Ran Nvestment TURQUOISE Monthly July 2010 Volume 4, No 46 PARTNERS

ran nvestment TURQUOISE Monthly July 2010 Volume 4, No 46 PARTNERS

THIS MONTH

Market Overview 2 Following a slow month in May, the Tehran Stock Exchange once again performed strongly in June. A rebound in the global prices of crude oil and commodities was assessed as the main reason for this. The main index reached all time high levels in June. The market was dominated by block sales by the government in the automotive sector.

Turquoise Iran Equity Investments 4 This section provides data and charts on the performance of all portfolios of Turquoise Iran Equity Investments for the month of June.

Country Overview 6 Tensions over the control of the Islamic Azad University of Iran will be discussed in this section.

Economy 7 New contracts in the South Pars ﬁeld, new oil and gas discoveries, new steel plants and the Iran – ASEAN joint trade centre in Malaysia will be covered in this section.

Iran Investment Monthly is produced by Turquoise Partners, No. 17 East Gord Alley, Turquoise Partners. Distributed electroni- Bidar St., Fayyazi (Fereshteh) Ave. cally 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 find out more about Turquoise Partners, Authors: Shervin Shahriari visit our website at: Ali Mashayekhi www.turquoisepartners.com. Imam Mosque, Ancient City of Imam Mosque, Isfahan, Central Iran © 2010 All rights reserved Iran Investment Monthly, Volume 4, No. 46 results fortheyearended20 In June, Alborz Insurance,thelargest listedinsurancecompanybymarketcapitalisation,releasedits annual Insurance 3.1%. the sumof$420million. The biddingwarforSaipa’s blockcontinuedintoJuly. The sectorindexwasup After severalmonthsofspeculationandcontradictorynews,theIranianPrivatisationOrganisation Automotive Some ofthekeysectorsmarketwillbeanalysedbelow: restrictive regulationsofthe TSE andtheliberalisationofIraniancapitalmarket. market. Intheviewofmostmarketplayers,thiswasanothermilestoneinrelaxationsomewhat given tradingday. This changeaimstoimprovethemarketliquidityandenhancetradingonequity from +/-3.5%to4%. This meansthatstockpricescanmoveupordownbyamaximumof4%onany indicates that Alborz’s earningshad failedtomeetthehighexpectationsofitsinvestors,re the latestforecast,investorsdidnotreactpositively andthestockreopenedslightlylower. This, perhaps, On 28 had alreadybeenpricedin,andthattheimpactofsanctionsonmostlistedcompanieswillbelimited. UN SecurityCouncil. Analysts believethatthenewroundofsanctionswasanticipated bythemarketand The positiveperformanceofthe TSE camedespite afourthroundofsanctionsbeingimposedonIranbythe grown byapproximately30%andisnowatitsalltimehigh. of the TSE hasconsistentlybeenpositive. This meansthatinthe main reasonforthepositivemarketperformance.Sincebeginningof2010,monthlyperformance months before. A reboundintheglobalpricesofcrudeoilandotherkeycommoditieswasassessedas In June,andafteraslowpreviousmonth,the Tehran StockExchange(TSE)returnedtoitsbullrunofthe6 Market Overview interest rateof6%.Notsurprisingly, bothblocksattracted upfront andtheremaining70%wouldbepaidonaninstalmentbasisoveraperiodof4years withan block. Inaddition,theblockswereoffered onveryattractiveterms,wherethebuyerwouldpay30%cash an existingshareholderwitha14%stake,wouldgetclosertogainingcontrolofSaipabyacquiring the18% particularly forgainingcontrolofthecompanies. This wasmoreevidentinSaipa,whereBahmanGroup, Given theexistingshareholdingstructuresoftwocompanies,theseblockshadstrategicimportance, market valuerespectively. 18% blockineachcompanywasoffered inthethirdweekofJune,atan80%and50%premiumto auctioned blocksofsharesinIranKhodroandSaipa,Iran’s twolargest carmanufacturers,onthe TSE. An smallest listed insurancecompanyby marketcapitalisation. to takeplace inthenextmonthorso. Danahasasharecapital of$10.5millionand isexpectedtobethe is thethirdstate-ownedinsurance companytoundergo privatisation. The initialpublic offering isexpected This pastmonth,DanaInsurance wasacceptedforlistingonthe TSE by theSEOListing Authority. Dana shares haveprovidedatotal returnofover90%toinvestors. relative highprice/earnings ratioofaround11. Sinceits privatisationinOctober2009, Alborz Insurance On 28 th th June,theSecurities&ExchangeOrganisation (SEO)increasedthedaily June,IranKhodro’s blockwassoldtoaconsortiumledbytheIranKhodroStaff Cooperativefor th March.Despitea20%out-performanceinitsnet earningsincomparisonto fi erce competition. fi rst halfof2010,the TSE mainindexhas fl uctuation caponstocks fl ected byits 2 fi nally Market Overview 3

