Following an extended downbeat performance by the capital market which has been lingering for more than a year and causing severe losses to both retail and institutional investors, President Hassan Rouhani asked to be briefed on the situation three weeks ago. The result was a letter to Vice President Es'haq Jahangiri to lay out ground rules for both the banking system and the capital market.
Deputy for supervision in Securities and Exchanges Organization, Hassan Amiri, elaborated on SEO’s plans to improve Iran’s capital market in line with the president’s guidelines.
“Three pivotal guidelines have been outlined by the president for the capital market, the responsibilities for which are shared by SEO, its subsidiaries and other official entities,” Mehr News Agency quoted Amiri as saying.
The most important duty designated to SEO, Tehran Stock Exchange and Iran Fara Bourse is to facilitate financing the companies’ long-term development plans through the capital market. To achieve this, new instruments such as sukuk need to be introduced and cumbersome bureaucratic procedures and regulations simplified.
While instruments such as participatory, leasing, Salaf and Ijarah bonds are already in use, other long-demanded instruments such as mortgages and Islamic security bonds (Mozarebah and Morabaha) are yet to be legislated, according to Amiri.
He also explained that as each industry has unique demands, SEO is negotiating with decision-makers in various industries to design their specialized instruments. “Negotiations with automakers are on for presale of cars using new instruments,” he said.
In order to help the companies hedge their default risks, convertible bonds and floating rate notes are also being ratified.
“Hopefully, tax-relief policies would make them appealing to the companies,” said Amiri.
Even though financing the projects through the capital market is cheaper, companies often opt for easier ways such as taking loans from banks. To encourage the companies to drive their required financing from the capital market, Amiri said a joint committee has been established by the SEO and the authorities of Central Bank of Iran to revise the rules and regulations of the capital market.
The SEO official observed that the Primary Market could flourish only if the Secondary Market is deemed prosperous by foreign and domestic investors, which would in turn incentivize them to inject fresh money into the markets. Investors’ sentiments have dipped over the past two years, due mainly to capricious decisions in the capital market and high interest rates imposed by banks.
But Amiri believes the situation is about to change in the near future. “When the sanctions [imposed against Iran by the US, EU and the UN Security Council over its nuclear energy program] are lifted and Iran’s frozen assets unlocked, banks would no longer be faced with severe shortage of liquidity, allowing them to lower the interest rates. This would in turn help revive the investors’ trust in the equity market,” he anticipated.
Amiri emphasized the importance of developing new financial institutions, pointing out that fixed-rate bonds are no longer attractive and that rating agencies should evaluate bonds with variable and floating rates.
