ran nvestment TURQUOISE Monthly PARTNERS Jun 2011 - Volume 5, No 57 Tehran Stock Exchange Trading Floor, Turquoise Investor Conference Market Overview 2 The Tehran Stock Exchange (TSE) had a volatile performance in May. Following its strong performance over the past few months, the TSE began the month on a downward trajectory. The International Atomic Energy Agency’s report on the Iranian nuclear programme and domestic political tensions were assessed as the main drivers of market behaviour. Country Overview 5 Political tensions over the resignation of the Intelligence Minister and a series of ministerial mergers will be discussed in this section. Economy 7 An overview of Iran’s agriculture, EIU’s analysis of Iran’s subsidies reform plan, discovery of a new oil [eld, and Iran’s second place as the growth pole in the region will be discussed in this section. Special Report: Turquoise Investor Conference 10 A summary of the foreign investment conference that was hosted in May by Turquoise Partners in Tehran will be provided in this section. Turquoise Iran Equity Investments 12 This section provides data and charts on the performance of Turquoise Iran Equity Investments Class A for the month of May. Iran Investment Monthly is produced by Turquoise Partners Turquoise Partners, No. 17 East Gord Alley, Bidar St., Fayyazi (Fereshteh) Ave. and distributed electronically by exclusive subscription. Tel : +98 21 220 35 830 Fax : +98 21 220 49 260 Chief Editor: Ramin Rabii Email : [email protected] Consulting Editor: Eddie Kerman To nd out more about Turquoise Partners, visit our website at: Authors: Shervin Shahriari www.turquoisepartners.com. Ali Mashayekhi © 2011 All rights reserved Sanam Mahoozi Ali Ebrahimnejad Emilia Tebyanian Market Overview Volume 5, No. 57 The Tehran Stock Exchange (TSE) had a political interventions in the automotive industry. volatile performance in May. Following its strong The parliament has formed an investigation performance over the past few months, the TSE group to scrutinise the ownership transfers in began the month on a downward trajectory and the automotive industry over the past year. the TSE All-Share index declined by 3% in Rial Approximately 40% of the ownership has changed terms at the beginning of May. The downturn as a result of the trades by the major shareholders was also partly driven by the International Atomic of Iran Khodro Co. and Saipa Co., the two largest Energy Agency’s report on the Iranian nuclear automakers in Iran. The parliament believed that programme. Also, some of the domestic political the companies had engaged in share repurchasing tensions, as discussed in the Country Overview through some of their subsidiaries, which is not in section, contributed to the downturn. Subsequently, line with the privatisation plans aimed at reducing the TSE had a positive performance but declined state ownership. again during the last week of the month. Overall, the TSE’s performance remained negative over The Parliament also repealed a 5% block the month of May. This was the [rst negative transaction of Iran Khodro Co. during the month monthly performance for the TSE over the past of May which added to the uncertainties around six months. the future prospects of the listed automotive companies. Also, retail trade volumes declined by 40% in May in comparison to the previous month. This can be Base Metals viewed as a sign of the cautious sentiment among Base metals performed well in May and the investors, many of whom are preferring to wait for industry index gained 7.3%. The government clearer market conditions to present themselves. recently approved a 2% price increase for Some experts perceive the current market Mobarakeh Steel Co. products, which was the condition as natural following the signi[cant gains [rst of[cial price increase for steel in the past six over the past few months and they expect the months. Mobarakeh Steel Co., the largest steel upward trend to reaccelerate during the summer. producer in the Middle East, also outperformed its earnings forecasts for the [nancial year ending Oil and Gas Extraction March 2011 by 10%. This made the company the Block trading by the major shareholders was best performer of the month with the share price signi[cant over the past month, unlike retail increasing by 18.4%. investors who did not trade as actively. A 50% stake plus one share of Haffari Shomal (North Mining shares also had a positive performance of Drilling Co.) was sold after one week of heavy 1.4% as the parliament repealed the 50% tariff on competition among the bidders. Haffari Shomal’s iron ore exports. Gol Gohar Co., which has the key business is the management and leasing of largest iron ore reserves in Iran, gained 8.9% as oil and gas extraction platforms in