VALUABLE & RELEVANT

Iran 2013 | FINANCE | B2B: CAPITAL MARKETS

New instruments and forms of exchange are bringing Iranian capital markets to the forefront of the economy.

Ali Salehabadi
ALI SALEHABADI
President & Chairman of the Board
Securities & Exchange Organization
Hassan Ghalibaf Asl
HASSAN GHALIBAF ASL
President & Chairman of the Board
Tehran Stock Exchange (TSE)

What are the main characteristics and requirements of your exchange?

ALI SALEHABADI The requirements for being listed by the Securities and Exchange Organization of Iran (SEO) are easier than those of the TSE. There is more flexibility in the new market we have established. The SEO issues licenses to these stock exchanges and commodities exchanges, and recently we established an energy exchange. Now we have an Iran Stock Exchange and the Iran Farabourse, which are in competition with each other to absorb listed companies. Iran Mercantile Exchange is designed for those listed companies in larger markets, and we have a strong energy base in Iran, which is the 16th biggest electricity producer in the world, with a capacity of more than 50,000 MW. We established this market to exchange electricity among producers and consumers in the local market. There are time zone differences between Iran and Turkey, Iraq, Pakistan, and Afghanistan, meaning we can exchange electricity with these countries easily. For example, power plants cannot be turned off—all the electricity being produced must be consumed and it cannot be stored. The time zone differences allow us to export energy to other countries at a good price for both buyers and sellers in this market.

HASSAN GHALIBAF ASL The TSE has been one of the best-performing stock exchanges internationally for several reasons. First, Iran is an emerging market with a lot of potential. The most valuable and relevant Iranian industries and corporations are listed on the TSE. These include steel companies, telecommunications companies, oil producers, and automakers, and they represent crucial sectors in the country. These companies register high growth, and the new regulations helped both these companies and the stock exchange. In recent years, the government has been utilizing Article 44 of the Constitution in order to privatize large companies that belonged wholly or partially to the government. Iran also has a new capital markets law, which helped enhance the market's development. The regulation established new instruments, mutual funds for example, creating new opportunities for investors. Until two or three years ago, the only instrument we had was a share; stocks that companies would issue in the capital market. Now firms can issue participation certificates and futures among other instruments, and this is one of the main reasons for the TSE's success over the past few years.

What new financial instruments can be introduced to the market to improve the local financial sector?

AS While price discovery has many benefits for the market, the financing of issuers and producers is also a very important factor. In order to help producers obtain capital, corporations list on the TSE. They can add to their capital by issuing shares and raising money for their development. Companies that have been listed on the Iran Farabourse can also add their capital by issuing shares. The SEO has provided new financial and Islamic instruments, which is mandatory in Iran. A while back we introduced participation papers so that people could form partnerships and at the same time finance a special project. There are significant differences between bonds and participation papers. For example, when you issue bonds you can obtain money and invest in any project, and the predetermined interest must be paid to the investors. However, with participation papers, at the end of the project the profit must be calculated and can then be distributed among the shareholders. During that time, dividends or interest can be paid. It is not just for municipalities; this style can be used by the private sector or the government. It is a form of asset-backed security.

HGA The company has done research and completed studies analyzing the needs of the market and investors. What we learned is that, especially on the investment side, investors need instruments for risk management. For this reason we launched single-stock futures, and last year we worked on stock options and finalized it on the TSE. We are now working on the trading system for options, and we are studying index futures.

What is your forecast for the global economy, and will this affect prospects on Iran's capital markets?

AS The global economy is fragile and the stock markets are suffering. However, in Iran we can survive because our operations are based on the capabilities of the local economy. I believe that we can continue at this level of quality performance. However, this will depend on international commodity prices, because we are influenced by a variety of listed companies that are affected by international prices, especially those working in industries such as steel and copper. Commodity prices in the international market are important for the Iranian economy, but overall our diversification and the offerings we will have in the future in the energy sector will entice huge companies to launch IPOs. I believe that the stock market will continue to enhance the market with its specialized tools.

HGA Globally, the economy is having hard times. It is a rough time for almost every economy in the world, from the US to Europe and China. Looking at the situation, it is hard to have a positive view about the condition of these markets, mostly due to the debt crisis. The TSE has many programs, and we are one of the stock exchanges in the world right now implementing new programs, creating the basis for a better future for the capital market. The privatization plan plays a major role in this, but the changes we are witnessing are important for the economy. The Iranian economy was bank-based, but the government decided to help the capital market and enhance its position in financing companies and entrepreneurs. The economy, the private sector, and the government all need the capital market. For all of these reasons, I think the future of the TSE will be bright and positive.