The parliament on Sunday approved a bill proposed by the government in which listed companies are obliged to improve their capital structure using share premium.
As per the provisions of Article 1 of the bill, companies listed with the Tehran Stock Exchange and the junior equity market (Iran Fara Bourse) and in which the government owns more than 50% of shares should secure their funding needs from the bourse.
Funds should be raised via share premium after approval by the general assembly of companies, IRNA reported.
Share premium is the difference in price between the par value, or face value of shares, and the total price a company received for recently-issued shares.
Also called capital surplus, share premium cannot be used for distributing dividends or any other payouts and can only be used for whatever has been expressly laid out in the company's bylaws. A share premium account appears in the shareholders' equity section of the balance sheet.
Put simply, share premium is the additional paid-in capital in excess of par value that an investor pays.
The law will come into effect by the end of the Sixth Five-Year Economic Development Plan (2017-22). The five-year plans are medium-term roadmaps designed by the government to help achieve sustainable growth, outlining strategies in its budget planning for the next five years.
The new law also allows administrative bodies that hold stakes in listed companies to raise funds for completing pending and unfished projects.
Mohsen Qasemi, general secretary of the Iranian Institute of Certified Accountants says raising capital via share premium is advantageous both for listed companies and the share market only if the funds are used where they are needed.
“Companies can use the funds to implement a development project or repay their arrears to banks,” he was quoted as saying by boursenews.ir.
The law also can help struggling banks to correct their balance sheets. The Governor of the Central Bank of Iran Abdolnasser Hemmati said earlier that such a “method is a norm widely used in financial systems in the world” and banks should seize the opportunity to tap into the fast growing share market and its appeal among the public to improve their financial structures.
