December 2017 - Volume 12, No 133
Summary
Equity Markets The main and junior markets ended November with gains of 4.0% and 6.0% respectively in local currency terms, lifted by falling bank deposit rates and gains in global commodity markets. In US dollar terms, the TSE rose 1.9% while the Farabourse was up 3.8%.
Debt Markets On the bond market, T-Bill yields to maturity have declined in recent months and have stabilized since October between 15% and 16%. The CBI managed to fix one-year deposit rates at 15% by setting harsh penalties for banks violating the cap.
Economic Review This issue reviews the latest updates from International Monetary Fund on Iran’s macro-economy. 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 calender released by local and international statistics centres.
1 Iran Investment Monthly Table of Contents 3 Market Overview 3 Market Insight
5 Performance & Updates
8 Sector Insight
11 Company Overview
12 Market Snapshot
13 TSE & Junior Market Performance
14 Top Ranked Companies
15 TSE Statistics
15 FX Movements
16 Iran’s Fixed Income Market 18 Economic Review
18 Latest Updates
19 Macroeconomic Data 20 Iran Fixed Income Market Factsheet 22 Turquoise Partners
22 About Turquoise Partners
28 News & Views
2 Iran Investment Monthly Market Overview Market Insight December 2017 - Volume 12, No 133
Market Update
The Tehran Stock Exchange continued its positive performance for a fifth consecutive month as the overall index rose by 4.0% in local currency terms, bringing the YTD performance of the TSE to 14.4%. The Euro strengthened 4.2% versus the Rial last month, extending its YTD rally to 15.5%, which is broadly in line with the global appreciation of the Euro since the beginning of the year.
Consistent with the government policy of maintaining the current level of competitiveness and following the election of President Rouhani in June 2013, the free market rate had experienced a well-managed depreciation, gradually moving from 41,620 Rials against the Euro in the summer of 2013 to about 49,875 Rials now. Shervin Shahriari Monthly EUR/IRR - 2013 up to Date Chief Investment Officer
Annual CAGR: 5% Nov 2013 vs. Nov 2017 IRR per EUR
Source: Bonbast
The Iranian Rial is priced against a basket of currencies that does not include the US dollar. The Rial is more affected by the fluctuations of the Euro, which in turn gained value against the US dollar in 2017. An example of this, on a YTD basis, the free market value of the Iranian Rial lost 4% against the US$, which is significantly less than the 15% depreciation it has experienced versus its European peer.
In the bond market, after a sharp decline in yields of the listed T-Bills in the recent months, there have been signs of stability in the interest rates in November. In my view, 15 to 16% would be the resistance level for interest rates given the fact that the CBI has fixed the annual deposit rates at 15%, which is widely offered by Iranian commercial banks to depositors all across the country.
3 Iran Investment Monthly Market Overview Market Insight December 2017 - Volume 12, No 133
YTD Yield of T-Bills
29-Nov-2017 15.79
Source: Iran Farabourse
An area where we see significant potential is on the earnings front. There has been a consistent trend of positive profit adjustments during the year and with interest rates remaining steady, we see the equity market undergoing a rerating in the near future.
Our internal calculation of earnings shows that a 10-12% increase of earnings is expected for 2018 in US$ terms. That is based on our internal investment analysis stating an increase of GDP 4-5% (IMF) with inflation steady at 10% along with productivity growth at 2% and depreciation of the currency in the range of 5-8%. Consistent with this outlook, I foresee a double-digit return for the equity market in 2018 should regional tensions maintaining an element of calm.
4 Iran Investment Monthly Market Overview Performance & Update December 2017 - Volume 12, No 133
Performance & Updates
Summary - November 2017 Market Capitalization (billion US$) 117 TSE & Farabourse Junior Market Free Float 21% TSE & Farabourse Junior Market Number of Listed Companies1 576 TSE & Farabourse Junior Market
TSE Index Performance (US$)2,4 1.9% (MTD) 9.0% (YTD) TSE Total Turnover (million US$)2 2,191 m$ TSE & Farabourse Junior Market Dividend Yield (%) 3 12% TSE P/E 6.9
1 155 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 market data ending 1395 Iranian calendar year. 4 TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index)
The main and junior markets ended November with gains of 4.0% and 6.0% respectively in local currency terms, lifted by falling bank deposit rates and gains in global commodity markets. In US dollar terms gains, the TSE rose 1.9% while the Farabourse was up 3.8%. The TSE’s total trading volume remained stable for the month at 843 US$ million, while trading on the Iran Farabourse (IFB) increased 18% to 1.3 billion US$ in November from 1.1 billion US$ in October. The total number of shares traded rose 6% on the TSE and declined 11% on the IFB, which has more fixed income instruments, including Treasury bills.
