Iran’s capital market made available 635 trillion rials ($2 billion) in the first quarter of fiscal 2022-23 (ending June 21).
This was 31% lower compared to 926 trillion rials ($2.9b) reported in the first quarter of last year, the Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIM) reported.
The diminishing role of capital market in funding businesses reflects, among other things, a deep downturn in the market and an unending pattern of capital outflow.
Equity financing and debt financing are two options available to businesses in the capital market to raise funds. Data released by the Securities and Exchange Organization (SEO) show that both options faced setbacks in Q1.
Equity financing fell from 522 trillion rials ($1.68b) in the first three months of last year to 402 trillion rials ($1.3 b) in the corresponding period this year, down 22%.
Debt financing slipped to 233 trillion rials ($751), down 15% on the 275 trillion rials ($887m) in the last fiscal 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.
Equity financing has no repayment obligation and provides extra working capital that can be used to grow a business. Debt financing does not require giving up a portion of ownership.
Raising capital through asset revaluation, selling debt securities and selling shares via IPOs are three major sources of finance.
As for the main components of finance, capital increase of listed companies contributed to 60% of the total, followed by bonds 37% and IPOs 3%.
Total funds procured via IPOs amounted to 20 trillion rials ($64m) in Q1. Likewise, capital raise by listed companies reached 380 trillion rials ($1.2b) in the period.
Total bonds sold by the government was 143 trillion rials ($461m), accounting for 61.6% of funding via the debt market. Municipal bonds accounted for 7.8% of the bonds.
Private companies sold 71 trillion rials ($230m) in corporate bonds in Q1, representing 30.6% of the total. This was a slight annual rise of 2.8%.
Productive Credit Certificate (known by its Persian acronym Gam) accounted for 21% of the total corporate bonds sold in the three months.
Gam securities worth 28 trillion rials were issued by companies – up 11% rise on the same period last year.
Gam is a market oriented financial instrument traded in money and capital markets. Through this instrument lenders help businesses by offering tradable credit certificates similar to LCs.
Like bonds, certificates have maturity dates. The supplier can cash the certificate by selling it in the stock market. Liquidity is not exchanged between beneficiaries in this manner.
Gam is an integral component of the government’s new initiative to promote supply chain finance (SCF).
