breakdown (%) 16.43 Others

1.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) performance calculated in US$ for the Period of Feb 2017 to Feb 2018 2.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index)10 year annualized performance calculated in US$ 3.MSCI Emerging Markets Index (US$) - Feb 2018 4.MSCI Frontier Markets Index (US$) - Feb 2018 Source: Tehran Stock Exchange - Central Bank of Iran - MSCI Inc., Kamcoonline. All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

11 Iran Investment Monthly Market Overview TSE & Junior Market Performance March 2018 - Volume 12, No 136

TSE & Junior Market Performance Tehran Stock Exchange: TEDPIX*, February 2018

Normalised in US$ Normalised in US$

Volume million shares Million Shares

Source: Tehran Stock Exchange *TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

Iran Farabourse (Junior Market): IFX*, February 2018

Normalised in US$ Normalised in US$

Volume million shares Million Shares

Source: Iran Farabourse Company *Iran Farabourse (Junior Market) Overall Index (Total Return) All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

12 Iran Investment Monthly Market Overview Top Ranked Companies March 2018 - Volume 12, No 136

Top Ranked Companies - February 2018 Turnover Value* % Total Turnover (million US$)

Saipa Diesel Company is active in design, development, manufacture, 0.6% marketing, and export of heavy duty commercial vehicles in Iran. It provides Saipa Diesel Co. 7.5 tractor, construction, distribution, utility, tipper, and rigid trucks, as well as mini buses. The company, through its subsidiaries, also offers after-sales services and spare parts for its products.

Mobarakeh Steel Company, one of the largest industrial complexes Mobarakeh in the country, started its operations in 1991 with a nominal capacity 5.9 0.5% of 2.4 million tons per annum. Mobarakeh Steel is the largest steel Steel producer in the Middle East and North Africa region.

Founded in 1956 as Jeep Trading Co, Group is one the leading Iranian vehicle manufacturers. Formerly, Pars Khodro Pars Khodro built American Motors’ Rambler and General 5.9 0.5% Motors (GM) products under licence. Currently the group produces c.6% of all domestic vehicles, by producing a variety range of Renault and Nissan models under licence. Diesel Company manufactures commercial vehicles for the Iranian market. It manufactures Iran Khodro Diesel 0.5% buses, trucks, mini-trucks, and vans. The company

Top 5 Traded by Value Traded 5 Top 5.7 was formerly known as Khawar Industrial Group Co. and changed its name to Iran Khodro Diesel Company in 1999. The company was founded in 1964 and is based in Tehran, Iran. Bandar Abbas Oil Refining Company is one Bandar Abbas Oil 0.3% of Iran’s nine petroleum refining companies, Refining Co. 3.6 located in the northern coastline of the Persian Gulf near Bandar Abbas port.

Market Cap % Total Market Cap. (million US$) Persian Gulf PGPIC was established in the first phase of the privatization of Iran’s Petrochemical 7.0% petrochemical sector when the National Petrochemical Company (NPC) 7,335 transferred its shares in a number of petrochemical companies to PGPIC, Industry paving the way for the formation of Iran’s first private petrochemical . NPC has continued in its role as a policy making body.

Mobarakeh Steel Company, one of the largest industrial Mobarakeh complexes in the country, started its operations in 1991 with 5.7% a nominal capacity of 2.4 million tons per annum. Mobarakeh Steel 5,924 Steel is the largest steel producer in the Middle East and North Africa region.

Mobile Telecommunication Company of Iran, also known Mobile as MCI, is the country’s largest mobile phone operator Communication 4.4% with a market share of over 54%. The first SIM card was Company of Iran 4,632 issued in Iran by MCI in 1994 and a network for 9,200 mobile phone numbers was created. The company currently has more than 57 million clients providing a full range of services including 3G and 4G.

In 1972, Sarcheshmeh Copper Mines Joint Stock Co. of Kerman National Iranian was established and, later, in 1976, it was renamed to National Copper Industries 4.1% Iranian Copper Industries Co. to cover all copper mines 4,324 operations throughout the country. This company is active in the extraction & utilization of copper mines, production of copper concentrates & manufacturing copper products.

