Monthly 15 September, 2006 Volume 1, No. 1

THIS MONTH

INTRODUCTION Goals and vision of Monthly

COVER STORY Iran’s economic revolution sparked by the recent privatization decree issued by the Supreme Leader

ECONOMY News on privatization plan, foreign investment projects, rise in non-oil export, and recent macroeconomic data.

TEHRAN EXCHANGE Update on the exchange performance and reasons behind its recent growth as well as report on hot sectors which are petrochemicals, mining and pharmaceuticals.

TURQUOISE IRAN EQUITY FUND Vision, investment strategy and performance of Iran’s first world-class

INVESTMENT OPPORTUNITIES Proposing two lucrative private equity investment opportunities in downstream petrochemical and real estate sectors

Iran Investment Monthly is produced by Turquoise Turquoise Fund, Second floor, Mottahari St. No.248 Partners staff. Distributed electronically by exclusive , Iran T: +98 21 88 30 40 79 F: +98 21 88 82 68 36 subscription. Email: [email protected] Editor: Ramin Rabii To find out more about , visit Assistant Editor: Houshang Jeirani our website at www.turquoisepartners.com. © 2006 All rights reserved

Further information and detailed analysis of reports in this publication The first transoceanic commercial ship built in Iran. can be purchased directly from Turquoise Tehran office. Introduction 2

Having established itself as the first and leading private investment institution in Iran, TURQUOISE is pleased to announce the publication of its first exclusive e-newsletter, “Iran Investment Monthly”.

The goal of this publication is to update its readers on the latest macroeconomic developments in Iran, to provide an overview of the investment climate in the country, to present an in-depth analysis of the Tehran , to demonstrate the performance of Turquoise Iran Equity Fund as well as to introduce lucrative private equity investment opportunities to potential .

Iran Investment Monthly is distributed exclusively amongst Iran analysts and potential investors who have worked closely or have been in contact with Turquoise Partners.

Subscription to this newsletter is by referral only or through an online request sent to: [email protected]

Cover Story

Iran’s Economic Revolution Makes Its Way

A decree by Iran’s Supreme Leader Ayatollah Khamenei has opened the door for new interpretation of the constitution that allows for private sector to get involved in industries which were previously reserved for state ownership. Approximately 60 to 70 percent of the Iranian economy is currently owned and controlled by the government. This decree will force the government to privatize 80% of all its assets in almost all sectors including downstream oil and gas, mining, banking, insurance, air and shipping, power plants, post and telecommunication. It is worth noting that foreign investors can also participate in all sectors and industries that Iranian private sector can enter.

This came as great news for Iranian private sector. As a result, many of the leading private corporations and investors, as well as Iran Chamber of Commerce have had discussions regarding structures and vehicles that are required to implement this decree efficiently in the next few years. Considering the enormous amount of assets that is planned to be privatized, which is estimated to be around $100 billion or three times the size of Tehran Stock Exchange, modern financial instruments are required to raise sufficient funds for the privatization process. It is believed that establishment of large and world-class investment banks, private equity funds and financial institutions are essential for the success of this plan.

