The Tehran Stock Exchange (TSE) is the government's chosen channel for selling off stakes in national companies. But the close timing of the offerings is draining liquidity from the exchange and dragging down share prices, as investors sell existing holdings to finance new acquisitions.
The Tepix All-Share Index dropped almost 5 per cent to 29,549 points from the end of January to 31 May. The index had been on a steady, if slow, climb before then. Average daily trading value is meagre, at $7 million-10 million, and share prices have slumped to an average price/earnings ratio of 5.5.
Initial public offerings (IPOs) are coming to the market thick and fast. Shares in state-owned Iranian Aluminium Company (Iralco) will be offered to the public by the end of the June, followed by shares in Khuozestan Steel Company and Khorasan Steel Complex in the third quarter of 2007. Up to three state-owned banks will list by March 2008.
The listings follow those of National Iranian Copper Industries Company and Mobarekah Steel Complex Company in March. They each have a market capitalisation of more than $2,000 million and have quickly come to dominate the bourse.
'The whole privatisation scheme is good and for the first time it gives the market the opportunity to value [the companies],' says Ramin Rabii, manager of Tehran-based Turquoise Fund. 'But right now is a bad time. The market has serious liquidity issues and [privatisation] is hurting it.'
The bourse is already vulnerable. Investors are worried about the tension between Tehran and Washington and European governments surrounding Iran's nuclear programme. But domestic issues are an even bigger concern.
A string of recent economic policy decisions is threatening the profitability of listed companies and investor interest in them.
President Ahmadinejad's unilateral decision to cut interest rates (see page 6) has prompted a sell-off of bank shares. The government has reneged on its promise to remove price controls on cement, a key sector on the exchange. At the same time, it has removed petrochemicals subsidies and the fixed price of those products, allowing the price to fall.
Not all listings have been successful. The IPO of Iran Power Plant Projects Management Company (Mapna) was cancelled in February after the government and investors failed to agree on a share price.
Under a quasi-book-building pricing system, the stock exchange commission sets an initial value for the shares being floated.
The government and investors negotiate the price when the stock lists and the price is set when the first trade takes place. However, investors were not prepared to pay the government's required price for shares in Mapna, which is dependent on government contracts.
They feared the government would repeat its treatment of offshore marine services company Iran Marine Industrial Company (Sadra), which it shunned once the company had listed, halting the granting of contracts.
The exchange itself is under-going a quasi-privatisation. It is in the process of switching regulator from the quasi-governmental Tehran Stock Exchange Corporation to a company, the shareholders of which include brokers and institutional investors. The changeover began in early 2007 and the new company has elected a board and managing director.
'This will positively change the market environment,' says Rabii.