Top 5 by Market Capitalization Top Telecommunication Company of Iran was established in 1931 when the Iranian government purchased Telecommunication and combined small scale telephone companies. 3.4% With technological advancements throughout Company of Iran 3,595 the 50’s-70’s, the Telecommunication Company of Iran was established in 1971 as the only responsible administrator for the country’s entire telecommunication infrastructure.

Source: Tehran Stock Exchange, Firouzeh Asia Brokerage. All figures in US$ are converted from IRR at the official rate of 37,299 IRR. * Weekly data as of trading week ending 1 March 2018. 13 Iran Investment Monthly Market Overview TSE Statistics March 2018 - Volume 12, No 136

TSE Statistics - Week Ending 1 March 2018* TSE Top 5 Gainers TSE Top 5 Traded Close US$ Cents Close US$ Cents Company 1-March-18 % Change Company 1-March-18 % Change Mehvar Sazan Iran Khodro Co. 6.1 21.0 Saipa Diesel Co. 2.6 6.3

Saipa Diesel Co. 2.6 19.0 Esfahan Mobarakeh Steel Co. 6.6 4.9

Mashad Wheel Mfg. Co. 3.6 17.8 Pars Khodro 2 4.9

Irka Part Sanat Co. 3.6 9.7 Iran Khodro Diesel Co. 1.8 4.8

Iran Manganese Mines Co. 11.0 8.2 Bandar Abbas Oil Refining Co. 16 3.0

Index Information Close %Change from Index Info 1-March-18 21-March-17 TSE Overall Index 97,961 27.7

TSE30 4,351 41.4

Iran Farabourse Overall Index 1,092 24.8

Week Ending Week Ending Description 1-March-18 22-February-18 Market P/E 7.5 7.5

Trade Statistics Week Ending Week Ending Average Daily Trade Volume 1-March-18 22-February-18 % Change TSE Average Daily Trade Vol­ume (million US$) 79 80 -1.2

IFB Average Daily Traded Vol­ume (million US$) 37 66 -43.9

FX Movements - February 2018 Market Rate Official Rate

3.9%** 0.9%** IRR per US$ IRR per US$

Source: Firouzeh Asia Brokerage, Bonbast All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated. * Weekly data as of trading week ending 1 March 2018. ** 28 Feb 2018 Vs. 1 Feb 2018, market exchange rates

14 Iran Investment Monthly Iran’s Fixed Income Market Iran’s Fixed Income Market March 2018 - Volume 12, No 136

Iran’s Fixed Income Market The fixed income market witnessed an active month with the issuance of a number of Islamic T-bills and government Musharakah and Salaf notes. Total fixed income issued papers soared 37% in IRR terms, taking the value of issued papers to 10 billion US$ in the month of February.

Iran’s Debt - February 2018 1.4 9.8 Tehran Stock Exchange Iran Farabourse (Junior Market)

Market Value (billion US$)*

16.5 28.7 Tehran Stock Exchange Iran Farabourse (Junior Market)

Average Daily Trading Value (million US$)

736,392 1,448,995 Tehran Stock Exchange Iran Farabourse (Junior Market)

Average Daily Trading Volume (bonds)

* As of 28 Feb 2018

Value & Breakdown of Issuance in Iran’s Capital Markets, 2017/18* (billion US$)

Billion US$ Source: Iran Farabourse *Calculated by the average exchange rate in the period of issuance.

