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October 2011 No.61, Volume 6

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October 2011 No.61, Volume 6 ran nvestment TURQUOISE Monthly PARTNERS October 2011 - Volume 6, No 61 A pomegranate farm in Kashan Market Overview 2 This month, the TSE continued its resilient upward trend in the face of adversity from the global economic downturn. In this edition, the banking and insurance, base metals and petrochemicals sectors are analysed, along with two new entrants into the OTC market. Country Overview 5 The banking scandal and the sweeping reforms of the banking system in its aftermath along with the lifting of EU travel bans on several Iranian officials will be discussed in this edition of Country Overview. Economy 7 Iran’s landmark construction of the first heavy oil refinery in the Middle East, the IMF quarterly report’s forecast of a sharp drop in inflation next year, Iran becoming the top buyer of Brazilian beef and two major banks’ legal battles against EU sanctions will be covered in this section. Special Report: Bourse, Banking, Insurance and Privatisation Expo 10 Key highlights from Iran’s bi-annual Bourse, Banking, Insurance and Privatisation Expo held at Tehran’s International Exhibition Centre will be covered in this report. The event saw Turquoise Partners unveiling its brokerage arm of the business with live demonstrations of online trading to the investment community and public. 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 August. Iran Investment Monthly is produced by Turquoise Partners and distributed electronically by exclusive subscription. Turquoise Partners, No. 17 East Gord Alley, Bidar St., Fayyazi (Fereshteh) Ave. Chief Editor: Ramin Rabii Tel : +98 21 220 35 830 Fax : +98 21 220 49 260 Consulting Editor: Eddie Kerman Email : [email protected] Authors: Shervin Shahriari To find out more about Turquoise Partners, visit our website at: Ali Mashayekhi www.turquoisepartners.com. Sanam Mahoozi © 2011 All rights reserved Market Overview Volume 6, No. 61 Following on from a positive month in August, and Monetary Council but this was subsequently last month continued this trend with a positive rejected. The market, however, ignored this growth of 3.8% in Rial terms. Year-to-date growth rejection and has concurred with Bahmani that this in the TSE index has been 42%, which has given rate increase will be approved in the near future. Iran’s bourse first place in the World Federation of Investors showed their confidence in this, as was Exchange’s (WFE) rankings. shown by the increase of the price of the banking sector index of stocks by 7.5% in the first half of This performance has been in light of a global September. Regrettably, this positive performance downturn; September was a month in which most proved to be short-lived when Iran uncovered a global markets slumped, yet Tehran’s bourse $3bn fraud later the same week, involving four continued its rise. This performance can be major banks, including Bank Saderat. Several partially attributed to two factors: arrests were made and the government pledged its commitment to hold those responsible to account. Firstly, since the start of the year, the average sale Bank Saderat subsequently lost 10.3% of its value price of crude oil has been over $100 per barrel and this revised down the growth for the banking and this has shown no signs of falling despite the sector to an overall 3% for the month. global economic downturn. This has helped boost Iran’s economy and crude oil revenues during this On a separate note, this was an interesting month period have reached an all-time high, breaking all for EN Bank shareholders. The bank’s stock surged previous records. 10% due to the continuation of a longstanding battle between two of the bank’s major shareholders Secondly, commodity exporters have benefitted who are battling for the controlling stake in the from the difference between the official Central bank. This month, a purchase of 1% of free float Bank rate and the unofficial exchange rate, resulted in the bank’s market capitalisation rising resulting in a hike in their profits. to $3.5 billion and moved the bank up from 7th largest bank to a current position of 4th largest Given the current sell-offs taking place in global bank on the TSE in terms of market capitalisation. markets, negative sentiment from domestic Many analysts see this as an unreasonable jump, investors influencing the TSE remains an ongoing as the current PE of 8.8 for the bank, 2.2 higher threat. The fact that market gains are being made than the industry average, fails to justify this. during months where trading volumes have been light is also a cause for concern. Trading volumes