Real Estate & Construction This sector has been out of favour with investors for some time, due to the slow real estate market of the past 2 years. Housing statistics published in May and June showed a considerable rise in both construction activity and also house purchases. Accordingly, property purchases across the country in the ﬁrst 3 months of the Iranian year jumped by 138% in comparison to the same period last year. However, average house prices did not show any material increase.

Trading activity in the shares of companies in this sector has picked up over the past month. Real estate developers, in particular, have faced liquidity problems over the past 2 years due to their inability to sell newly built property units. However, with the recent pick up in real estate market activity, analysts are becoming increasingly optimistic about the prospects of the real estate market.

The sector index gained 1.2% in value in June.

Oil and Gas Extraction Haffari Shomal (North Drilling Co.), which was privatised in July 2009, is the only company in this sector. Its key business is the design, construction, management and leasing of oil and gas platforms in the Caspian Sea, to both Iranian and also foreign customers. In June, leakage from a pipe caused a fire and explosion at one of Haffari’s oil rigs. This event, in the mind of investors, resembled BP’s oil leakage and its subsequent share price slump of 40%. As a result, Haffari’s stock experienced significant selling pressure for several days. The blaze was contained quicker than initially predicted. Also, the CEO of Haffari stated that the effect of the incident on the profitability of the company would be less than 10%. Towards the end of the month, Haffari’s shares stabilised. Shares lost 8.5% in value in June.

Overall, the TSE experienced a positive month, with the TSE All-Share Index gaining 3.7% in value. Trade volumes stood at $2.25 billion, although over 50% related to block trades.

Performance of TSE All-Share Index (June 2010)

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1/6 6/6 11 16 21 26 /1 /1 /6/ /6/ /6/ /6/ 0 0 10 10 10 10 Iran Investment Monthly, TSE All-Share Index Iran Investment Monthly, Volume 4, No. 46 Turquoise IranEquityInvestments re-based to 100 re-based to 100 returns, withgreaterdiversi on the Tehran StockExchange(TSE)andotherIranian-basedsecurities. The goalistoprovidesuperior in theworld. Turquoise combinesinternationalexperiencewithlocalexpertiseininvestingequitieslisted investing intheconsumerandcommoditypotentialofIran,onemostundervaluedemerging markets Investment Objective– 01 June2009 Launch Date British Virgin Islands Vehicle Domicile 100 110 120 130 140 150 160 170 180 190 200 210 100 105 110 115 120 125 130 135 140 145 otoi w Oe) NAV =143.3 Portfolio Two (Open) Portfolio OnePerformance(IranianRial)- As at30 Portfolio Two Performance(Euro)- As at30

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1 0 Last 12Months Since Inception Last 12Months Since Inception Last 6Months Last 3Months Last 3Months Last 6Months Period Period (01 June09) (30 May 06) Last Month Last Month Minimum Investment 3.7 % 3.7 100.0 % 100.0 % 43.2 11.2 % 11.2 Iranian Rial(IRR) Portfolio Return Portfolio Return 29.5 % 43.3 % 44.4 % 29.3 % 8.6 % 2.6 % Currency Currency €100,000 Euro (€) 4 Turquoise Iran Equity Investments 5

