By Gavin Serkin
Westerners eager for a foothold in Iran are signing secret deals now rather than waiting for sanctions to be lifted next year.
Many investors have signed agreements with Iranian partners, though they’ll remain unrevealed until international trade restrictions end, Morteza Ramezanpour, a Tehran-based journalist for Al-Monitor who also advises foreign companies, said on the Emerging Opportunities show on Share Radio.
“Every day we are hosting many delegations from European countries, even from the U.S.,” said Ramezanpour. “Everything here is on hold because everyone is waiting for the time when sanctions are phased out.”
Investors are pre-empting the opening of Iran’s market amid speculation that the United Nations, European Union and U.S. may end sanctions as soon as January. The latest breakthrough came Dec. 15 when the International Atomic Energy Agency concluded its 12-year investigation into concerns that Iran might be developing nuclear weapons.
“We have been hosting some fund managers from the U.S.,” Ramezanpour said on the show. “They have come to Iran because it’s a very big country, a big market for the fast-moving consumer goods sector.”
Iran, with a population approaching 80 million, has more than 380 companies listed on the Tehran Stock Exchange and Iran Fara Bourse, spread across 40 industries from cars to petrochemicals. The combined market capitalization at around $100 billion would make this among the largest of the frontier markets.
In contrast to interest rates still near zero in much of Europe and America, yields on Iranian corporate bonds in the local currency are in the range of 20 to 24 percent. Many foreign investors are slated to fund Iranian companies in dollars or euros at rates of almost 6 percent a year, according to Ramezanpour.
Some foreigners, while keeping their distance from Tehran, are nonetheless investing indirectly through companies in places like Dubai and Turkey that transact with Iran, according to Jan Dehn, the head of research at Ashmore Group Plc in London, which manages over $50 billion in emerging-market assets.
“It’s possible already to begin to position yourself for the opening of Iran, even if you can’t go into Iran yet,” Dehn said on the Emerging Opportunities show. “You can start building relationships with the corporates, with the sovereign and get to know the market.”
Iran, which last sold bonds to international investors in 2002, plans to raise $500 million in 2016, the deputy economy and finance minister, Mohammad Khazee, told the Wall Street Journal.
Ashmore could be among buyers. “This is definitely a market that’s very interesting: a very large population – bigger than France – a $100 billion stock market, several hundred companies listed there,” said Dehn. “Even though it’s very much an oil economy, it’s an oil economy that’s far more diverse than say Venezuela, with which it’s often compared.”
For companies in Iran, the foreign investment can’t come soon enough.
“Right now we are grappling with a credit crunch in Iran, with a high level of non-performing loans and most companies have cashflow issues,” said Ramezanpour, “so the most important thing is raising money for Iranian companies.”
Foreign loans could be well collateralized with solid assets – goods in warehouses – generating billions of dollars in credit, according to Ramezanpour.
In contrast to the enthusiasm of foreign investors, locals are “unsettled” because they have lost a lot of money through the sanctions period, he said. The Tehran Stock Exchange index was down 12.4 percent for the year, as of Dec. 22.
Corporate indebtedness means investors will need to choose their companies carefully. But access to international capital will be transformative overall, said Dehn.
“Iran is set for very important and positive macro-economic developments as the country gets a foothold in the international capital markets again,” he said.