15 Iran Investment Monthly Market Overview Iran’s Fixed Income Market March 2018 - Volume 12, No 136

Snapshot of the Highest Yielding Debt Securtites1 - February 2018

Issuer Type YTM (p.a.) Maturity

National Iranian Oil Company Musharaka 21.53 16-Mar-19

National Iranian Oil Company Musharaka 21.48 16-Mar-19

Oil Industry Employees' Fund Musharaka 21.25 20-Jan-20

Rayan Saipa Leasing Musharaka 19.51 6-Feb-21

Rightel Ijarah 19.36 3-May-20

SAIPA Murabaha 19.26 18-Sep-20

Tehran Municipal Musharaka 19.26 15-Mar-20

Gachsaran Musharaka 19.24 19-Jul-22

1 This snapshot is a selection of the highest yielding securities with minimum one year maturity in Iran’s debt markets and should not be considered as a solicitation or recommendation by Turquoise Partners.

Iran’s T-bills YTM in IRR Term, Exchange Rate & Rate

Iranian T-bills YTM in IRR Term (%) Iran Inflation Rate (Y/Y, %) Per US$ Exchange Rate (% Chg.)

Source: Tehran Stock Exchange - Iran Farabourse - Central Bank of Iran - Bonbast All figures in US$ are converted from IRR at the free market rate, unless otherwise indicated.

16 Iran Investment Monthly Economic Review Latest Updates March 2018 - Volume 12, No 136

Privatization in Iran The 2006 law on the implementation of the general policies of Article 44 of Iran’s Constitution on privatizing state-owned companies was intended to downsize the government sector within the national economy. Promoting the private sector’s role in the economy, reducing the financial burden of state companies on the , and improving their efficiency was also included as objectives of Iran’s privatization program. In the fifth phase of the Five-Year National Development Plan (2010-2015), the government envisioned a large-scale privatization program of about 20% of state-owned firms each year. Similar to economies with a large state sector (for example East European economies in 1992), the process of privatization has not been easy or straightforward. The large number of state-owned companies with structural inefficiencies and a lack of private investor appetite to take on such companies and willingness to reshape state sector models were key challenges in this program. For example, issues such as legal disputes with residents over land, cutting and reducing the labor force are challenging for the private sector to tackle after acquiring government entities. Nonetheless, aided by accurate financial analysis and local advisors, some successful privatization deals have taken place. One of the successful examples in recent years has been the privatization of petrol and gas stations across the country.

Value of Privatized Companies

Target Actual Million US$

Source: Iran Privatization Organization

Real Economic Growth In the first nine months of the Iranian calendar year 1396 (March to December 2017), real GDP on the supply side grew 3.4% compared to the same year-ago period. Utilities output in the industrial sector and Transport, Storage & Communication in services were the subsectors with the highest growth of 7.2% and 7.1% respectively. Growth in real terms of 4.1% in Agriculture and 4.6% in Industry were also noteworthy. The Commerce & Hospitality sector grew 4.3% in the same period.

On the demand side, real growth of 4.8% in government consumption and 9.2% in imports are interesting to note. A slight increase in private consumption of 1.4% shows the slow growth of income and consumption of Iranian households thanks to stabilized inflation over the past two years. Investment (fixed capital formation) edged up 1.4% over this period.

17 Iran Investment Monthly Economic Review Latest Updates March 2018 - Volume 12, No 136

GDP Supply Side Real Growth (%) Real Growth of GDP at Constant Prices (1390 Iranian Calendar Year) Mar - Dec 2016 Mar - Dec 2017

Growth in real terms of 4.1% in Agriculture and 4.6% in Industry were also noteworthy.

Real GDP Growth (1395 9m): +12.4% Real GDP Growth (1396 9m): Real Growth (%) Real Growth of GDP at Constant Prices (1390 Iranian Calendar Year) Mar - Dec 2016 +3.4% Mar - Dec 2017

Oil surged in 2016

Source: CBI

18 Iran Investment Monthly Economic Review Latest Updates March 2018 - Volume 12, No 136

GDP Demand Side Real Growth (%) Mar - Dec 2016 Real Growth of GDP at Constant Prices (1390 Iranian Calendar Year) Mar - Dec 2017

On the demand side, real growth of 4.8% in government consumption and 9.2% in imports are interesting to note. A slight increase in private consumption of 1.4% shows the slow growth of income and consumption pattern of Iranian households thanks to stabilized inflation over the past two years.