Tehran Stock Exchange & Junior Market Trade by Value1 - November 2017
Iran Farabourse (Junior Market) Trade Volume (million US$)
Tehran Stock Exchange (Main Market)Trade Volume (million US$) Million US$
Source: Tehran Stock Exchange 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.
5 Iran Investment Monthly Market Overview Performance & Update December 2017 - Volume 12, No 133
Tehran Stock Exchange Trade by Value - YTD
November Monthly Change Total: 843 m$ Total: 0% Average: 44 m$ Average: 16% No. Trading Day: 19
October Total: 843 m$ Average: 38 m$ No. Trading Day: 22 Million US$
Tehran Stock Exchange Trade by Volume - YTD
Monthly Change Total: 6% Average: 21% November Total: 1.6 billion shares Average: 858 million shares No. Trading Day: 19
October Total: 1.5 billion shares Average: 706 million shares No. Trading Day: 22 Million Shares
Source: Tehran Stock Exchange All figures in US$ are converted from IRR at the free market rate
6 Iran Investment Monthly Market Overview Performance & Update December 2017 - Volume 12, No 133
Junior Market Trade by Value - YTD
November Monthly Change Total: 1.3 billion$ Total: 18% Average: 71 million$ Average: 33% No. Trading Day: 19
October Total: 1.1 billion$ Average: 53 million$ No. Trading Day: 22 Million US$
Junior Market Trade by Volume - YTD
Monthly Change Total: -11% Average: 3% November Total: 5.5 billion shares Average: 294 million shares No. Trading Day: 19
October Total: 6.2 billion shares Average: 286 million shares No. Trading Day: 22 Million Shares
Source: Iran Farabourse Company All figures in US$ are converted from IRR at the free market rate
7 Iran Investment Monthly Market Overview Sector Insight December 2017 - Volume 12, No 133
Sector Insight - November 2017
18.7 Wooden Products 13.2 Metallic Ore 9.3 Base Metals 7.9 Coal Mining 7.6 Oil Products
% Sector -3.0 Other Financial Services 1 -3.3 Insurance Performance -5.6 Transportation & Logistics -7.1 Oil Drilling & Services -18.1 Metallic Products
13.9 x Ceramic 13.9 x Sugar 13.8 x Electric Machinery & Apparatus 13.0 x Motor Vehicles and Auto Pars 10.5 x Monetary Intermediation - Banks
6.2 x Pharmaceuticals 6.2 x Chemical & By Products P/E 6.2 x Other non metallic Mineral Products 6.1 x Basic Metals 5.4 x Financial leasing
644% Metal Ores Mining 511% Electric Machinery & Apparatus 148% Refined Petroleum Products 138% Insurance & Pension funding Except Compulsory Social Security 132% Machinery & Equipment
-32% Investment Companies %Trading Motor Vehicles and Auto Pars -36% Value2 -38% Cement, Lime & Plaster -56% Computer & related activities -63% Pharmaceuticals
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.
8 Iran Investment Monthly Market Overview Sector Insight December 2017 - Volume 12, No 133
Sector Insight: Diversified Industrial Holdings
Overview
This sector includes large investment holding companies, such as Civil Pension Fund Investment and Ghadir Investment. The key feature of these companies is their specialization and utilization of a large pool of capital to invest in specific sectors, such as petrochemicals, steel and cement. These companies establish listed or unlisted manufacturing units in specific sectors and after years of development they take the benefit of their investment as major shareholders. For example, Pension Fund is the largest shareholder in Jam Petrochemical Co., which is one of Iran’s largest petrochemical producers and is located in Iran’s Assaluyeh region by the Persian Gulf. In August 2013, the company went public by offering its shares on the Iran Fara Bourse. It produces a variety of petrochemicals, namely olefin, HDPE, LLDPE and butadiene. Ghadir Investment’s largest holding is Parsian Oil and Gas Development, one of Iran’s biggest petrochemical and refinery holding companies which has the country’s largest urea production facility and owns Pardis Petrochemical and Zagros Petrochemical. Another major holding company is Omid Investment Management Group which is owned by Bank Sepah, one of Iran’s largest state-owned banks. Key sectors for Omid Investment are iron ore and cement, with investments in Golgohar Mining and Industrial and Chadormalu Mining and Industrial. Golgohar is the second largest producer and largest exporter of iron ore in Iran, while Chadormalu is the largest producer of iron ore with more than 34% share of Iran’s total production.
