Iran’s capital market made available 2,650 trillion rials ($16.5 billion) in funds for the government and listed companies in the last fiscal year (March 2019-20).
The amount was 111% higher than the stock market contribution to funding businesses a year earlier, indicating the role of the bourse in serving the struggling economy, the Tehran Chamber of Commerce, Industries, Mines and Agriculture said in a report.
The chamber said the percentage of stock market finance rose from 14% in fiscal 2018-19 to 21% last l year -- a further indication of the shrinking role of banks.
TCCIM reports on two types of finance, namely equity financing and debt financing with a bigger space for the former.
The share of equity financing increased from 745 trillion rials ($4.5 billion) in 2018-19 fiscal to 1,642 trillion rials ($10 billion) or 121% growth on year-on-year basis.
Likewise, debt financing amounted to 1,007 trillion rials ($6.2 billion) last year, rising from 509 trillion rials a year earlier to register 97.8% increase.
The percentage of stock market finance rose from 14% in fiscal 2018-19 to 21% last l year -- a further indication of the shrinking role of banks
Equity financing is the method of raising capital by selling company stocks while debt financing occurs when a firm raises money by selling debt instruments to individuals and institutional investors.
Companies listed with the Tehran Stock Exchange and the junior equity market (Iran Fara Bourse) generated 53 trillion rials ($331 million) through initial public offerings last year, accounting for a meager 2% share of total finance by stock market.
The figure, however, is expected to surge dramatically in the present fiscal year as the government has listed a number of giant holding companies and pledged to list more to expand the market and attract investors.
In one of the biggest listing in the current fiscal year, the Rouhani administration generated 69 trillion rials ($431 million) from selling 10% of shares of the Social Security Investment Company, Iran’s largest holding company, known by its Persian acronym Shasta.
Decline in Corporate Bonds
The majority of bonds were issued by the government in the debt market as the share of corporate bonds declined significantly.
According to TCCIM, out of the a total of 1,007 trillion rials worth of bonds sold in the last fiscal year, only 71 trillion rials were corporate bonds.
That indicated a decline of 35 trillion rials, or 33%, in corporate bond finance compared to a year earlier.
Corporate bonds accounted for 7.1% of the total bonds issued and traded in the debt market during the last fiscal, down from a 20.8% the year before.
Treasury bonds constituted the majority of government bonds with 447 trillion rials, followed by manfa’t bonds with 240 trillion rials, murabaha bonds with 110 trillion rials and standard parallel salaf contracts 54 trillion rials.
Despite the fact that companies still depend largely on banks for funding, they are gradually turning to the stock market for funds, apparently because of the limited lending ability of banks mostly saddled with bad debts and non-performing loans.
Acknowledging the increasing traction of stock market for investors, Governor of the Central Bank of Iran Abdolnasser Hemmati said Friday the stock market should play a bigger role in supporting the economy.
“The stock market has created a worthy possibility for financing via listing companies, selling [government] excess assets, and targeted and controlled issuance of bonds,” Hemmati wrote in his Instagram Friday noting that this is an “anti-inflationary” strategy.
Hemmati added that issuing bonds would help the government plug its budget deficits.
“Issuing bonds would also help the government avoid printing money to compensate its budget deficits,” he said in one post earlier in the week.
“Bonds will not only assist the government meet its [budgetary] needs, but also help expand the debt market, fix balance sheets of banks and control inflation,” he said.
As per the budget for the current fiscal year, the government expects to generate 1,090 trillion rials (6.8 billion) from issuing several types of bonds. This amount would be up 70% compared to the 640 trillion rials forecast in the last budget.