d Real GDP Growth (1395 9m): 12.5% Real GDP Growth (1396 9m): Real Growth (%) Real Growth of GDP at Constant Prices (1390 Iranian Calendar Year) Mar - Dec 2016 3.1% Mar - Dec 2017

Oil Exports surged in 2016

Source: CBI

19 Iran Investment Monthly Economic Review Macroeconomic Data March 2018 - Volume 12, No 136

Macroeconomic Data Iran Economic & Market Data Iran Macroeconomic Forecast Calendar Unit 2016/ 17 2017/ 18 2018/ 19 CBI: Selected Economic Indicators for (Billion US$) November-December 2017 Nominal GDP 377 368 386 Released: 17 March 2018 Real GDP Growth (%) 12.5 3.5 3.8

CBI: New issue of “Economic Report (Million barrels & ” for 1394 (2015/16) Crude Oil Export per day) 2.4 2.5 2.6 Released: 13 March 2018 GDP PPP Per Capita (US$) 18,080 18,860 20,080

Private Consumption (Billion US$) 194 214 237

Fiscal Balance Unit 2016/ 17 2017/ 18 2018/ 19

(% GDP at Current Account market prices) 6.3 5.3 5.3

Overall Fiscal Balance (% GDP) -2.8 0.7 - 0.4

Fiscal Tax Revenue (% GDP) 6.9 7.0 7.7

General Government Gross Debt (% GDP) 35.0 29.2 26.1

Monetary & Banking Unit 2016/ 17 2017/ 18 2018/ 19 Sector Indicators

Inflation (%) 8.9 10.5 10.1

Broad Money Growth (M2) (%) 29.5 22.3 16.6

Credit to Private Sector Growth (%) 30.3 19.7 15.5

Net Foreign Assets (Billion US$) 119 136 152

External Sector Unit 2016/ 17 2017/ 18 2018/ 19

Total Export (Billion US$) 102.2 114.3 118.6

Oil & Gas Export (Billion US$) 57.4 65.3 67.7

Import (Billion US$) 79.4 96.0 100.6

Current Account Balance (Billion US$) 23.8 19.6 20.6

Source: International Monetary Fund - Iran Country Report, February 2017 - IMF Staff Visit Article IV Mission to Islamic Republic of Iran in January 2018 - Central Bank of Iran - Economic Trends No. 87 Fourth Quarter 1395 Iranian calendar year Central Bank of Iran , Security Exchange Organization, Statistical Centre of Iran. All figures in US$ are converted from IRR at the free market rate

20 Iran Investment Monthly Iran’s Fixed Income Market Iran’s Fixed Income Market March 2018 - Volume 12, No 136

Iran’s Fixed Income Market Factsheet

Background • In 1994, and in line with plans to develop financial products that could assist with the financing of infrastructure projects, the Tehran Municipality was given permission to issue the first debt papers in the post-revolution era using the structure of ‘participation notes’ (Musharakah Papers). • Between 1994 and 2009, the government ministries and municipalities financed their projects through issuing fixed income instruments (such as certificate of deposits, participation papers) with the guarantee of state banks. • These papers were issued in bank branches and were sold to bank customers. • The banking sector used to dominate the funding of investment projects and working capital finance for corporates. • Since 2009, a variety of fixed income instruments have been introduced to public and have gradually started to be traded on the Tehran Stock Exchange and Iran Farabourse. • Over the past eight years, due to the tightening of economic sanctions, a lack of foreign funding and inefficiencies in the traditional banking system have put significant pressure on the commercial sector, especially within industries with a high working capital re- quirement. • In an attempt to increase liquidity, the SEO, the principal financial regulatory body in Iran, has introduced new regulations permitting methods of financing via the equity and debt markets, similar to those in other Islamic bourses.

Period • The tenor of these fixed income instruments ranges between 1 to 5 years.

