All initial public offerings on the Iranian equity market have been suspended till the end of the current fiscal year (March 20, 2017), an official with the Securities and Exchange Organization announced.
“The head of SEO [Shapour Mohammadi] believes that public offerings must be in line with the market condition. IPOs are suspended to support investors and prevent liquidity flight,” Mohsen Khodabakhsh was also quoted as saying by SENA.
The news broke on Tuesday and took its first victim. Saba South West Power Generation Company’s IPO, which was scheduled for Wednesday, was postponed to an unknown date.
The plan was to offer 135 million shares of the $71 million company priced at 3,500-3,600 rials per share. “BSABA” is a subsidiary of Islamic Revolution Mostazafan Foundation, one of the country’s largest holdings.
Experts believe the SEO’s decision could be related to the heavyweight Barkat Pharmed Company’s IPO last week.
The major pharmaceutical holding was listed as Tehran Stock Exchange’s 506th company back in early December. The Tehran-based holding is one of Iran’s largest pharmaceutical operators with 20 subsidiaries and is said to control 14% of Iran’s pharmaceutical market.
The company’s sole owner, Tadbir Economic Development Group, attempted to sell a tenth of the 4.65 trillion rials (about $119 million) of the company’s equity on February 5 through book building.
Book building is the process by which an underwriter attempts to determine at what price to offer an IPO based on demand from investors. An underwriter builds a book by accepting orders from fund managers, indicating the number of shares they desire and the price they are willing to pay.
Book building is a relatively common practice around the world and has recently made inroads into Iran. Barkat’s IPO was the fourth public offering via book building since the move debuted in Iran’s stock market in recent months.
Tadbir itself is a quasi-state company wholly owned by EIKO—the Execution of Imam Khomeini’s Order—a charity organization with multi-sector business holdings.
The arguably high discovered price of Barkat’s IPO, reaching up to 2,400 rials per share, did not dampen the market’s enthusiasm and almost all of the shares were purchased by non-institutional investors. The IPO trade accounted for nearly 40% of TSE’s total daily trade value.
According to market analyst Ali Nikougoftar, Barkat’s “heavy” IPO caused a sudden flight of capital from the market as it indirectly pressured other investors to sell.
“Stopping IPOs is in fact the only thing SEO can do right now [to curb further capital flight],” the analyst told Financial Tribune in a telephone interview.
However, Nikougoftar emphasized that such measures will not be entirely effective, as the seductive debt market with its high rates of return is the main cause of the issue.
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