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Vehicle Domicile Launch Date Currency British Virgin Islands 10 July 2007 Euro (€)

Class C Performance (Euro, Inc. Dividend) - As at 30th June 2010

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1,325.00 Period Portfolio Return

1,250.00 Last Month 2.9 % 1,175.00 re-based to 100 1,100.00 Last 3 Months 9.8 %

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875.00 Last 12 Months 37.0 % 800.00 Since Inception 31 03 06 09 12 16 19 22 26 28.9 % /07/ /12/ /04/ /08/ /12/ /04/ /08/ /12/ /04/ 2007 2007 2008 2008 2008 2009 2009 2009 2010 (10 July 07)

Class D (Closed) NAV = 1108.6

Vehicle Domicile Launch Date Currency British Virgin Islands 30 June 2008 Euro (€)

Class D Performance (Euro, Inc. Dividend) - As at 30th June 2010

1,250.00 1,200.00 Period Portfolio Return 1,150.00 1,100.00 Last Month 3.9 %

re-based to to 100 re-based 1,050.00 1,000.00 Last 3 Months 12.0 % 950.00 900.00 Last 6 Months 28.5 % 850.00 800.00 Last 12 Months 36.0 % 750.00 Since Inception 30 06 12 20 27 02 08 17 18.9 % /06/ /10/ /01/ /04/ /07/ /11/ /02/ /05/ (30 June 08) 2008 2008 2009 2009 2009 2009 2010 2010 Volume 4, No. 46 Volume

For subscription and further information on our investment products please contact Eddie Kerman on (+44) 20 74 93 04 12 or email [email protected]. For more information about Turquoise

Iran Investment Monthly, Partners please visit our website at: www.turquoisepartners.com Country Overview 6

Domestic tensions over the Azad University will be the topic of this edition of Country Overview.

For several years, there has been a great deal of controversy over the management and the assets of Iran’s Azad University. In June, tensions reached their highest point, as the parliament and the government hold very different views on this issue.

Islamic Azad University of Iran is a private entity, which was founded in 1982. Azad University has over 350 branches across the country and also in other countries such as the UAE and the UK. With approximately 1.5 million students, it is the third largest university in the world. Azad University relies on student tuition fees and charitable donations for its funding, and does not receive any government funding. Over the years, the university has accumulated assets estimated to be worth between $20 and $25 billion.

Since taking ofﬁce in 2005, President Ahmadinejad began a series of attacks against the management and the governing bodies of the university. In particular, he criticised the lifetime presidency of Abdullah Jasbi, who has held the position since the university was founded. Many experts believe that there is a political dimension to Ahmadinejad’s criticism of the university. The Board of the Founders at the time included Ayatollah Rafsanjani (ex-president), Mir Hossein Mousavi (Ahmadinejad’s rival in last year’s presidential election), Ali Velayati (senior adviser to the Supreme Leader), Ayatollah Ghomi (a senior cleric) and Hassan Khomeini (the grandson of the late Ayatollah Khomeini). This means that the board appears to be close to the Reformist group. After the 2009 presidential election, the Supreme Council of Cultural Revolution (SCCR), a government body that supervises all universities and higher education centres in Iran and is chaired by Ahmadinejad, removed Mousavi from the Board of Founders of the university.

In 2007, the SCCR requested that a series of amendments be made to the articles of association of Azad University, which would extend its supervisory powers over the university. The opposition accused the government of attempting to increase its inﬂuence and control over both the management and also the assets of the university. The Azad University board never acted upon this request. To make matters more complex, in September 2009 the Board of the Founders of the university approved the donation of all assets of the university to the public. Accordingly, a designated board was to be created, which would oversee the donation process. Unsurprisingly, this move was strongly opposed by the government and its supporters, and further heightened the tensions between the two sides. In response, the SCCR proceeded with a unilateral revision of the articles of association of the university. The revised articles of association would make Azad University a public entity, and thereby, would block the donation of its assets. However, according to the existing articles of association, any changes to this document require the approval of the Board of the Founders. The matter was eventually referred to the parliament to resolve the deadlock.