Turquoise Fund, having a first-comer advantage in Iran and access to international finance, is planning to Volume 1, No. 1 Volume utilize all its resources inside Iran and globally to exploit the unique opportunities that will be presented by this vast privatization initiative. Iran Investment Monthly, Iran Investment Monthly, Volume 1, No. 1 Economy • countries itisaround 5%. expenditure. ItisworthnotingthatinthePersian Gulf statesthisrateisaround7%andintheEuropean Arabia, The Netherlands and Afghanistan. biggest importersofthecountry’s non-oilgoods are UAE,,Iraq,India,Japan,Singapore,Italy, Saudi during thisperiod. compared tothesameperiodoflastyear. Healsoaddedthatmostpeoplewere employed byindustrialsector Iranian year(endingMarch2007)the unemployment ratehasdecreasedto11%, demonstratinga0.9%drop million. to around$123million.Iran’s importfrom the USamountedto$41.5millionanditsexportreached$81.1 398.2 trillionRialsrecordedinthepreviousyear. year. The GDP, according totheCBI,hasincreased419.7trillionRialsinmentioned year fromthe Iranian yearthatendedMarch2006reached 5.4%, which showsa0.6%increasecomparedtotheprevious in the country. • • • • • • • power failures aremostlycaused bynetworkandtechnicalproblems. Officials confirmthatthere isnopower shortage aslongconsumptionlevelsremainthesame andsporadic within thenext2to3 years theinflationratewilldropbelow5%. The inflationrate declaredbythe Central current Iranianyear(March2007).Inhisrecent press conferencePresident Ahmadinejad announcedthat petrochemical, power plantandpharmaceuticalsectors. projects inIran’s industrialsectorincreasedby 117% toreach$510million. The licensedprojectswerein import andisestimated to spendaround$630millionannually. perannum.Overall,Iranisranked11th out of19MENA region countriesintermsoffoodstuff are considered for the first phase are consideredforthe figures ofMarch2005to2006. Bank ofIranfortheperiodMay2005to2006standsat10.5% showing a1.6%dropcomparedtothe state-owned insurancecompany, Renovation Organization (IDRO)aregoingtobeoffered in the stockmarket.Inaddition,sharesofone Steel Mills, Khuzestan SteelCompany, IslamicRepublic’s ShippingLinesandIndustrial Development and • • • Access toComputers Privatization US-Iran Trade Unemployment Rate Access toElectricity Inflation Rate Import ofFoodstuff GDP andEconomicGrowth Non-oil Export Foreign Investment Liquidity Growth : FollowingthenewprivatizationdecreebySupremeLeader, : The governmenthaspromisedtoreducetheinflationratea single digitbytheendof : CommercialtradebetweenIranandtheUSin first5 months of2006increasedby32% rnsnnoleprsrs y7%t 6blini h rtfivemonthsoftheyear. The : Iran’s non-oilexportsroseby74%to$6billioninthefirst : Liquiditygrowthratehasreached37%inthecountrydue to increasedgovernment : Iranisthethirdimporterofriceworldwidewith imports of 2.1milliontonnesthe : Basedonlatest statistics,around8million computers are nowbelieved tobeoperating : Iran’s entireurbanpopulationand97%ofits rural regions haveaccess toelectricity. : DuringthefirsttwomonthsofcurrentIranianyear, approved foreigninvestment : HeadofIran’s StatisticsCentreannouncedthatduring the firstquarterofcurrent : CentralBankofIran(CBI)announcedthatthe economic growthrateinthe Asia Insurance,aresoongoingtobeprivatized. of the privatization plan.FortypercentofthesharesMobarakeh four giantstate-ownedcom panies 3 Iran Investment Monthly, Volume 1, No. 1 Tehran StockExchange significantly andovertwo-thirdoftheactive companies experiencedgainintheirsharepriceduringthe first Tehran StockExchangehasbeenexperiencingarevivalinthelastfewweeks. two weeksof September. Someofthemainreasonsbehindthisrecentgrowthareasfollow: growth duetofollowingreasons: Petrochemicals, miningandpharmaceuticalsarenotablesectors,withhighestdemand and continuous • Iran. that imposingserioussanctionsonthecountry seems unlikelyhashelpedboostinvestors’ confidencein signifi as limitedactivityinrealestatesectorandelevated international goldprices,arehelpingtodiverta during 2007. products inadditiontovastexpansionprojectsthatare under wayandareexpectedtocomeonstream as foreigncapitaltowards Tehran StockExchange. • transparency too muchbyfluctuationsinglobalmarket. seem tobetaking advantage ofgrowing domesticmarketandconsumptionboomwithoutbeing affected companies arenotdependentonimportof materials andsellmostoftheirproductsdomestically, they price ofthe . againiscausedbytheenormous increasein continuously increasetheirexpectedearning,which • • • • • Pamcuia etri mns h otsl-ufiin etr nIaineconomy. While pharma Pharmaceuticalsectorisamongstthemostself-sufficientsectorsinIranian Newregulationsadoptedby Tehran StockExchangeareexpectedtoimprove ’s efficiencyand Positiveoutcomereportedfromtalksbetweenthe West andIranoverits nuclear programandthefact Reductioninbank’s interestratesby2%andtheprospectsofmorereduction in comingyears,aswell Petrochemicalcompaniesareenjoyingremarkablegainsduetoglobalrisein prices ofpetrochemical Downfallofotherregionalexchanges(i.e.SaudiandDubai)hasdivertedsome Iran-originated aswell Miningfirms,especiallythoseactiveinZincextraditionandproduction,are enjoying hugeprofits and cant portionofthe liquidity towardsthestockexchange. 9050 9100 9150 9200 9250 9300 9350 1Ag0 1Ag0 1Ag0 31-Aug-06 21-Aug-06 11-Aug-06 01-Aug-06 Performance of TSE Price (TEPIX) (TEPIX) Index Price TSE of Performance in August 2006 TSE Price Index (TEPIX) Index Price TSE Volume oftradehasincreased interna ceutical tional 4 Iran Investment Monthly, Volume 1, No. 1 Turquoise IranEquityFund With a vision ofestablishingIran’s firstworld-classmutualfund, Turquoise Iran Equity Fund was launchedendofMay, 2006withinitialinvestmentoffivebillion Rials ($550k).Themission its quarterlyperformanceisdemonstratedbelow: management techniquesandlocalknowledge. An overviewofthefund’s investment strategy and enormous potential thatexistsintheIranianmarketcouldbeexploitedusingmodernfund perform significantlybetter than thebenchmarkinitsfirstquarterlyreport. This factprovesthe Although veryyoung, Turquoise Iran Equity Fundwasabletodemonstratesubstantialgainand of thisfundistounlocktheIranianmarketusing international experienceandlocalexpertise. Investment Stra Tehran StockExngeorabr investing inIranian-based securities aswellIranianequitieslistedonthe superior returns,with greater diversificationandlowervolatilityriskby international experience withlocalexpertiseallows Turquoise toprovide - oneofthe most under-valued emerging marketsintheworld.Combining capital growth byinvestingintheconsumerandcommoditypotentialofIran