the Caspian a result. Sea, to both Iranian and also foreign customers. Also, the National Iranian Copper Industries Co. The block ended up being sold at the price of $728 (NICIC) published its annual report for the [nancial million, for a valuation of double its current share year ending March 2011. The company’s net pro[t price. The company has pro[tability of $92 million reached an all-time high of $1.36 billion. As a and a market capitalisation of $720 million. result, NICIC shares attracted investors and gained 2.6%. Overall, the mining and metals industry had Automotive a positive performance and analysts expect a In May, the automotive industry had its worst continuation of this trend in the coming weeks. monthly performance over the past six months and the industry index fell by 5.4%. The negative Machinery & Equipment performance can be largely attributed to the recent The machinery and equipment industry index Iran Investment Monthly 2 Market Overview Volume 5, No. 57 experienced a sharp decline of 22%. The decline the industry index in May. came after the publication of a new sanctions list by the European Union, which contained some Real Estate & Construction of the machinery and equipment companies The developments in the real estate and listed on the TSE. Also, Sadra, a major off- construction industry over the past months shore construction company underperformed its indicate a possible ending to the long recession earnings forecast. This further contributed to the which has lasted for more than three years. The negative performance of the industry index. Realtors Association recently announced that the prices of residential properties have increased by Banking and Insurance 5 to 8% over the past two months. Furthermore, In May, the Department of Justice announced a the unchanged housing prices over the past few 100% increase in insurance blood money, the years (which are in effect a decline in real prices money paid out in case of accidental loss of life. due to in\ation) and the high increase in liquidity This decision came as a surprise to the insurance are expected to contribute to the start of a new companies, as they will have to pay double the uptrend in the housing sector. The listed real amount they used to pay in the case of fatal estate and construction companies have been out accidents on behalf of third party policy holders. of favour with investors over the past few years In addition, third party insurance premiums are and the average P/E ratio for the industry is 4.5, regulated by the Central Insurance of Iran and, the lowest among all industries represented on the thus, are not expected to be increased accordingly TSE. As such, some experts consider the industry in order for the insurance companies to be able an attractive investment opportunity. to compensate for the higher level of payouts. Despite the news, the industry’s performance was Also, during the last week of May, Baghmisheh virtually \at and the market did not react strongly, Co., a construction company, was IPO’d on the hoping that the decision will be revised later on. OTC market. The company was IPO’d at the P/E ratio of 4.6 and its market capitalisation In banking, following the interest rate cuts at stood at $200 million. Four other real estate and the beginning of the year by the High Council of construction companies are in the pipeline to be Money and Credit, the Central Bank requested listed in the next few months. a revision in the monetary policy package. The request followed a wide level of discontent in IPO Summit the banking sector, as banks continued to insist The Securities & Exchange Organisation (SEO) that the newly-approved interest rates had made and the TSE jointly held the National IPO Summit the banking business a loss-making proposition. in May. The summit was aimed at introducing the The council, which has the [nal say in setting out stock market and the advantages for companies in monetary policy, rejected the revision request being listed. Some 2000 companies participated and kept the approved interest rates unchanged. in this summit from all over the country. This may Some experts believe that the interest rates cut be viewed as an indicator of growing interest in will discourage depositors and channel more being listed amongst Iranian companies. liquidity to alternative markets such as gold and foreign exchange. Overall, in May the TSE All-Share index declined by 0.8% in Rial terms but had a positive performance Also in May, Sarmayeh Bank was listed on the of 0.98% in Euro terms. Also, trade volumes stood Over-the-Counter (OTC) market. With a market at $2.0 billion. capitalisation of $789 million, the bank came to be the smallest listed bank and its price to earnings (P/E) ratio stood at 8.4.