'Bookbuilding has started and we already have commitments for several million euros,' says an Atieh Bahar executive. 'Investors now have until 8 July to sign up for investment.'

The roadshow for the fund took place between mid May and mid June in London, Switzerland and the Gulf and was aimed at attracting Iranian expatriates, Arab investors and European institutional investors. International bankers say the fund will provide investors with the possibility to diversify their emerging market portfolios away from traditional markets such as Latin America.

The fund will be registered in Bermuda and listed on the Dublin Stock Exchange. It will be closed for one year and allow for monthly subscription thereafter. Redemption will be on a quarterly basis. The minimum size of the EFG Hermes Persepolis fund will be Eur 20 million ($19 million) and it will be capped at Eur 70 million ($68 million). According to the Atieh Bahar executive, indications are that the fund will reach a size of Eur 20 million-30 million ($19 million-29 million).

About 90 per cent of the funds will be invested in TSE-listed companies active in sectors such as petrochemicals, infrastructure and pharmaceuticals. The remainder will go into government participation certificates, the main fixed-interest instrument traded in Iran. The one-to-four-year paper provides an average annual yield of 17 per cent.

The funds will be channelled into Iran through a special purpose vehicle based in the free trade industrial zones on the islands of Kish and Qeshm and in Chabahar on the southern coast. Bank Saderatwill act as local custodian.

More than 300 companies are listed on the TSE, with at least 800 companies' listing applications pending. Total market capitalisation stands at some $10,500 million, about half of it accounted for by Iran's 50 largest firms. In 2001, the TSE was the world's second fastest-growing stock exchange.

The TSE is expected to receive an additional boost with a new capital market law set to be implemented within six months. The law will enable foreign investors for the first time since the re-establishment of the TSE in 1990 to invest directly in the local stock exchange. The law will be supported by a series of new bylaws, introducing stricter listing criteria, a secondary market, commodity and regional exchanges and online trading.