Focus: Capital Markets

The Gains Abound

The Gains Abound

May. 12, 2013

After a slow 2012, the Tehran Stock Exchange (TSE) returned into the black in a strong way over September, bouncing 18.5% in Iranian rial terms and reversing the losses recorded over most of the year. Although in August the TSE managed to beat its losing streak by posting a 0.3% gain for the month, many investors were still cautious after strong falls over the June-July period. Investor sentiment is beginning to improve, though for the equity market to become more attractive, improved returns and higher trading volumes are needed.


Although studies on the establishment of a capital market in Iran pre-date World War II, it was not until 1966 that the parliament passed the necessary legislation to allow for the trading of equities in a public space. In 1967, the TSE came to life, with six companies on its books. Within a decade, the number of listed companies rose to 105, and the Iranian market began to show signs of increasing sophistication. After the Islamic Revolution and in the wake of the Imposed War on Iran in the 1980s, trading was suspended. The nationalization of a number of industries saw the number of listings fall back to 56.

Following the end of the war, the 1988 Budget Act re-established activity on the TSE, and within eight years the exchange saw its numbers rise to 249 companies listed. Over the 1996 to 2000 period an automated trading system was introduced, and a number of important regulatory mechanisms were strengthened. Since 2000, the capital markets have increasingly been seen by both the government and private companies as an engine of growth and capital formation.

Other complementary markets have also been established alongside the equities market. In 2003, the Tehran Metal Exchange (now called the Iran Mercantile Exchange [IME]) was launched, as well as an Agricultural Commodities Exchange in the following year. The IME has grown considerably in recent years, offering more commodities for trade as well as forwards and options trades. In the first three quarters of 2012, the IME saw turnover worth $13.2 billion. And as the markets have grown, so has the need for better regulation. In 2006 the Securities and Exchange Organization (SEO) was opened, and continues to act as the central market regulator.


As of end-3Q2012, 298 companies were listed on the TSE, which together had a total market capitalization of $107.79 billion, as calculated according to the Central Bank rate for the Iranian rial ($1=IR12,260). The main gauge of the market, the TEDPIX Index, closed September at 29,207 points, up some 19.7% in Iranian rial terms for the YE2011 close of 24,403. Although fixed-income instruments can be issued on the TSE, they have not been a major feature of the main market. However, in May 2010, the City of Shiraz released a $115 million sukuk, with an annual coupon of 20% over four years. Put options were also made available covering two mining stocks and a petrochemical firm in August 2012, though the system is still in its early days of development. Stock derivatives, though available, are also in at the first stages of growth for the TSE, and only cover a limited number of companies.

The main TSE index has seen a number of IPOs over 2012, reversing the relatively quiet period for listings that characterized 2011, when no companies under Article 44 of the Constitution were offered to the public. Persian Gulf Transportation Company broke the drought in January, offering a 5% stake that valued the company at $42.7 million. The IPO of the year, however, went to Parsian Holding, which in February offered a $10 stake that valued the company at some $2.3 billion. The IPO generated much investor interest, and being sold at a low price to earnings (P/E) ratio of 3.1, the stock was heavily bought. Parsian Holding subsidiaries include world-class urea and methane producers Zagros Petrochemical and Pardis Petrochemical. In June, Bandar Abbas Refinery launched an IPO, offering 5% of its shares for public investors, and giving the company a market capitalization of $1.3 billion. The final listing of note over 2012 was that of Mellat Insurance Company, which came to the market in July 2012. The IPO saw a 10% stake in the company sold off to investors, valuing the market capitalization of the company at $162 million. Mellat Insurance is the fifth insurance company to be listed on the TSE main index.


The list of the top five companies by market capitalization is led by the Telecommunication Company of Iran (TCI), at $9.25 billion. TCI is the main landline telecoms provider in the country, and also has a controlling stake in mobile operator Mobile Telecommunication Company of Iran (MCI). TCI accounted for 10% of all trading volumes on the TSE in September 2012.

National Iranian Copper Industries Company (NICICo) came in at number two in September 2012, recording a market capitalization of $7.71 billion, representing some 7% of the market. NICICo produced some 235,000 tons of copper over the 2Q2011-1Q2012 period, and the company is targeting the production of some 700,000 tons in the near future. Iran is the seventh largest copper producer worldwide.

At number three is Isfahan Mobarakeh Steel Company, with a market capitalization of $6.27 billion, representing 6% of the index. Over the first half of 2012, the company reported production of 3.36 million tons of crude steel, representing a 46% local market share, putting it on target to beat the 6.2 million tons it produced in 2011. Like other metals listings, the stock has been favored by investors of late. The company is one of the largest steel producers in the Middle East.

Ghadir Investment Company represented some 4% of the TSE's total market capitalization, coming in at $4.13 billion. Ghadir Investment is involved in a broad number of industries, including petrochemicals, cement, and steel. Ghadir has been heavily involved in the management and restructuring of companies that fell under the umbrella Saderat Bank Iran, its parent group.

Finishing off the top five is Chadormalu Mining and Industrial Company, with a market capitalization of $3.68 billion and also representing some 4% of the TSE index. The company is the main producer of iron ore concentrate in the country, along with close rival Gol-e-Gohar Iron Ore.


The OTC market for companies looking to do an initial listing is controlled by the Farabourse organization. Farabourse issues both bonds and conducts OTC trades for listed companies. The market was established in 2009, and is seen as a good way to encourage smaller companies to list. Its lower regulatory requirements make it easier for companies not experienced in the main bond and equity markets to gain experience as a listed entity.

In January 2012, a $40 million bond was issued for the purchase of rolling stock for the state rail companies, while an IPO was also launched for the Tehran Land Company, giving it a market capitalization of $57 million. Although Maskan Bank will remain the main owner of the company, it has released 10% of the stock for trading purposes and to raise project capital. Isfahan Zob Ahan Company, an iron smelter, also saw a 3.2% stake pass through the Farabourse in February, giving the company a market capitalization of $835 million. In April 2012, iron ore producer Saba-Noor also did an IPO, selling off a 10% stake giving it a market capitalization of $294 million. Shiraz Petrochemical was the next to market in July, providing a 5% stake that valued the company at $213 million.