st Volume 4, No. 46 Volume On 21 June, the parliament passed a bill which stipulated that any changes to the articles of association of the Azad University must be approved by the Board of the Founders and cannot be amended by the SCCR. This, in effect, was also an approval of the donation of the assets. The parliament’s decision was met with hostility from the government supporters and there were protests outside the parliament building. The opposition accused the pro-government members of parliament of organising the protest. In retaliation, pro-government members accused those in favour of the bill of being “indebted” to the university and its ﬁ

Iran Investment Monthly, board. Nevertheless, after much heated debate, the parliament reversed its decision. The matter nally came to a halt following an intervention by the Supreme Leader, Ayatollah Khamenei. In separate letters to Ahmadinejad and Rafsanjani, Ayatollah Khamenei ordered the postponement of both the donation of the assets by the Board of the Founders and the revision of the articles of association by the SCCR. Iran Investment Monthly, Volume 4, No. 46 Economy On 5 rods andisthelargest steel rodplantintheMiddleEast. The newplantisexpected tocreate700jobs. This plant,whichcost$270milliontobebuilt,has anannualproductioncapacityof800,000tonnessteel Gas In June,aseriesofcontractsforthedevelopment6phases(13,14,19,22,23and24)SouthPars New ContractsintheSouthParsField gas and400,000barrelsofLique Upon completion,thesephasescollectivelyareexpectedtoproduce250millioncubicmetresofnatural the NationalIranianOilCompany(NIOC)re-awardedcontractstodevelopers. Dutch ShellandRepsol.However, duetoseveredelaysinthesetwocompaniescarryingoutphases, PetroPars andKhatam-Al-Anbia. The development ofphases13and14wereinitiallyawardedtoRoyal Project ManagementCo.(MAPNA),IranMarineIndustries(SADRA),NationalIranianDrillingCo., Iranian developersandareestimatedtobeworth$21billionintotal.DevelopersincludeIranPowerPlant million tobe completedandareestimated tocreate1,500new jobs. steel ingotproduction plant,withanannual capacityof500,000 tonnes. The twounits collectivelycost$340 capacity of1 milliontonnesperannum andisthelargest of itskindintheMiddleEast. The second unitisa province ofEast Azerbaijan. The pressure topursuethedevelopmentofSouthPars self-suf completed, thiswillbeamajormilestoneintheexpansionofIraniangasindustryandIranbecoming fi is thatitwillbechallengingforthesephasestodevelopedbyIraniandevelopers,giventhedemands of delays andinsomecases,duetotheabandonmentofprojectsbyforeigncontractors. The experts’ view gas, butalsobecausetheSouthParsissharedwithQatar. The projectisnowbehindschedule,partlydueto Despite itsvastreserves,theIraniangasindustryisverymuchunderdeveloped.Irannowundersigni domestically andalsointernationally, andfromdomesticbanksthroughanenergy fund. including theOilMinistry, withdrawalsfromtheNationalDevelopmentFund,issuanceofbonds both phases isexpectedtobecompletedwithin3years.Financingcomefromavarietyofsources In June,alarge oildepositwasdiscoveredinthe Arvand Kenaroil New OilandGasDiscoveries On 28 New SteelPlantsinIran Attar, hasbeenfoundandexplorationwillresume inthenearfuture. metres perannum.NIOCalsostatedthatevidence oftheexistencenaturalgasinanearby 6 wellswillbedrilledinthis kilometres fromthecityofMashhad,innorth-eastern provinceofKhorasan. According totheNIOC, Also inJune,62billioncubicmetresofstaticnaturalgasreserveswerediscovered Toos in preliminarystages. company. According totheNIOC,worksonthreewellshavebegun,withonewell alreadydrilledandtwo be 30billionbarrelsofoil. The explorationofthe