Iran privatisation plan is flawed

15 February 2008
Iranian investors sorely lack cash, and do not have the means to buy all the shares promised.

A lack of investors is jeopardising Iran's privatisation plans. However, a series of initiatives to generate interest in initial public offerings (IPOs) may not be the answer.

Iranian investors sorely lack cash, and do not have the means to buy all the shares on offer. A new payment scheme that allows investors to borrow at a favourable interest rate to buy IPO shares is being tested for two firms.

But lending to fund share buying is risky. GCC markets, which rose strongly because of borrowings, crashed spectacularly two years ago, and the same could happen in Iran.

The government also wants to encourage foreign investors to buy into its firms by investing in companies listing on the Tehran Stock Exchange (TSE), or by listing its companies on international exchanges.

On the surface, the TSE is attractive because of its lack of correlation with the global equity markets. While markets around the world fell in January, Tehran's index rose. Iranian companies are also relatively undervalued.

However, the plan could come unstuck by politics. Western companies are nervous about investing in Iran, and although many Asian investors do not share those qualms, the potential pool of investors is restricted.

All this highlights problems with the government's economic record, which has left locals unimpressed, and with its political record, which has left outsiders uneasy about getting involved.

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