Company: Ghadir Investment Co. Company: Civil Persian Fund
Market Cap 2.7 b$ 1.0 b$ Profit (2016) 351 m$ 226 m$ P/E 6.4 x 5.1 x ROCE 10.5% 22.8% 2016 ROE 14.5% 22.8% ROA 4.9% 16.9%
6-Year Performance Ghadir Investment Civil Persian Fund Investment
Normalised in US$ Normalised Index, adjusted for dividends and share capital increases
Source: TSE, Turquoise Partners
9 Iran Investment Monthly Market Overview Sector Insight December 2017 - Volume 12, No 133
Top TSE Sector Market Capitalization (%) - November 2017
4% Motor Vehicles & Auto Parts 8% Refined Petroleum 13% 6% Basic Metals Metal Ores Mining
4% 13% 8% 6% 20% 6% 24% 9% 8%
9% Telecommunications 6% 20% Diversified Industrials Chemicals 8% 24% Monetary Intermediation Other
TSE & Diversified Industrial Holdings Sector
Diversified Industrial Holdings Sector TSE Overall Index Normalised in US$
Source: TSE
10 Iran Investment Monthly Market Overview Company Overview December 2017 - Volume 12, No 133
Company Overview Civil Pension Fund Investment Company Activity : Diversified Industrial Holdings
Price (Cents) 3.7 Date: 29-Nov-17 52 wk range (Cents) 3.7-4.0 Official US$-IRR 35,251 1 Ticker SAND1 Market US$-IRR 41,380
Industry Diversified Industrial Holdings 1 This exchange rate has been used in this report to convert figures from IRR to US$. It should be noted that this Market TSE exchange rate is subject to fluctuation Source: Tehran Stock Exchange
Performance Stock Data TSE Overall Index & Civil Pension Fund Investment Market cap (B$) 0.97 Shares outstanding (billion shares) 27 Free float 13% Financial year end 22-Sep 1 Avg. daily value traded ($) 77,477
Avg. daily volume traded (Million shares) 2 Forward P/E 5.1x
1 Average approximate daily values taken over a period of 12 months
Civil Pension Fund Investment Key Data Overall Index Sept Sept Sept
Normalised Index in US$ (Million US$) 2017 2016 2015 Normalised Index, adjusted for dividends and share capital increases Revenue 395 232 310 Highlights Net Profit 391 226 308
EPS (Cents) 0.7 1.6 2.1 • Most of the company’s investments are in the petrochemical and oil Dividend 16% 14% 22% products sector. Key Ratios • The company is mostly a passive investor in its holdings; 70% of Sept Sept Sept investments are in listed companies and the remainder are in non-listed 2017 2016 2015 entities. P/B 1.0 1.1 1.4 P/Sales 4.6 3.7 3.8 • It has a management stake in the country’s largest bitumen producer, Debt/Equity 24.6 24.0 49.9 Pasargad Oil Company. ROE 26% 23% 36%
Source of data: Company Financial Reports • In 2016, 79% of total revenue stemmed from gains of the it’s investments. All figures in US$ are converted from IRR at the free market rate
Company Information
Civil Pension Fund Investment Company is an independent legal entity under the governance of Major Shareholders the Ministry of Welfare and Social Security, and run as the investment arm of the county’s civil servants pension fund. Civil Servant Pension Fund 51% Refah Bank 1.8%
Address: No. 56, Esfandiar Blvd., Vali Asr Ave., Tehran, Iran Telephone:+98 (21) 8871 9531 Website: www.cpfic.com
Source: Firouzeh Asia Brokerage, Turquoise Partners
11 Iran Investment Monthly Market Overview Market Snapshot December 2017 - Volume 12, No 133
Market Snapshot - November 2017 Iran & Regional Markets Iran: A 20 Year Snapshot, Asset Class Returns in US$ (%) P/E Multiple Comparison Far outliers GOLD Near outliers MSCI Morocco 21.5 Kuwait 14.6 Median Qatar 11.2 Mean Shade: 95% confidence PROPERTY MSCI Arabian Markets 13.5 MSCI GCC Countries 13.5 Near outliers Far outliers MSCI Egypt 13.4 TEDPIX Saudi Arabia 14.8 UAE 10.2 Returns in US$ (%) -40 -20 0 20 40 60 80 100 120 140 Iran 6.9
TEDPIX Tehran Exchange Dividend Price Index Turquoise Iran Fund* 5.9 All figures in US$ are converted from IRR at the free market rate Sub Fund B/C, as of ending November 2017
Iran & International Markets
3 4 Tehran Stock Exchange MSCI Emerging Markets MSCI Frontier Markets
