The government plans to inject fresh capital into the Capital Market Stabilization Fund (CMSF) to stimulate the battered share market.
Citing a recent decision taken by the Government Economic Coordination Headquarters, Amir Mahdi Saba’ie, managing director of the CMSF, said the government has agreed to withdraw $510 million from the National Development Fund of Iran (the sovereign wealth fund) and deposit the rial equivalent with the CMSF, IRNA reported.
The CMSF was created in 2017 to help resolve the credit crunch in the bourse. It has a mandate to support the share market and help safeguard the interest of investors.
“It has been agreed to inject funds in several phases,” the official was quoted as saying.
Apart from tapping into the NDFI, Saba’ie said capital market authorities have proposed the government transfer its stock assets worth 500 trillion rials ($1.7 billion) to the CMSF to support the share market hit hard in the past 18 months.
“These assets can help the fund generate new resources that could be used for supporting the market.”
Referring to the articles of the association of CMSF, Saba’ie said resources normally are channeled into the stabilization fund through three main venues, namely direct government investment, which must be forecast in the fiscal budget of the government.
Second are rules based on which the NDFI invests 1% of its resources in the CMSF. The money is reportedly a loan at 12% to be repaid in five years but the maturity date can be extended. The CMSF is responsible for paying the principal amount plus interest.
Independent of the government, the NDFI was founded to save a portion of forex earnings from oil and gas export for future generations. Like all wealth funds, it lends to both public and private firms.
Finally, a segment of the income from trading fees levied by the Tehran Stock Exchange and the junior exchange Iran Fara Bourse are deposited with fund regularly. Thirty percent of the income from stock trade fees is deposited with the CMSF.
Saba’ie said the CMSF will receive 200 trillion rials ($690 million) in new funding from the abovementioned sources and 500 trillion rials in new stock assets in the next calendar year that begins in March 2022.
After historic gains in the first half of the last fiscal year, Tehran’s share market is facing hard times as investors hold back and selloff continues at a rate unseen in recent memory.
The government tried but failed to prop up the market by requiring institutional buyers and investment funds to boost demand.
Experts say the market is in dire need for new liquidity to survive. Policy and decision makers have been urge to create the conditions to restore trust of millions of retail investors who just want out and save whatever they can.
Estimates show that 1,150 trillion rials ($3.9 billion) drained out in the past 16 months while despite losses in the region of 70% retail investors continue to flee, Fars News Agency reported.
This is while net capital inflow during the heydays, when the TSE benchmark gained 300% in less than five months (March- August 2020), was reported to the tune of 1,180 trillion ($4b)