• The yields on these bonds currently range between 14% - 24% Structure & Rates • Coupons are paid on a semi-annual, quarterly or monthly basis Mechanism • The coupons are collected and distributed through the Central Securities Depository of Iran directly to the investor’s bank account.

• The principal and interest of these notes are guaranteed by a bank, government entity or a money and Mechanism credit institution. • These entities undertake the responsibility of paying the interest and the principal in case the issuer is unable to do so. • This means that the debt owner is essentially taking on the risk of these guarantors, where in the case of T-Bills, this is often the risk of the Treasury or Central Bank of Iran.

21 Iran Investment Monthly Iran’s Fixed Income Market Iran’s Fixed Income Market March 2018 - Volume 12, No 136

Current Snapshot of Funding Sources • There are 81,different fixed income instruments listed on the Iranian securities markets. • Of these 81, 26 are listed on the Tehran Stock Exchange while the remainder are listed on the Iran Farabourse. • Both public and private companies can issue these notes. At the moment, these notes have been issued by government entities as well as . Turquoise Partners Sovereign Fund • In order to take advantage of this attractive opportunity set, Turquoise Partners launched Iran’s 1st Sovereign in early 2017. • Given the idiosyncratic nature of the yield curve in Iran’s nascent fixed income market, the Fund is actively managed and invests in a range of Iran’s listed sovereign-backed fixed income assets in order to deliver stable and absolute returns over time. • The fund will seek to return 15-20% p.a. net of fees, in local currency terms.

Statistics

Global Sukuk Issuance 2016 - Billion US$

Malaysia

Indonesia Cayman Island Iran Pakistan Turkey Jersey Saudi Bahrain Qatar Arabia Oman

Source: Kamcoonline Value & Breakdown of Sukuk Issuance in Iranian Capital Market,2016/17* (billion US$)

0.28

0.46

0.55

0.62

0.66

0.85

1.04

3.57

Source: SEO Billion US$

22 Iran Investment Monthly Turquoise Partners About Turquoise Partners March 2018 - Volume 12, No 136

About Turquoise Partners

Since 2005

Turquoise is a leading investment group based in Iran that offers a full range of financial services to select investors looking at the Iranian market. The group operates across four core areas: , brokerage, corporate advisory and private equity/venture capital. Turquoise also manages more than 75 per cent of all existing foreign portfolio on the Tehran Stock Exchange. Its asset management division offers an EU-regulated equity fund tailored specifically to foreign investors and invests exclusively in the Iranian securities markets. The fund is jointly advised by Turquoise Partners and specialist Fiera Capital.

Firouzeh Asia, the group’s brokerage division, is the market leader in foreign investment and execution, and publishes English language market research, news and analysis. In addition, Turquoise is the only Iranian financial services group to have a significant track record in private equity investing and currently manages two listed private equity investment vehicles.

Turquoise’s team offers a full suite of advisory services including mergers and acquisitions, restructuring, market entry and capital raising, for international clients seeking to enter the Iranian market as well as leading Iranian companies.