Average P/E Average P/E Average P/E 6.9 15.4 14.8 1 1-Year Performance in $ 1-Year Performance in $ 1-Year Performance in $ 7.9% 33.3% 31.8% Annualized 10 Year in $ 2 Annualized 10 Year in $ Annualized 10 Year in $ 9.2% 1.7% -0.8%
20.4 Chemicals 28.3 Information Technology 43.8 Financials 13.4 Basic Metals 23.2 Financials 13.2 Telecommunication 8.8 Telecommunications 10.5 Consumer Dis. 11.1 Consumer Staples 8.4 Refined Petroleum 7.2 Materials 8.0 Energy 8.4 Monetary Intermediation 6.8 Energy 7.2 Real Estate
Sector Breakdown (%) 40.6 Others Sector Breakdown (%) 24.0 Others Sector Breakdown (%) 16.6 Others
1.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index) performance calculated in US$ for the Period of Nov 2016 to Nov 2017 2.TEDPIX Tehran Exchange Dividend Price Index (Dividend & Price Index)10 year annualized performance calculated in US$ 3.MSCI Emerging Markets Index (US$) - Nov 2017 4.MSCI Frontier Markets Index (US$) - Nov 2017 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.
12 Iran Investment Monthly Market Overview TSE & Junior Market Performance December 2017 - Volume 12, No 133
TSE & Junior Market Performance Tehran Stock Exchange: TEDPIX*, November 2017
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*, November 2017
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.
13 Iran Investment Monthly Market Overview Top Ranked Companies December 2017 - Volume 12, No 133
Top Ranked Companies - November 2017 Turnover Value* % Total Turnover (million US$)
Metal & Mine Investment Development Co. was founded in 1997 as a Metals & Mines 1.8% specialized group in mining and metals exploration, mining, processing Investment 17.7 and marketing for mineral resources and metallic products in Iran. The company was listed on the Tehran Stock Exchange in 1998 and is ranked Development as the 27th largest among more than 350 companies on the TSE.
Mobarakeh Steel Company, one of the largest industrial complexes Mobarakeh in the country, started its operations in 1991 with a nominal capacity 15.1 1.5% of 2.4 million tons per annum. Mobarakeh Steel is the largest steel Steel producer in the Middle East and North Africa region.
Golgohar Mining & Founded in 1991, Golgohar Mining & Industrial Company 1.4% is one of the largest iron ore and iron pellet producers in Industrial 13.2 Iran. The company operates in combined plants among six iron mine zones about 55 km southwest of Sirjan city near Kerman province.
Esfahan Oil Refining Co. has 23% of Iran’s refining Esfahan Oil Refining 1.3%
Top 5 Traded by Value Traded 5 Top capacity with a nominal capacity of 375,000 12.4 barrels per day. Esfahan Oil Refining Co. started gasoline production as of 2013.
Founded in 1963, Iranian Aluminium Company engages in the production of Iran Aluminium 1.1% aluminium and manufactures pure ingots, 11.1 casting alloys, and billets. The company is based in Arak, Iran. Market Cap % Total Market Cap. (million US$) Persian Gulf PGPIC was established in the first phase of the privatization of Iran’s Petrochemical 6.6% petrochemical sector when the National Petrochemical Company (NPC) 6,791 transferred its shares in a number of petrochemical companies to PGPIC, Industry paving the way for the formation of Iran’s first private petrochemical holding company. 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 5.6% a nominal capacity of 2.4 million tons per annum. Mobarakeh Steel 5,778 Steel is the largest steel producer in the Middle East and North Africa region. Mobile Mobile Telecommunication Company of Iran, also known as MCI, is the country’s largest mobile phone operator with a Communication 4.5% market share of over 54%. The first SIM card was issued in Company of Iran 4,676 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. Telecommunication Company of Iran was established Telecommunication in 1931 when the Iranian government purchased and 3.7% combined small scale telephone companies. With Company of Iran 3,862 technological advancements throughout 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.