south-western provinceofKhouzestanandisclosetotheIran-Iraqborder. The newreserveisestimatedto nancing theprojectsandprovidingtechnologicalknow-how. However, iftheseprojectsaresuccessfully fi th eld, locatedinthePersianGulf,wereawardedbygovernment. All contractshavebeenawardedto th July, 2newproductionunits wereinauguratedattheBonabSteelComplex, inthenorth-western June,phase3commencedoftheNatanzSteelComplex, whichislocatednearthecityofIsfahan. fi cient inthis fi eld. fi eld. Productioncapacityisexpectedtobeapproximately 210millioncubic fi fi ed PetroleumGas(LPG)onadailybasis. The developmentofthe6 rst unitisacorrugated steel barproductionline,witha fi eld isbeingjointlypursuedbyanIranianandaChinese fi eld, notonlybecauseofthegrowingdemandfor fi eld. Arvand Kenarissituatedinthe fi eld, located100 fi eld, called 7 fi cant Iran Investment Monthly, Volume 4, No. 46 Economy Currently, Iranisrankedastheworld’s 16 government, withthehelpofprivatesector, hassigni stood at$3.6billion. amounts to8.7%oftheworld’s population.In2009,thetradevolumesbetween Iranandthe ASEAN region Malaysia, Indonesia,Singapore,and Thailand. ASEAN hasapopulationof580millionpeoplewhich ASEAN isaneconomicorganization whichwasfoundedin1967andhas10memberstatesincluding markets, andalsotocreatenewinvestmentopportunitiesforbothIran ASEAN memberstates. Malaysia. The aimofestablishingthiscentreistopromoteIraniangoodsandcommoditiesin ASEAN In June,Iranandthe Association ofSoutheast Asian Nations(ASEAN)jointlyopenedatradecentrein Iran – ASEAN Joint Trade Centre inMalaysia industry. th largest producerofsteel.Iranisanetimportersteelandthe fi cant expansionplansinthesteelmanufacturing 8 Iran Investment Monthly, Volume 4, No. 46 This publicationdoesnotprovideindividuallytailoredinvestmentadviceandmaymatchthe and inaccuracy. fi is madetoensurethatthefactswepublisharecorrect.However, wedonotrepresentthat allfactsand The analysisprovidedbythispublicationisbasedoninformationthatweconsiderreliableandevery effort an offer tobuyanyspeci This materialisforinformationpurposesonlyanddoesnotconstituteanoffer tosell,norasolicitationof Disclaimer only orthroughanonlinerequestsentto:[email protected] worked closelyorhavebeenincontactwith Turquoise Partners.Subscriptiontothisnewsletterisbyreferral Tehran StockExchangeaswellintroducingnew cipients updatedonthelatestmacroeconomicdevelopmentsinIran,providinganin-depthanalysisof Iran Investment Monthly Investment Iran ates Turquoise isaboutiqueinvestmentbankbasedinIranwithof About Turquoise potential investors. consent of Turquoise Partners. mechanical, photocopies, recordingorbyanyinformationstorageretrieval systemwithoutpriorwritten No partofthisnewsletter maybereproducedortransmittedinanyform orbyanymeanselectronic, Copyright Notice future success. all investors. The valueofaninvestmentcangodownaswellup.Pastperformanceisnoguarantee circumstances ofsomeitsrecipients. The securitiesdiscussedinthispublicationmaynotbesuitablefor Iranian market.Havingaquali Turquoise tobene Turquoise publishesthiselectronicnewsletter, gures arecompleteandaccurate;therefore,wecannotbeheldlegallyresponsibleforerrors,emissions fi nancial productsandoffers fi t fromcouplinglocalknowledgeandpresencewithglobalexpertise. fi isdistributedexclusivelyamongstIrananalystsandpotentialinvestorswhohave c shares. fi ed anddiversemanagementteambasedbothinEuropeIranenables fi nancial servicestoselectclientsandinvestorswhoareinterestedinthe Iran Investment Monthly Investment Iran fi nancial productsandprivateequityopportunitiesto fi ces in Tehran andLondon. Turquoise cre- , withtheaimofkeepingitsre- fi nancial 9