Dominic Bokor-Ingram recently visited a growing economy full of well-run companies that the London-based money manager deemed ripe for investment.
The catch: The place was Tehran, a target of western sanctions, wrote the Wall Street Journal.
“I’ve been to countries where things are booming and it looks great, but never with the level of infrastructure Iran has,” he said.
A handful of institutional investors like Bokor-Ingram, an investment manager who works for the UK’s Charlemagne Capital, are considering an entry into Iran. Eager for a competitive edge, they are planning joint ventures, hiring staff and bracing for what can be a capricious business environment.
Iran’s $100 billion stock market is a major focus, given that there is no limit on foreign investment and they view it as severely undervalued. What’s more, there are more than 300 companies listed on the Tehran exchange, many of which have accumulated management expertise and resilience from years of trying to grow in the face of sanctions.
The Iranian government’s ethos of self-reliance also has spawned industrial champions, such as Khatam al-Anbiya, a state-owned engineering giant, and a pair of large automakers, Iran Khodro and Saipa.
If Iran transitions from a fringe market dominated by local investors to an open one with a size commensurate with its economy, the upside could be huge. Companies listed on the Tehran exchange are worth about 28% of the country’s gross domestic product, a lower ratio than most of the largest emerging markets.
The Islamic Republic and six world powers, including the US, are racing to conclude a potential nuclear deal before a June 30 deadline.
In the hopes that a deal does get done, dozens of other financial companies have made fact-finding visits to Iran since the preliminary nuclear deal was signed in April.
Charlemagne Capital, an emerging- and frontier-market specialist with $2.28 billion in assets under management as of April 1, signed a joint initiative in April with Tehran’s Turquoise Capital to start Iran-focused funds.
Unlike multinationals, companies like Charlemagne and London-based First Frontier Capital do not have a presence in the US, where restrictions on dealing with Iran are harsher than in Europe. European companies can do deals in Iran but must steer clear of sanctioned entities, while the US bars a wider range of activities.
“We’ve been waiting for this moment for 10 years,” said Ramin Rabii, chief executive of Turquoise, which manages around $200 million. “We’re expanding our sales team and our investment-banking team and we’re producing English language reports. When the demand starts, we want to make sure we’re prepared.”
First Frontier, a boutique investment bank, also announced plans in April to set up an investment fund with Tehran’s Agah Group. As with the Charlemagne-Turquoise deal, First Frontier is trying to combine its ties to non-Iranian institutions with Agah’s knowledge of the local market to take advantage of the opening.
As this first wave of foreign investors prepare, financial companies in Tehran are lining up to better serve them. Local executives say legal services, English-language disclosures and other standard tools for nonlocal investors are not widely available, something they are trying to fix by training and hiring staff.
“Foreign investment has been a closed area and we’re not familiar with their needs that much,” said Ali Sanginian, managing director of the Tehran-based Amin Investment Bank, which has around $1 billion under management.
A move is also underway to help foreign investors by creating instruments to hedge out fluctuations in the value of the rial, according to Hamed Soltaninejad, managing director of the Central Securities Depository of Iran, a registration and custody body for the stock market. Many foreign investors do not like to take on currency risk.
Bokor-Ingram said the room for growth was ultimately too monumental for foreign investors to ignore, whatever Iran’s shortcomings. Price-earnings ratios average in the single digits, while dividend yields are in the double digits, he said.
“We have put together a lot of early-stage funds, providing investors with the opportunity to get into new markets early,” Bokor-Ingram said. “But Iran is one of the best opportunities to get into a new market in a long time, if not ever in my career.”