Top 5 by Market Capitalization Top In 1972, Sarcheshmeh Copper Mines Joint National Iranian Stock Co of Kerman was established and, later, 3.4% in 1976, it was renamed to National Iranian Copper Industries Copper Industries Co. to cover all copper mines 3,503 operations throughout the country. This company is active in the extraction & utilization of copper mines, production of copper concentrates & manufacturing copper products.
Source: Tehran Stock Exchange, Firouzeh Asia Brokerage. All figures in US$ are converted from IRR at the official rate of 34,954 IRR. * Weekly data as of trading week ending 29 Nov 2017. 14 Iran Investment Monthly Market Overview TSE Statistics December 2017 - Volume 12, No 133
TSE Statistics - Week Ending 30 November 2017* TSE Top 5 Gainers TSE Top 5 Traded Stocks Close US$ Cents Close US$ Cents Company 30-November-17 % Change Company 30-November-17 % Change Alvand Tile and Ceramic Ind. Co. 6.8 20.9 Mines and Metals Dev. Inv. Co. 4.2 15.1
Fibre Iran Co. 15.2 20.0 Esfahan Mobarakeh Steel Co. 6.6 12.9
ZAR Spring Mfg. Co. 2.4 18.8 Golgohar Mining & Industrial Co. 7.2 11.3
National Iranian Copper Ind. Co. 5.0 7.9 Esfahan Oil Refining Co. 10.2 10.6
Iran Aluminium Co. 3.9 4.7 Iran Aluminium Co. 3.9 9.5
Index Information Close %Change from Index Info 30-November-17 21 March 17 TSE Overall Index 91,152 18.8
TSE30 3,894 26.6
Iran Farabourse Overall Index 1,030 17.7
Week Ending Week Ending Description 30-November-17 19-November-17 Market P/E 6.9 6.8
Trade Statistics Week Ending Week Ending Average Daily Trade Volume 30-November-17 19-November-17 % Change TSE Average Daily Trade Volume (million US$) 65 60 8
IFB Average Daily Traded Volume (million US$) 43 59 -27
FX Movements - November 2017 Market Rate Official Rate
1.8%** 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 30 Nov 2017. ** 1 Nov 2017 Vs. 30 Nov 2017, market exchange rates
15 Iran Investment Monthly Market Overview Iran’s Fixed Income Market December 2017 - Volume 12, No 133
Iran’s Fixed Income Market On the bond market, T-Bill yields to maturity have declined in recent months and have stabilized since October between 15% and 16%. The CBI managed to fix one-year deposit rates at 15% by setting harsh penalties for banks violating the cap.
Iran’s Debt Securities Market - November-2017 1.5 6.1 Tehran Stock Exchange Iran Farabourse (Junior Market)
Market Value (billion US$)*
4.6 50.9 Tehran Stock Exchange Iran Farabourse (Junior Market)
Average Daily Trading Value (million US$)
189,275 2,165,862 Tehran Stock Exchange Iran Farabourse (Junior Market)
Average Daily Trading Volume (bonds)
* As of 29 November 2017
Value & Breakdown of Sukuk Issuance in Iran’s Capital Markets, 2017/18** (billion US$)
0.00 0.01
0.16
0.22
0.04
0.52
0.56
3.43
Billion US$ Source: Iran Farabourse
16 Iran Investment Monthly Market Overview Iran’s Fixed Income Market December 2017 - Volume 12, No 133
Snapshot of the Highest Yielding Debt Securtites1 - November 2017
Issuer Type YTM (p.a.) Maturity
Qom Municipal Participation Bond (Musharaka) 22.750% 4-Jan-19
Mashhad Municipal Participation Bond (Musharaka) 22.720% 11-Jan-19
Esfahan Municipal Participation Bond Participation Bond (Musharaka) 22.640% 20-Mar-19
Qom Municipality Participation Bond (Musharaka) 22.480% 4-Jan-19
IRI Lease Notes Lease Note 21.400% 6-Feb-21
IRI Lease Notes Lease Note 21.090% 6-Feb-21
Shiraz Municipal Participation Bond (Musharaka) 21.030% 23-Jan-19
Tabriz City Train Participation Bond (Musharaka) 20.990% 9-Mar-19
SOV.MRB2-KRD210206 Murabaha Note 20.990% 6-Feb-21
Mashhad Municipal Participation Bond (Musharaka) 20.870% 11-Jan-19
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 & Inflation Rate
Iranian T-bills YTM in IRR Term (%) Iran Inflation Rate (Y/Y, %) Iranian Rial 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.
