Tehran stock exchange prepares for flood of foreign investment

The Tehran Stock Exchange has not received foreign investment for several years because of sanctions over Iran's nuclear programme.

But behind the scenes, the bourse has been busily preparing for the moment when a nuclear deal is agreed so it can throw open its doors to international investors.

"We have worked intensely on the exchange infrastructure during the past four or five years," says Ali Saeedi, deputy head of supervision of financial institutions at the Securities and Exchange Organisation of Iran, the country's supervisory authority.

"Sanctions gave us time to prepare for the day a nuclear deal is signed."

The government of Hassan Rouhani, Iran's centrist president, has made attracting foreign investment a priority since taking office as he seeks to create jobs and bring down a youth unemployment rate that stands at 25 per cent, as well as stave off any Arab spring style unrest.

He is also trying to shift the focus on Iran away from politics and uranium enrichment and towards its economic potential for investors.

Since the framework nuclear deal with the US and other western countries was agreed in Switzerland in April, the number of foreign investors requesting meetings with Iranian entrepreneurs has jumped, according to businessmen.

"One of the biggest asset managers in the US had a meeting with us in Tehran two weeks ago," says Mr Saeedi, although he declined to name the investor.

"They have a $50bn target for this region's capital markets and we have to see how much our advisers can attract to Iran's market."

Tehran's bourse trades a range of shares, funds and financial instruments, including Sukuk and Islamic funds. Stocks trading on the Tehran exchange include Telecommunication Company of Iran, Tamin Petroleum and Mobarakeh Steel Company.

With a market capitalisation of $118bn - of which about $30bn is free floating - the Tehran bourse is smaller than other regional exchanges in Turkey and Saudi Arabia.

Yet it is seeking to build a trading platform that conforms to international standards. Under its new structure, Tehran's exchange will have online trading, an arbitration board to fast-track disputes, digital signature, enhanced investor protection, surveillance mechanisms as well as post-trade systems.

Mr Saeedi says the exchange has recruited expatriate Iranian investment advisers who are familiar with international financial markets, adding that the central bank had also pledged to make it easier for foreign investors to open bank accounts.

At the same time, the exchange has its own peculiarities.

Most of the 440 companies listed are affiliated with the state, even though they have been supposedly privatised. Many suffer problems such as mismanagement, overstaffing, opaque auditing systems, obsolete marketing and distribution networks and high levels of debt.

Almost all of Iran's industry operates well below capacity and is in desperate need of investment and new technology.

Some worry whether investments made via the Tehran exchange are totally transparent, arguing joint ventures with local companies or direct investments are preferable.

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Yet the potential is there.

Mr Saeedi looks forward to a lifting of sanctions that will allow foreign investments to participate in new share offerings. He expects about €80bn worth of new projects in the petrochemical sector alone, while opportunities also exist in the mining, car, energy and tourism sectors.

Gholamreza Soleimani, managing director of Ghadir Investment Co, the biggest holding investment company at the bourse, says Iran's capital markets are still in their infancy: "a teenager and not even young yet".

"If big foreign companies come to Iran's bourse, they will enjoy spectacular returns," he says. "Such a market does not exist anywhere else in the world."

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