INVESTING

Iran 2017 | FINANCE | B2B

One of the only countries with double-digit real interest rates at the moment, Iran offers a true wealth of opportunities for investment.

ClementE Cappello
CLEMENTE CAPPELLO
Founder & CIO
Sturgeon Capital
Ramin Rabii
RAMIN RABII
CEO
Turquoise Partners

How would you rate the financial infrastructure in Iran?

ClementE Cappello I would rate it seven to eight. The stock market infrastructure in Iran is well developed; the traders, brokers, stock exchange, and central custodian are all well developed. Certain service providers, such as Bloomberg, do not cover Iranian stocks, but there is a local Iranian Bloomberg, which is extremely good, called Pouya Finance. The local stock market infrastructure is good, but the problem is that it is not connected to the outside world. Regarding transparency, the stock market is transparent in terms of quarterly guidance, which is very detailed. It has to provide quarterly guidance by law, and if it does not respect that guidance by a difference of more than 15%, it has to explain why. Most recently, the local regulator has mandated that all listed financial companies and companies with a market cap above USD200 million have to amend their financial statements to be in line with IFRS standards. On the other hand, however, investor relations are not developed, so it is tough to get meetings with companies. Saying we are investors does not get us a meeting, so we have to do it through our network, tell them we can help them with getting cheaper finance from abroad, or help them get access to some of the Caspian countries. We have to be creative.

Ramin Rabii There have been huge improvements in the regulatory framework in the last 12 years. When I first came to Iran, foreign investors were not allowed to invest in the Iranian stock market. Companies are now obliged to have auditing twice a year that goes into a centralized system. I have seen huge improvements over the years in general and in foreign investment specifically. An issue that remains is the difficulties foreigners face in opening bank accounts in Iran. Transferring money back and forth is still a major issue. Furthermore, many of the regulations still require people to physically come to Iran, for things like collecting dividends. Another major barrier is the custodianship issue. There are only a few large custodian banks and most of them are American. Those from Europe are still wary of working with Iran. The global financial regulation is changing so rapidly that Iran has a problem catching up. We have funds that are EU regulated and linked to an EU bank account. Still, we have had many recent cases where the investors instructed their bank to transfer money to our EU account, which was declined because their bank knew Turquoise would eventually invest this money in Iran. There are many small and bigger issues that still remain.

What is your outlook for the Iranian economy in 2017?

CC JCPOA is an international agreement with signatories including Iran, the US, the UK, Germany, and France. The sanctions are a modern version of an embargo. Embargoes work if everyone implements it. If Europe does not implement the embargo, then the embargo does not work because Iran will do business with Europe instead of the US. The US situation today is a self-imposed embargo, except in the financial sector, where because the dollar is a reserve currency, sanctions can essentially be implemented globally. But in trade, the US is basically cutting itself off from trade with Iran. Of course, an American foreign subsidiary can trade with Iran as long as American officers are not involved, so it is extremely complicated. However, from a rational standpoint, American businesses will start lobbying the US government to do business with Iran.

RR The trajectory of Iran is positive, regardless of these small volatilities and political relations with the outside world. I truly believe in the young people of Iran. Around 70% of Iran's population consists of young and well-educated people. This will help change the environment in Iran in the coming years. I see this as an engine for growth and change in Iran. The baby boomers of Iran that were born in the early 1980s would change the way we see Iran once they take power in 10 years or so. I am generally optimistic for the long term.