Developing new tools and mechanisms to help private SMEs is among the main goals of the Securities and Exchange Organization, says the organization's chief.
"The banking sector now accounts for a high percentage of funding while the stock market role to this end is low -- about 20-25%... due to the intricacies of the banking system and high interest rates, there is less inclination to inclination to borrow from banks," Majid Eshqi was quoted as saying by IBENA.
"Now the capital market is offering innovative instruments such as investment funds, that can be customized with the help of investment banks to meet each company's specific needs," he Eshqi added.
Iran’s capital market now funds an estimated 25% of the economy, which was a meager 5% in 2011-12 while banks accounted for 95%. The growing interaction of the capital market and business over the past decade shows its potential.
Eshqi noted that the SEO has plans to remove hurdles in the way to financing small enterprises "so that we can expand the contribution of the capital market in funding growth.”
In recent years governments mostly resorted to the capital market raising more than 2,800 trillion rials through a variety of tools like issuing securities and shares in fiscal year that ended in March 2021, he recalled.
However, this amount decreased last year and the trend was downward. "Approximately 1,200 trillion rials of government securities were issued in year to March 2023."
The senior official emphasized the need to increase the amount of corporate securities issuance along with participatory securities by firms listed with the Tehran Stock Exchange and Iran Fara Bourse.
According to the official, companies that are ranked do not need a bank guarantee to issue securities or raise funds from the capital market. "This process will take less than 10 days in the SEO, which is specific to companies accepted in the bourse."
He added that companies accepted in the stock market are entitled to a 20% tax exemption. Eshqi also said that with the launch of the international stock exchange, the first foreign exchange securities will be published this year.
Market Value
The total value of Iran's capital market reached 90,833 trillion rials ($181.6 billion) by the end of the last fiscal year on March 20.
It was 71,863 trillion rials ($143 billion) a month earlier, indicating that the cap grew 26% in one month, the SEO reported.
Compared to the same month in the previous year, the cap was up a whopping 33.1%, it said.
Market cap is the market value of a publicly traded company's outstanding shares. It is calculated by multiplying the number of shares outstanding by the current market price of one share.
Iran’s four bourses include the Tehran Stock Exchange, Iran Fara Bourse (junior equity market), Iran Mercantile Exchange and Iran Energy Exchange.
The TSE was the top performer with a value of 72,751 trillion rials ($145 billion), up 33% year-on-year. IFB was second at 18,080 trillion rials ($36b) during the month posting 33% annual growth.
Reforms
SEO chief earlier said that it will strive to reform market regulations and procedures to address discrepancies and improve transparency to help attract investors to the sluggish market in the current fiscal year.
The official noted that amendments to the Trade Law have also been proposed to enhance capital inflow and distribute profit to small investors. He did not elaborate.
Last June, the Majlis Research Center (MRC), the parliament’s think tank, released the draft of a bill to reform the capital market law and called on experts to comment. The bill calls for amending some laws and adding 16 articles.
One proposal obliges all listed companies and those affiliated to the government, non-government public institutions, and pension funds to sell all their products via commodity exchanges, such as the Iran Mercantile Exchange and the Iran Energy Exchange.
Goods can be traded through futures contracts, and to improve the derivatives market the regulator will grant tax incentives to companies operating in the two markets.
Similarly, the Ministry of Oil will be required to sell feedstock fuel to refineries and petrochemical plants through the IME and IRENEX.
The Central Securities Depository of Iran is obliged to pay shareholder dividend through a centralized platform. Dividend must be paid within three months after the annual general assembly of companies and penalties are envisioned for managers found in breach.
The SEO for long has been trying to create a legal framework obliging listed companies to pay dividends to shareholder accounts. Long demanded by retail investors, the decision is expected to help them receive dividend without hassles.
Listed companies deposit dividend per share (DPS) to accounts in designated banks, asking shareholders to go to bank branches to receive the DPS within set timelines. In many cases, investors forsake the DPS to avoid going to the bank.
Startups
Eshqi pointed to plans for easing the entry of knowledge-based companies to 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, a ride hailing company, went public earlier this month becoming the first of its kind to make debut in the bourse.