17 Iran Investment Monthly Economic Review Latest Updates December 2017 - Volume 12, No 133
Latest Updates from IMF Following its latest visit to Iran, the IMF has upgraded its GDP growth forecast for the current Iranian calendar year (March 2017 to March 2018) to 4.2% from 3.5%. The IMF noted that if financial sector reforms are implemented then a growth rate of 4.2% could be sustained or rise to 4.5% over the medium term. It projects an inflation rate this year of 9.9% provided that prudent policies, such as increases in fuel prices, are approved. The near-term challenges, including growing financial sector vulnerabilities, are expected to be resolved through a reform package which includes fiscal measures taken by the government to reduce debt and unify the exchange rate.
Financial Sector Reform The government is aware of the urgency for restructuring and recapitalization of credit institutions and banks. Some of the authorities’ latest efforts, including the conversion of unlicensed financial institutions into credit institutions and increasing public awareness of the unsustainably high deposit rates in some troubled financial institutions, has helped the CBI to curb excess interest rate competition. According to the latest asset quality review, recapitalization costs can be covered through new long-term government bonds covering market interest rates. To tackle the increase in government debt resulting from bond issues to recapitalize banks, the government is expected to expand tax revenues by removing tax exemptions and allocate a share of oil revenues to cover interest costs. To carry out these measures, the CBI needs greater supervisory and resolution powers, and has submitted a draft banking system reform bill to parliament.
Iran’s Budget Bill President Hassan Rouhani has presented the budget bill for the fiscal year 2018-19 to parliament with the following highlights: • Exchange rate per US$: 42,100 IRR • Average oil price assumption: $55 a barrel. • Cash subsidy receivers cut by 40%* (top three high-income deciles of households will be removed) • 5.1% fall in direct tax revenues and 5.6% rise in indirect tax revenues • Investment in development projects as a share of total spending falls to 16.4% from 20.4% in previous year • The budget deficit is expected to rise and be funded by government bond issues
Government Operating Balance & Resourcing Accounts (million US$) To covers mainly ministries’ expenditure Current operation balance (E.g. government employees) Investment Net lending/borrowing
Net operating balance is -100 b$ that is planned to be sourced from investments balance (+55) and net lending/borrowing balance (+44) in 2018/19.
Million US$
*Currently 95% of Iranians receive a monthly grant of cash subsidies 18 Iran Investment Monthly Economic Review Macroeconomic Data December 2017 - Volume 12, No 133
Macroeconomic Data Iran Economic & Market Data Iran Macroeconomic Forecast Calendar Gross Domestic Product Unit 2016/ 17 2017/ 18 2018/ 19 CBI: Selected Economic Indicators for (Billion US$) September-October 2017 Nominal GDP 377 368 386 Released: December 19, 2017 Real GDP Growth (%) 12.5 4.2 4.5 IMF Staff Completes 2017 Article IV Mission to Islamic Republic of Iran (Million barrels Released: December 18, 2017 Crude Oil Export per day) 2.4 2.5 2.6
SCI: A Report on Average price of Selected GDP PPP Per Capita (US$) 18,080 18,860 20,080 Food Items in the Month of Mehr in Urban Areas of the Year 1396 Private Consumption (Billion US$) 194 214 237 Released: December 2017
SEO: Iran Capital Market Insight; November Fiscal Balance Unit 2016/ 17 2017/ 18 2018/ 19 2017 (% GDP at Released: December 2017 Current Account market prices) 6.3 5.3 5.3
Overall Fiscal Balance (% GDP) -2.8 0.7 - 0.4
Fiscal Tax Revenue (% GDP) 6.9 7.0 7.7
General Government Gross Debt (% GDP) 35.0 29.2 26.1
Monetary & Banking Unit 2016/ 17 2017/ 18 2018/ 19 Sector Indicators
Inflation (%) 8.9 9.9 11.0
Broad Money Growth (M2) (%) 29.5 22.3 16.6
Credit to Private Sector Growth (%) 30.3 19.7 15.5
Net Foreign Assets (Billion US$) 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 December 2017 - 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
19 Iran Investment Monthly Market Overview Iran’s Fixed Income Market December 2017 - Volume 12, No 133
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 investors 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.
