2 per cent: Current share of foreign investment on Tehran Stock Exchange
20 per cent: New ceiling on foreign investors’ equity holding
Tehran has made major changes to Iran’s Foreign Investment Promotion and Protection Act (FIPPA) as part of efforts to attract greater investment into the country’s capital markets.
The country’s cabinet approved the amendments in late May.
They include an increase in the maximum foreign equity holding in Iranian firms or assets to 20 per for strategic investors, who play an active role in shaping companies’ strategies, from 10 per cent previously.
Non-strategic investors, who invest primarily for short-term financial gain, are now allowed to invest in capital markets, trade shares on the stock exchange and over-the-counter markets, or take their money out of the country whenever they want.
“As a portfolio investor, or a non-strategic investor, individuals will be allowed to acquire up to 10 per cent of a listed issuer’s equities,” says Ali Mashayekhi, head of investment research at Turquoise Partners, a Tehran-based fund manager. “Meanwhile, strategic investors can hold up to 20 per cent.”
The amendments removed a clause which stopped non-strategic investors withdrawing their stakes in firms or assets for three years from the date they first make an investment. Strategic investors, however, are not allowed to sell their shares for a period of two years.
The obligation for investors to obtain a license to trade on the Tehran Stock Exchange (TSE), the country’s only bourse, was also excised.
Meanwhile, Tehran approved a bill on 25 May which eases access to the country’s banking sector by allowing foreign investors to increase their stake in local banks to 49 per cent from the current ten per cent.
The amendments come at a crucial time for Iran as it faces growing international isolation. On 9 June, the United Nations Security Council imposed a fourth round of sanctions against the country, which include targeting Iranian banks suspected of connections with nuclear or missile programmes.
Western companies are increasingly reluctant to invest in Iran because of the escalating tensions.
“Tehran is working hard to eliminate the complications and constraints for foreign investors in Iranian capital markets,” says Mashayekhi. “It is still very much a retail-driven environment and they want to prevent large speculation on companies which distorts the share price.”
The TSE’s market capitalisation currently stands at $67.5bn, with 349 listed companies. Foreign investment accounts for only about 2 per cent of total trading.