The capital market has increased funding the economy both in the public and private sectors, in particular in the first three quarters of current fiscal year (March- Dec 2020).
Data compiled by the Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIM) indicate 2,740 trillion rials ($12 billion) was made available in the nine months via the equity and debt markets.
This is more than double compared to the 1,290 trillion rials ($5.6b) same time last year, the TCCIM said on its website. TCCIM usually reports on two types of funding, namely equity financing and debt financing with focus on the latter.
The share of equity financing rose from 600 trillion rials ($2.6b) in the first three quarters of fiscal 2019-20 to 1,290 trillion rials ($5.6b) during the said period.
Likewise, debt financing amounted to 1,450 trillion rials ($6.3b) rising from 690 trillion rials ($3b) in the corresponding period a year earlier.
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.
As to the share of each methods of financing, the report said debt financing was at the top with 53%. At the equity market, capital increase by listed companies contributed to 37% of the total financing. In addition, newly listed companies accounted for 10% of the total funds raised via IPOs offered in the equity market.
Share value offered via IPOs increased from 28 trillion rials in the first nine months of the previous fiscal year to 280 trillion rials this year. The figure was more than five times higher than the value of IPOs in the whole last year.
In one of the biggest listing in the current fiscal year, the Rouhani administration generated 69 trillion rials ($306 million) from selling 10% of shares of the Social Security Investment Company, the largest holding company, known by its Persian acronym Shasta.
Uncertain Market
The government tapped the stock market in the first few months of the current fiscal year to raise funds selling stakes in several listed companies. "It earned 320 trillion rials (1.4b) from selling assets in the first six months of the year. During the whole of last year it made 60 trillion rials from privatization," the Economy Minster Farhad Dejpasand said.
It merits mention that most of the shares were sold during the heydays of the share market. The Tehran Stock Exchange entered a steep correction phase in mid-August after jumping 300% in the first five months the year. The decline has continued and the future of this key sector of the economy is uncertain.
Despite increase in the role of private enterprise striving to raise funds by selling debt, the market is dominated by government companies. Private companies sold bonds worth 240 trillion rials ($1b) in the reviewed period compared to 1,200 trillion rials issued by the government.
Concerted government efforts to raise funds for the deepening budget deficits through the debt market is the main reason behind the market’s bigger footprint in the economy.
The government has so far generated 980 trillion rials ($4.3b) via 34 bond auctions held by the Central Bank of Iran since May. It has also sold treasury bills worth 497 trillion rials ($2.2b) since the beginning of current fiscal year.
Apart from the government bond selling, other public entities, including municipalities in big cities and state-owned companies issue debt securities.
Despite the fact that companies still depend largely on banks for funds, they are gradually turning to the bourse for funds, apparently because of the limited lending ability of banks saddled with bad debts and non-performing loans.
Acknowledging the increasing traction of the stock market for investors, Abdolnasser Hemmati, the CBI governor insists that the stock market should play a bigger role in supporting the economy.
“Bonds 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 has been quoted as saying.