20 Iran Investment Monthly Market Overview Iran’s Fixed Income Market December 2017 - Volume 12, No 133
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 corporations. Turquoise Partners Sovereign Bond Fund • In order to take advantage of this attractive opportunity set, Turquoise Partners launched Iran’s 1st Sovereign Bond Fund 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$)
0.28
0.46
0.55
0.62
0.66
0.85
1.04
3.57
Source: SEO Billion US$
21 Iran Investment Monthly Turquoise Partners About Turquoise Partners December 2017 - Volume 12, No 133
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: investment management, brokerage, corporate advisory and private equity/venture capital. Turquoise also manages more than 75 per cent of all existing foreign portfolio investments 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 emerging market specialist Charlemagne 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 corporate finance 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.
22 Iran Investment Monthly Turquoise Partners About Turquoise Partners December 2017 - Volume 12, No 133
Asset Management
Turquoise Asset Management has established an • In early 2017, Turquoise Partners launched the 1st outstanding reputation and robust performance track Sovereign Bond Fund with a target return of 15-20% record in the Iranian equities market. The group is in local currency terms. The Turquoise Partners known as a leading investment firm with a strategy Sovereign Bond Fund is an actively managed of value investing and long term capital growth; it strategy with low volatility that invests in a specializes in attracting foreign investors to invest in range of Iran’s sovereign-backed fixed income one of the most undervalued financial markets in the assets with the objective of delivering high world. stable and absolute returns over time. The Our investment team is comprised of experienced fund adopts a concentrated approach, utilizing professionals with more than 20 years experience a core portfolio of Iranian Government bonds across international and domestic financial markets. backed by the Central Bank of Iran as the Our investment decisions are guided and supported ultimate guarantor. Sovereign Fixed Income by our investment and advisory committees, access securities include; Islamic Treasury Bills, to detailed market information, and our on-the-ground Ijarah Sukuk, Musharakah Sukuk & Murabaha presence in Iranian financial markets over the last 10 Sukuks. years. Our commitment to maintaining the highest standards, • Having operated in the Iranian market for over along with our long term growth strategy has allowed a decade, Turquoise has accumulated a first us to gain an unparalleled reputation as the leading rate database of market data and information. asset management firm inside Iran. The firm’s electronic newsletter, Iran Investment Monthly, has been consistently Asset Management Division: Products & Services published for over 10 years and has a wide readership of over 3,000 investors and Iran Turquoise Partners launched Iran’s first equity fund enthusiasts. This newsletter and other regular in May 2006, tailored for foreign investors. With research products of the firm, are the only free over 10 years of track record, the fund has grown source of English language research on the to be the largest foreign investor on the Iranian Iranian economy and capital markets. 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 Charlemagne Capital launched the first EU regulated alternative investment fund 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]
23 Iran Investment Monthly Turquoise Partners About Turquoise Partners December 2017 - Volume 12, No 133
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 broker offering access to London. 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 partnerships. 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 due diligence research on specific Investment advice (institutional clients only) listed or non-listed companies and their sectors’ outlooks, in English. • Capital Market Advisory Listing 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]
24 Iran Investment Monthly Turquoise Partners About Turquoise Partners December 2017 - Volume 12, No 133
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]
25 Iran Investment Monthly Turquoise Partners About Turquoise Partners December 2017 - Volume 12, No 133
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 valuation 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]
26 Iran Investment Monthly Turquoise Partners About Turquoise Partners December 2017 - Volume 12, No 133
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 leverage 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]
27 Iran Investment Monthly Turquoise Partners News & Views December 2017 - Volume 12, No 133
News & Views
Recent Research Turquoise in Media
Iran Daily Market Update – December 2017 October 9, 2017 - CNBC December 20, 2017 “Iranian investors: Watching the White House’s next move” December 19, 2017 Read the full article December 18, 2017 December 17, 2017 August 30, 2017 - Bloomberg December 16, 2017 “Nuclear Deal Boosts Tehran Bourse Trade as IPO Requests Jump” Iran Weekly Market Update – December 2017 Read the full article December 14, 2017 December 06, 2017 July 16, 2017 - Financial Tribune “EU Firms Seeking Potential Iran JVs” Read the full article
July 14, 2017 - Bloomberg “EU Firms Seeking Potential Iran JVs” Watch the full interview
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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 financial instrument 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 UNITED STATES 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.
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