The capital market lost its capacity to finance the economy by about a half in the first five months of current fiscal year (March 21-August 22).
Total funding available via capital market was worth 2,720 trillion rials ($10 billion) in the five months, indicating 48% decline compared to the corresponding period last fiscal year, Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIM) reported on its website, citing data released by the Securities and Exchange Organization.
The declining was apparently due to recession in the stock market saddled with large scale capital outflow following mounting sell-off demand that has continued unabated since the market collapsed in August 2020.
In a historic rally last fiscal year, the benchmark of Tehran Stock Exchange, TEDPIX, climbed fourfold in less than five months leading to a tsunami of liquidity flown millions of retail investors. After the bubble burst the market dived deep into the red and the downturn continued up until last June.
It was reported that the money market and capital market together contributed 10,410 trillion rials ($38.5b) to funding needs in the five months.
While bank’s role in financing businesses diminished during the period last year in light of the fast-pacing stock market, data suggest a rebound in reliance on banks this year.
Data shows banks injected 9,008 trillion rials ($33.3b) into the economy during the first five months accounting for 87% of total compared to about 68% in the same period last year.
Share Issuance Depressed
Equity financing and debt financing are two options available to businesses to raise funds. Equity financing, or share issuance, fell from 1,990 trillion rials ($7.3b) in the first five months of the last fiscal year to 770 trillion rials ($2.8b) in the corresponding period this year down 61%.
Debt financing amounted to 730 trillion rials ($2.7b) to post 12% decline compared to 640 trillion rials ($2.3b) in the same period last year.
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.
Capital increase by listed companies and initial public offerings are the main components of equity financing while debt financing is mainly related to selling government bonds.
Capital raise accounted for 53% of the total capital market finance, followed by issuing bonds with 46% and raising funds via initial public offering with 1%.
Total funds from IPOs amounted to 19 trillion rials ($70m) in the first five months of fiscal 2021-2022, down 89% from 177 trillion rials ($655m) secured in the corresponding period last year.
Likewise, capital raise declined from 1,810 trillion ($6.7b) to 750 trillion rials ($2.7b), down 59% annually.
In the reviewed period, the government sold 579 trillion rials ($2.14b) in bonds, including treasury bills worth 410 trillion rials ($1.5b) and 169 trillion rials ($625m) in weekly bond auctions.
Apart from bonds sold to finance government spending, companies sold corporate bonds worth 56 trillion rials ($207m) in the period, indicating 19% decline in corporate bonds sold in the first five months.