BASE METALS have fallen by 28% in this month alone to 1.29 Despite a poor month for base metals in global billion trades. markets, Iran again defied this trend and the sector increased by 1.5%. On Iran’s Metal We will now examine various sectors on the TSE: Exchange, base metal producers are now using the unofficial rate (as opposed to the Central Bank BANKING rate) when selling their products which resulted The banking sector was influenced by two factors in the growth in the sector. In global markets, a this month, one positive and one negative. The 10% sell off was seen in the base metal sector positive news was that the Governor of the Central yet this did not happen in Iran. As a result, the Bank of Iran signaled that interest rates need to two largest players in this sector, Mobarakeh rise to tackle inflationary pressures. Year-on-year Steel and National Iranian Copper Industries inflation is running at 22% which means that, in (NICIC) were only hit lightly this month by small real terms, Iran has negative interest rates, which drops of 0.1% and 3.3% respectively. In the final was seen as being the Governor’s reasoning week of September, Iran’s second largest steel behind the announcement. manufacturer, Khuzestan Steel, announced that the price of their steel billets in Quarter 2 rose by Bahmani put forward his proposal to the Credit 10%. All of their production of steel billets are sold Iran Investment Monthly 2 Market Overview Volume 6, No. 61 on the domestic market. They forecast a further rise Arak Petrochemicals, 70% of whose sales are to of 10% in their products in Quarter 3, following a the domestic market, reaped most of the benefits lifting of price restrictions in this sector. Khuzestan of this announcement and their share price rose Steel’s share price rose by 9.6% following on 10%. Khark Petrochemical, the largest company from this announcement. This event bears great in this sector, tailed Arak, with a 7.4% increase significance for iron ore producers such as Gol-e- in their share price. Khark, due to all of its Gohar and Chadormalou, Iran’s two largest iron products being exported, was not affected by this ore producers, since the price of iron ore is directly announcement, but made gains on the back of the influenced by the price of steel billets. Therefore, unofficial exchange rate and the sustainability of one could expect a positive effect on the share crude prices on oil markets. price of iron ore stocks. OTC INSURANCE The OTC saw two new entrants this month. The insurance sector was the third best performing The first of these was Midco Holdings, a newly- sector of the TSE this month, with the index established metals and mining business. Although growing 11.5%. The reason for this growth may the company is not currently fully operational, the be attributed to the settlement of a longstanding company has several huge projects in the pipeline dispute between the insurance industry and the which it believes will earn it the title of largest mining State over the increase in blood money, paid holding company in the Middle East by 2014. Midco out by insurers in the case of fatalities. Initially, is aiming to have a capacity of 4 million tonnes of the State had ordered that this be increased by iron ore, 5 million tonnes of pig iron, 2.7 million 100% from $45,000 to $90,000. This resulted in a tonnes of raw steel, 800,000 tonnes of coal and protracted negotiation process between the State 50,000 tonnes of copper cathode by 2014. The and the insurance industry, which culminated in company undertook the price setting process on both sides eventually agreeing on a 50% increase the OTC with the market placing a value of $1.14 to $67,500. This also signaled the green light to billion on the company. The PE ratio of the company insurance companies to raise their motor premiums at the closing price of the first day was 54 and the accordingly in line with the rise in blood money. projected net profit for the current Iranian year is $21 million. The second entrant was the IPO of The market interpreted this announcement as a the largest private computer software producer positive one as it would increase turnover of the in Iran, Hamkaran Systems. This company has companies in this sector. The best performer in this 7,000 customers, the majority of which are large, sector was Alborz Insurance which soared 38% in institutional customers, who make use of the firm’s the month, earning it the title of best performing accounting and payroll software. This company stock in the TSE overall in September. has a 40% market share of this business in Iran and was IPO’d at a market capitalisation of $210 PETROCHEMICALS million.
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