State-owned Telecommunication Company of Iran (TCI) will float up to five per cent of its shares in its mobile phone subsidiary, Mobile Communications Company of Iran (MCI), on Tehran’s over-the-counter market (OTC) market in the week commencing 19 December.      

The initial public offering (IPO) is expected to generate huge interest, given the strong profitability of the company and the low mobile penetration rates in Iran, according to an industry insider.

“MCI is the meat and potatoes of Iran’s telecoms industry, accounting for 70 per cent of TCI’s profit,” says Ali Mashayekhi, head of investment research at Iranian fund manager Turquoise Partners.

“The mobile industry offers huge growth potential as it has a very low penetration rate of just over 50 per cent today.”

This ranks among the lowest in the Middle East region – by comparison, Jordan’s penetration rate stood at 101 per cent at the end of 2009.

The exact size of the stake and the listing date will be confirmed within the coming days. In addition to floating shares in December, MCI has also secured approval to sell a further 5 per cent stake at a later date.  

“They’ve got approval to sell 5 per cent of MCI in the first phase of the IPO this month and at least one other 5 per cent block in the future, although they have not confirmed the date yet,” says Mashayekhi.

MCI must list on the OTC in order to comply with laws set by Tehran’s market regulator, the Securities & Exchange Council (SEC), which stipulates that if a parent company is listed on the Tehran Stock Exchange (TSE), the main exchange, then its subsidiaries must be listed elsewhere in order to avoid a double impact on the market index.

However, Mashayekhi believes the mobile operator’s listing on the OTC is a “slight risk” for its IPO.

“Not all the brokerage firms have a trading station on the OTC, so it limits the number of brokerages that can take part in the share sale,” he says.  

“Also, MCI is a big company for the OTC market, which is very young – it’s only been around since mid-2009 – and there are just six companies and four fixed-income products listed on it. Of course, this is a huge opportunity for the market’s development, but it could also be a risk to the success of this IPO.”

There have been three privatisations of state-owned companies on Tehran’s main bourse, the TSE, this year. They were Dana Insurance in August, and the subsequent share sales by Post Bank and Tabreed Refinery.