23 Iran Investment Monthly Turquoise Partners About Turquoise Partners March 2018 - Volume 12, No 136

Asset Management

• In early 2017, Turquoise Partners launched the 1st Turquoise Asset Management has established an Sovereign Bond Fund with a target return of 15-20% outstanding reputation and robust performance track in local currency terms. The Turquoise Partners record in the Iranian equities market. The group is Sovereign Bond Fund is an actively managed known as a leading investment firm with a strategy strategy with low that invests in a of and long term capital growth; it range of Iran’s sovereign-backed fixed income specializes in attracting foreign investors to invest in assets with the objective of delivering high one of the most undervalued financial markets in the stable and absolute returns over time. The world. fund adopts a concentrated approach, utilizing Our investment team is comprised of experienced a core portfolio of Iranian Government bonds professionals with more than 20 years experience backed by the Central Bank of Iran as the across international and domestic financial markets. ultimate guarantor. Sovereign Fixed Income Our investment decisions are guided and supported securities include; Islamic Treasury Bills, by our investment and advisory committees, access Ijarah Sukuk, Musharakah Sukuk & Murabaha to detailed market information, and our on-the-ground . presence in Iranian financial markets over the last 10 years. • Having operated in the Iranian market for over Our commitment to maintaining the highest standards, a decade, Turquoise has accumulated a first along with our long term growth strategy has allowed rate database of market data and information. us to gain an unparalleled reputation as the leading The firm’s electronic newsletter, Iran asset management firm inside Iran. Investment Monthly, has been consistently published for over 10 years and has a wide Asset Management Division: Products & Services readership of over 3,000 investors and Iran enthusiasts. This newsletter and other regular Turquoise Partners launched Iran’s first equity fund research products of the firm, are the only free in May 2006, tailored for foreign investors. With source of English language research on the over 10 years of track record, the fund has grown Iranian economy and capital markets. to be the largest foreign investor on the Iranian capital markets. The investor base of this fund is almost all European with a mix of institutional, family offices, high net worth individuals and private professional investors.

• In 2015, Turquoise Partners and Fiera Capital launched the first EU regulated alternative for Iran. This fund is now operational and is open to global investors aiming to get exposure to the Iranian market.

For more information about products and services offered by Turquoise Partners please contact: [email protected]

24 Iran Investment Monthly Turquoise Partners About Turquoise Partners March 2018 - Volume 12, No 136

Corporate Advisory Brokerage

Our corporate finance team is comprised of senior Firouzeh Asia, the brokerage arm of Turquoise Iranian and international bankers based locally and in Partners, is the leading offering access to . We deliver mergers and acquisition advisory, Iranian securities markets for international investors. restructuring, market entry and capital raising services Over the years, Firouzeh Asia, as a fully licensed to international clients seeking to enter the Iranian brokerage company under the Securities and market. We also assist Iranian domestic corporates to Exchange Organization of Iran, has been a pioneer access global markets through strategic . in servicing international investors as well as offering We seek to combine in-depth local knowledge and professional services to its domestic clients. Firouzeh access with international investment banking best Asia has a presence in four major Iranian cities: practices. Tehran, Isfahan, Rasht and Yazd.

In cooperation with Turquoise’s market leading equity Brokerage Division: Products & Services brokerage, we deliver capital markets services, including public markets capital raising and structured • Securities Dealing products, to Iranian corporate clients and foreign and Online trading platform with live market data domestic institutional investors. for all customers Telephone orders Corporate Advisory Division: Products & Services Block trades Dedicated trading station for large customers • Advisory Reports: in-depth research reports tailored to the corporate advisory division’s policies, • Managed Accounts providing research on specific Investment advice (institutional clients only) listed or non-listed companies and their sectors’ outlooks, in English. • Capital Market Advisory and IPO advisory Fixed income securities issuance and placement

• Index ETF Launch of Iran’s first index-linked ETF (TSE- 30 ILETF) in January 2015 Client portfolio management

• Equity Research Report: an in-depth research report tailored to the Turquoise Investment Strategy which provides the latest developments in a selected number of listed companies (including their sectors), in English.

For more information about products and services offered by Turquoise Partners please contact: [email protected]

25 Iran Investment Monthly Turquoise Partners About Turquoise Partners March 2018 - Volume 12, No 136

Private Equity/Venture Capital

Turquoise is one of the only Iranian financial firms with a significant track record in private equity investing. Our investment team has been operating on the ground since 2005 and has invested on its own behalf, with co-investment partners, and as a manager in the most attractive growth sectors of the Iranian economy. Transactions have included private investments in FMCG, financial services, real estate and technology-based venture capital.

Our private equity capabilities include experience in all phases of the investment process including market analysis, due diligence for investors in the Iranian environment, interface with regulators and other governmental authorities, investment restructuring, exit management and undertaking all the reporting and investment monitoring expected of a private equity fiduciary.

Private Equity Division: Products & Services

• The Turquoise Group has made private equity investments both on its own and with partners in a variety of sectors including consumer, financials, technology and real estate amongst others.

