Iraq’s telecoms operators continue to face major challenges that could further delay mandatory initial public offerings (IPO), say sources familiar with the process.

“We have not received an official request from them [the telecoms companies] to be listed on the market. When they do [submit a request], after that we can discuss the process. But right now it is a matter between the [operators] and the regulator,” says Taha Abdul Salam, chief executive officer of the Iraq Stock Exchange (ISX).

The initial IPOs deadline was 31 August last year, four years after each was issued for $1.25bn. The three operators involved – Asiacell, Zain Iraq and Korek Telecom – are required to float 25 per cent of their shares on the ISX, under the terms of the licensing agreement. Industry regulator, the Communications Media Commission (CMC), had initially planned to fine the operators, but this was waivered and no new deadlines have been set. The CMC expects the ultimate value of the three IPOs to be in the region of $5bn.

A combination of factors, including a weak stock market and a lack of clarity over the licensing process, has resulted in further delays.

“There is no clear timeline now, the issues have not been resolved and it will take time,” says a source at the CMC.

All three mobile operators missed the end-August deadline and have since held talks with the regulator to establish a clear process to IPO.

Asiacell, which is partly owned by Qatar Telecom (Qtel), is the only operator involved to have taken the important step of changing its status from a limited company to a public joint stock company. It had initially expected to complete its IPO, valued at more than $1bn, by the end of February this year but meeting this deadline seems unlikely due to ongoing uncertainty in the market.

“If we do have an IPO this year, it will be from Asiacell, but for the other two, then no,” says the CMC source.

Korek Telecom, partly owned by France Telecom, is trying to convert its status to a shareholder company.

“We are struggling to [complete the registration]. Our issue is that the laws of Iraq are not adequate to deal with the licence,” says Ghada Gebara, chief executive officer of Korek Telecom.

“The law states that we cannot float a year before we change our status from limited company. To float, we need to be profitable, but we launched our operations in 2007 and are still in growth mode.”

Zain Iraq, a subsidiary of the Kuwaiti operator, Zain Group, is also in the process of changing its status from a limited company to a public joint stock company since it is an offshore company operating in Iraq.

“Zain Iraq is keen to IPO and meets its licence obligations, but it is the case that such huge volume makes this complex. [We are doing our] best to expedite the IPO and become an Iraqi joint stock company,” says Emad Makiya, chief executive officer, Zain Iraq.

The operator has suggested offering its shares on the London Stock Exchange to support the lack of liquidity of the ISX.  

“Dual listings are an option that companies in this region looking to go public often consider. In our case a possible dual listing on the ISX and a foreign exchange could help raise foreign awareness of the investment opportunity in Iraq, helping to bring foreign money into Iraq,” says Makiya.

Another issue facing the operators is that Iraqi law states that each share must be floated at ID1, a requirement all three argue would undervalue their companies.

“They have all asked for the law to be changed, but this process will take too long,” says a source familiar with the process.

Floating 25 per cent of the shares in a single offering has also raised concern among the operators.

“It would be more appealing to do it in tranches. One of the difficulties is if all the telcos IPO, the ISX won’t be able to cope with the volume. Market capitalisation will shoot over the roof, so doing it in tranches would be good for managing liquidity,” says the source.

The current market capitalisation of the ISX is currently about $4bn. With the telcos listed, it would push it up to more than $8bn.

Abdul Salam has repeatedly stated that the ISX would be able to cope with the flotations and that the IPOs would benefit the exchange and the operators.

The CMC has not issued a new deadline for the operators but it has formed a committee to develop a roadmap for the IPOs.

“Given the operational environment not a huge amount of progress has been made. It is very hard to put a date on [the IPOs] but it seems unlikely to happen soon,” says Matthew Reed, head of Middle East & Africa mobile research at UK-based market research firm Informa Telecoms & Media.