100.00 101.00 102.00 103.00 104.00 105.00 106.00 re-based107.00 108.00 to 100109.00 110.00 99.00 Turquoise Fund 050 //61//62//6970 970 970 //61//628/8/06 18/8/06 8/8/06 29/7/06 19/7/06 9/7/06 29/6/06 19/6/06 9/6/06 30/5/06 Performance ofTurquoiseIranEquity Fund TEDPIX TEDPIX Turquoise Iran Equity Fund Iran Turquoise tegy : Turquoise IranEquityFundseekssuperiorlong-term 1 Jul2006 2.3 % 4.9 % oad. 1 Aug2006 TSE Price &TSE Div. Price Index (TEDPIX) 2.3 % 8.0 % 1 Sep2006 4.7 % 8.5 % 5 Investment Opportunities 6

The two private equity investment opportunities selected for this edition are:

1) A lucrative project in ever-growing downstream petrochemical sector producing unique foam with significant domestic market and usage in variety of industries.

2) A series of large development projects planned by Tehran Municipality involving commercial and residential high-rises with a guaranteed return.

Potential investors can contact Turquoise Tehran office for further information on the proposed opportunities and investment process.

PROJECT # 1

Title : Production of Chemically Cross-Linked Polyethylene (XLPE) and Extruded Polystyrene (XPS) Foams and Blocks

Investment Size : US$ 3.6 million Sector : Downstream Petrochemical Description:

This project involves construction of the production plant for XLPE and XPS foams that have various uses in auto, construction, home appliances, packaging and many other industries. This will be Iran’s first production plant of this sort.

22,000 sq.m of land has already been purchased and fenced in the Industrial City of Mamouniyeh, South Tehran. Water supply has been secured and power lines of 249 KW are being installed. Plant’s building walls and foundations have also been put in place.

Contracts for purchase of the machineries have been signed with South Korean Jinsung company and the import permission obtained from the government. The cost of machineries would be around US$ 2.1 million.

Potential :

Based on the statistics of the Iranian Customs in 1382, more than US$ 15 million worth of XLPE foams have been imported to Iran in that year. Aside from domestic use, these foams could also be exported to regional and European markets.

It is worth noting that one of the uses of these foams is in construction for sound proofing and energy insulation of buildings. Based on Iranian laws making the use of heat insulation in all buildings for energy saving, the market for these kinds of foams is growing rapidly.

PROJECT # 2

Title: Commercial and Residential High-rises in Tehran Investment Size : Up to US$ 1 billion Sector : Commercial and Residential Real Estate Description:

Tehran Municipality has a comprehensive renovation plan for some of the old districts of Tehran. In accordance to this plan, several projects have been introduced in different parts of Tehran which are available for domestic or foreign investment. Most of these projects are located in South and Central Tehran. Volume 1, No. 1 Volume In most of these projects, the has the of purchasing land from the municipality or directly from the owners. The investor finances the building of commercial and residential units that can later be sold back to the Municipality or any third party.

Potential : • In some of the projects, Tehran Municipality guarantees up to 30% IRR. • In some districts Tehran Municipality guarantees to buy small residential units following completion of the project. • Investor can maximize profit by purchasing land directly from owners. Iran Investment Monthly, • Following the recent recession in Tehran’s real estate sector, the sector is expected to grow significantly within next few years.