• Advisory Reports: in-depth research reports tailored to the corporate advisory division’s policies, providing due diligence research on specific listed or non-listed companies and their sectors’ outlooks, in English.

For more information about products and services offered by Turquoise Partners please contact: [email protected]

26 Iran Investment Monthly Turquoise Partners About Turquoise Partners March 2018 - Volume 12, No 136

Indigo Holdings PLC: The first foreign-listed vehicle investing in Iranian assets

Indigo Holdings PLC is a listed investment company trading on the NEX growth market exchange in London. Indigo is primarily focused on investing in fast-growing private e-commerce companies in Iran (the official mandate cites the broader tech, consumer, and financial sectors in frontier markets in the Middle East). Indigo has a strong pipeline of e-commerce opportunities in Iran, where 4 investments have been made to date (additional information below).

Sheypoor A leading online classifieds marketplace in Iran. Founded in 2012, and similar to companies such as Gumtree and Craigslist outside of Iran. Sheypoor has been active in creating a convenient one-stop destination for all Iranians to buy, sell and search for goods and services quickly, easily, and free of charge.

Iranian FMCG The online business arm of the Yaran Daryan convenience stores, aiming to become Iran’s first and leading online grocery delivery company. FMCG’s business model will differ to the traditional warehousing model of companies such as Ocado, where online orders will be automatically routed to the nearest Yaran Daryan store, which will then be collected by the company’s fleet of drivers and delivered to the customer’s address.

Carvanro An inter-city car ride-sharing app in Iran, which connects drivers and passengers embarking on the same car journeys. Carvanro operates a similar model to the international car ride-sharing service BlaBlaCar, which has 35 million members and a reported of approximately 1.5 billion US$.

3SootJobs 3sootjobs aims to become Iran’s leading job-search platform. It is revolutionising the job-search market by creating and introducing a smart, fast and easy-to-use platform (app and website) that will allow job seekers and employers to instantly search and connect, all through a swipe. 3sootjobs makes the time-consuming job-search process cheaper, faster, and smarter, using an algorithm-driven matching software.

For more information about products and services offered by Turquoise Partners please contact: [email protected]

27 Iran Investment Monthly Turquoise Partners About Turquoise Partners March 2018 - Volume 12, No 136

Ctrl+Tech

In early 2017, and in line with Turquoise’s history A market which boasts: of identifying and acting upon new opportunities, • A young and tech-savvy demographic where we launched a tech incubator in North Sohrevardi, almost two-thirds of Iran’s 80 million population is Tehran, by the name of Ctrl+Tech. Ctrl+Tech aims under the age of 35 to build and develop exciting tech start-up ideas in • The highest internet usage in the Middle East Iran, with a mandate to not only focus on launching where Iran is responsible for almost 40% of the ‘proven-concept’ business models that exist and have entire region’s usage demonstrated success elsewhere in the world, but • A rapidly growing smartphone penetration rate, also on innovative new ideas that should resonate well estimated at 48 million users - up 2,300% in the in Iran’s burgeoning start-up environment. past 3 years

Ctrl+Tech currently consists of a carefully assembled After 5 months of full operation, Ctrl+Tech successfully team of 16 individuals all of whom are passionate launched it’s first project in early October 2017 - an about building new apps for the domestic market. Our exciting job-search platform: 3sootjobs. team of talented founders, developers, designers, and tech gurus are backed and supported by senior 3sootjobs is revolutionizing Iran’s job-search market by mentors and members of Turquoise Partners, allowing creating and introducing a smart, fast and easy-to-use Ctrl+Tech to off Turquoise’s wealth of platform (app and website) that will allow job seekers expertise and experience in Iran’s digital landscape. and employers to instantly search, and connect, using an algorithm-led software. Turquoise created Ctrl+Tech in order to build a platform Since launch, 3sootjobs has shown impressive growth that will grow strongly in Iran’s flourishing technology and success, where it has attracted thousands of market. users in the first week, scored 96% 5* ratings on Cafe Bazaar, and successfully closed a seed funding round.

