Paving the way for the entry of knowledge-based companies, increasing the share of capital market in financing economic sectors and increasing the number of real estate investment funds are among targets of the capital market in fiscal March 2023-2024, head of the Iran Security and Exchange Organization (SEO), Majid Eshqi, said.
"Share of the capital market in funding the economy reached 20-25% in the outgoing year, taking into account the bonds and funds raised by private companies and the government…Banks still account for 80% of the funding," IBENA quoted him as saying.
Eshqi referred to the current challenges faced by banks for helping the economy and said, "We need to increase the role of the capital market to help ensure business needs for funds are met."
The official noted that the SEO is working on plans to expand the role of the debt market and devise new instruments to help boost its contribution to the economy. "Issuing new bonds by newly-listed firms, entry of new companies into the market and raising the capital of already-listed companies are also expected to help in this regard."
Data show that the capital market share in the economy was a meager 5% in 2011-12 while banks accounted for 95%. The increased interaction of the capital market and businesses in the past decade shows that it has potential to play a more effective role.
Startups
Eshqi pointed to plans for easing the entry of knowledge-based companies into the market saying that it is high on the SEO agenda.
Startups and knowledge-based companies wanting to join the stock market must go through a bloated bureaucracy that other companies with tangible assets are exempt from.
Stock market officials earlier said that the regulatory barriers for such firms have been removed and new guidelines for listing startups are being finalized.
Startups can now go public under special conditions. Special procedures, different from normal companies with clearly defined assets and financial structures, will soon be in place for startups.
Under the framework, startups will be required to sell shares only to professional investors, namely mutual funds, instead of the public via the popularly used book building method.
Iran has an estimated 7,000 knowledge-based companies and 1,600 startups. The government supports startups’ entry in the bourse and says it will help such firms given their potential role in the economy.
It has been reported that almost 30 startups have applied to join the share market, and Iran Fara Bourse, the junior equity market. Tap30, the ride hailing company, went public earlier this month becoming the first of its kind to make debut in the bourse.
REITs
He elaborated on SEO plans for increasing the number of REITs in the market. The Central Bank of Iran has already issued permission for some banks to establish REITs. "They are in the process of acquiring licenses."
Iran Fara Bourse (IFB) in October launched the first real estate investment trust to help the key housing industry that has seen high and rising prices over the years as never before.
Economy Minister Ehsan Khandouzi earlier said that the government would make use of REITs to reactivate its unproductive assets. He called on state-owned banks to make use of REITs for unloading their extra assets.
The Civil Pension Fund Capital Management Group said it will offer 30 million investment units each worth 10,000 rials. The fund has a five-year operational license which is extendable.
REITs own, operate or finance income-generating real estate. Modeled after mutual funds, REITs pool capital from assorted sources. This makes it possible for individual investors to profit from real estate investment -- without having to buy, manage, or finance the properties themselves.
It is publicly traded on securities exchanges and investors can buy and sell them like stocks. REITs typically trade under substantial volume and are considered highly liquid instruments.
Establishment of REITs has created a new opportunity for the government, banks and private companies to make effective use their underperforming assets.
Bank assets have piled up over the years mainly due to impaired loans, bad debts, settlement of unpaid government debt to banks, closure of branches and failed investments.
They are under mounting pressure to end their highly controversial non-banking activities by getting rid of expensive real estate, holdings and trading companies.
It was announced earlier that Bank Shahr has received permission from the Central Bank of Iran to launch a real estate investment trust.
According to a press release seen on the bank's website, the private lender plans to increase its resources, boost lending capacity and cut losses, for which it sees a REIT as key.