The Securities and Exchange Organization announced a package of 10 measures on Sunday to help bolster the struggling share market.
Three of the measures were passed by the Cabinet and came into force Tuesday, the SEO chief, Mohammad Ali Dehqan-Dehnavi, said.
Seven others need to be approved by members of Supreme Council of Economic Coordination, the ad hoc economic decision making body comprising the three branches of power. The council was to convene this week but the meeting has been postponed.
Allocating 1% of the financial resources of the National Development Fund of Iran, the wealth fund, to the Capital Market Stabilization Fund, easing restrictions on bank loans to investors and incentivizing foreign investment in Iran’s stock marker were the three decisions of government that went into force immediately.
The CMSF was created in 2017 to help resolve the credit crunch in the bourse. Allocating 1% of the NDFI resource to the CMSF is envisioned in the articles of associations of the fund but the plan was in limbo for years.
As per the government decision on Tuesday, foreigners will be eligible for a five-year residence visa if they invest at least €250,000 in Tehran’s share market.
As for the remaining proposals to be okayed by the top council, Dehqan-Dehnavi pointed to one based on which 80% of government revenue from tax on stock trade in the March 2021-22 fiscal year will be deposited with the CMSF.
Another proposal is tax exemptions to listed companies that recapitalize using their profits. “To encourage listed companies use their accumulated profit for increasing capital, they will be eligible for tax relief depending on the increased amount,” he was quoted as saying by IRNA.
The regulator also will offer tax deferral to listed companies that buy their own issued stocks and of their subsidiaries. “They can delay tax payment up to 50% of the purchased shares for one year.”
As for another measure, the SEO has suggested that banks and credit institutions be allowed to directly invest in the bourse. To do so they should be exempted from penalties envisioned in the Law for Removing Obstacles to Competitive Production and Promoting the Financial System for three years, according to Dehqan-Dehnavi.
As per the law, lenders are obliged to cede shares they own in companies engaged in non-banking activities or face tax liability.
NDFI Investment in Stocks
The top council will review the SEO’s proposal based on which the NDFI will invest directly its resources in the share market. Referring to the NDFI articles of associations, he said it also can invest in overseas financial markets. The SEO wants the NDFI to broaden its investment scope to include the domestic stock market.
This suggestion, however, is expected to be opposed by the central bank as it is concerned about the negative impact of such a move on monetary variables.
The CBI has often linked expansion of the monetary base and ensuing inflation in part to the government’s move to borrow from the NDFI while its forex assets are blocked in foreign banks due to the US economic blockade.
As yet another move to revive the share market, CMSF could be allowed to issue bonds worth 200 trillion rials to quench the stock market’s thirst for liquidity. Reimbursing of bonds will be guaranteed by the government.
The last but not least is supportive measures to compensate losses of those who bought units of two government-owned exchange-traded funds.
The government last year offered its shares in three banks, two major insurance companies and four refineries via two ETFs. Apart from regular stock market investors, the government invited the public to buy the ETF units. When the bourse bubble burst last summer, ETF prices declined by at least 30%.
Following historic gains in the first half of the last fiscal year (ended March 20), Tehran’s share market went into a tailspin from mid-August.
The benchmark of Tehran Stock Exchange, TEDPIX, jumped 300% before diving deep into the red and paring close to 45% of the gains.
The government has made concerted efforts to prop up the market in the past. The latest measures are seen as one more serious attempt to reinvent the share market under the increasingly difficult economic climate.