For more information about products and services offered by Turquoise Partners please contact: [email protected]

28 Iran Investment Monthly Turquoise Partners News & Views March 2018 - Volume 12, No 136

News & Views

Recent Research Turquoise in Media

Iran Daily Market Update – March 2018 October 9, 2017 - CNBC March 19, 2018 “Iranian investors: Watching the White House’s next move” March 18, 2018 Read the full article March 17, 2018 March 14, 2018 August 30, 2017 - Bloomberg March 13, 2018 “Nuclear Deal Boosts Tehran Bourse Trade as IPO Requests Jump” Iran Weekly Market Update – March 2018 March 8, 2018 Read the full article March 1, 2018 July 14, 2017 - Bloomberg “EU Firms Seeking Potential Iran JVs” Watch the full interview

29 Iran Investment Monthly March 2018 - Volume 12, No 136

Turquoise Partners No. 10. 7th St. Khaled Eslamboli (Vozara) Ave. Tehran, Iran Tel: + 98 21887 26 681 Fax: +98 21 881 07 746 Email: [email protected]

Firouzeh Asia Brokerage 5th Floor No. 11, Mirza Hassani St. Ghaem Magham Farahani Ave. Tehran, Iran Tel: +98 21 881 06 106 Fax: +98 21 881 07 746 Email: [email protected]

DISCLAIMER This document has been issued by Turquoise Partners for information purposes only and is not to be construed as a solicitation or an offer to purchase or sell any security or other or to any particular category of investors in jurisdictions in which such an offer or solicitation to the public or to any particular category of investors is illegal. Although the material in this report is based on information that Turquoise Partners considers reliable, Turquoise Partners does not make any warranty or representation (express or implied) in relation to the accuracy, completeness or reliability of the information contained herein. Any opinions expressed herein reflect a judgment at the date of publication and are subject to change. Turquoise Partners accepts no liability whatsoever for any direct, indirect or consequential loss or damage of any kind arising out of the use of all or any of this material. Where Turquoise Partners provides information in the document, it is provided exclusively for information purposes. The information does not constitute any form of recommendation related to the personal circumstances of investors or otherwise, nor does it constitute any specific or general recommendation to buy, hold, or sell financial instruments and does not thus create any relationship between Turquoise Partners and any investor. The document may not include all the up-to-date information required to make investment decisions. Other more accurate and relevant sources of information may exist. Investors should thus diligently inform themselves about the chances and risks of the investments prior to taking investment decisions. In addition to the financial aspects, this should include, in particular, the legal and tax aspects of the investments. It is strongly recommended that any potential investor should contact a financial adviser and, where required, a lawyer or tax adviser. Furthermore, it should also be considered that the future performance of financial instruments and their return cannot be inferred from their past performance. The value of investments may go down as well as up and investors in financial instruments should be capable of bearing a total loss of investment. Neither Turquoise Partners nor any third party content provider shall be liable for any errors, inaccuracy, delay or updating of the published content of the provided document. Turquoise Partners expressly disclaims all warranties as to the accuracy of the content provided, or as to the use of the information for any purpose, as far as legally possible. This material is for the use of intended recipients only and neither the whole nor any part of this material may be duplicated in any form or by any means. Neither should any of this material be redistributed or disclosed to anyone without the prior consent of Turquoise Partners. PERSONS DOMICILED, RESIDENT OR BASED IN THE OF AMERICA ITS TERRITORIES OR POSSESSIONS OR WHO MAY OTHERWISE BE CONSIDERED AS UNITED STATES PERSONS, INCLUDING REPRESENTATIVES OF UNITED STATES COMPANIES OR NON-UNITED STATES SUBSIDIARIES OF UNITED STATES COMPANIES SHOULD NOT CARRY OUT ANY ACTION IN BREACH OF U.S. SANCTIONS LAWS.

30 Iran Investment Monthly