Iran Equity Benchmark TEDPIX Ends Week 1.67% Lower

Tehran Stock Exchange’s main index shed 1,333 points or 1.67% during the week that ended January 25 to end at 78,049.

IFX, the over-the-counter Iran Fara Bourse’s benchmark, lost 8.1 points or 1% during the week to 837.3.

Trading at the two exchanges begins on Saturday and ends on Wednesday.

Over 4.39 billion shares valued at $255.9 million were traded on TSE during the past week. The number of traded shares and weekly trade value shrank by 29% and 33% respectively compared to the previous week.

TSE’s First Market Index shed 1,332 points or 2.4% to end at 55,255.

The Second Market Index lost 671 points or 0.40% to close at 166,913.

At IFB, more than 1 billion securities valued at $205.1 million were traded in 309,000 transactions. The number of traded shares and weekly trade value dropped by 18% and 8% respectively compared to the previous week.

IFB’s market cap gained $91.1 million or 0.4% to reach $25.3 billion.

Its First Market witnessed the trading of 133 million securities valued at $6 million, indicating a 12% drop in both the number of traded securities and trade value.

About 489 million securities valued at $45.63 million were traded in the Second Market, with the number of traded securities dropping 7% and trade value rising 21% week-on-week.

The ‘food and beverages other than sugar’ group of IFB-listed industries had the highest weekly rise in share value (17%). ‘Industrial contractors’ (16%) and ‘other non-metal ore products’ (10%) came next.

  Markets Rocked by Banks Return

The TSE was rocked last week after Bank Mellat resumed trading on Tuesday after a 7-month hiatus.

The bank’s shares dropped 37.51% to 1,206 rials per share, dragging down the benchmark by 853.55 points.

TEDPIX nosedived by 1,014.40 points or 1.28% to end Tuesday trade at a three-month low of 78,249.1.

This was TEDPIX’s biggest decline in more than two months, after the benchmark took a 1.83% dive on November 9 after news broke that Donald Trump was elected as the 45th president of the United States.

Controversy began when it was disclosed that Bank Saderat, one of the biggest banks privatized in recent years, had incurred huge losses in the first half of the current fiscal year (March 21-September 21). Soon, it became known that Saderat was only one of many lenders whose balance sheets have sunk in a sea of red ink, prompting the Securities and Exchange Organization to suspend the shares of several banks from trading.

The next move came from CBI, which mandated the banks to prepare their financial statements based on International Financial Reporting Standards and barred them from holding shareholder meetings.

For years, banks were paying dividends which had no real financial backing, since they were using the huge NPLs and debts in calculating profit. They ultimately had to change course, and the market downturn was inevitable.

Following Mellat’s return, Bank Tejarat and Bank Saderat have announced that they will follow suit by reopening their trading symbols at TSE this week.

Market watchers expect that the new reopening will send new shockwaves to the already volatile market similar to what happened on Tuesday.

“This is a watershed for the banks,” market analyst Ali Nikoogoftar told the Financial Tribune. For years, banks were paying dividends which had no real financial backing, since they were using unpaid loans and debts as profit. They had not option to get things right and change course. And then came the market slump.”

The market expert believes that SEO officials are expected to prevent further plunges by setting a cap for other banks’ trading when they return. He recalled that the TSE has gone through similar scenarios before, and it will take some time before banking shares can post gains, despite the  stock market’s unpredictable behavior.

  Reluctance to Adopt IFRS

Implementation of International Financial Reporting Standards in Iran is hampered by the reluctance of businesses to adopt and adjust, says the head of Iran Audit Organization, Ali Akbar Soheilipour.

“Enacting IFRS is one of the main requirements for the listing of Iranian firms on foreign stock exchanges and consequently attract foreign capital,” said the official, adding that local companies’ lack of transparency in accounting has caused foreign investors to stay away.

Back in November, the Securities and Exchange Organization mandated 77 companies registered on the Tehran Stock Exchange and Iran Fara Bourse to prepare their financial statements based on IFRS for the current fiscal year (ends in March), IRNA reported.

SEO encouraged companies to comply with these standards in 2013. Most ignored the SEO, save for a handful of companies with foreign stakeholders like detergent producer Henkel Pakvash and glass and crystal manufacturer Ghazvin Glass Company.

The main difficulty of the companies in embracing the new standards is that valuation of their fixed assets as IFRS demands puts them in a dilemma. For instance, many firms have their property holdings recorded at historic prices. If revalued, the companies’ assets will surge, which consequently will hit their performance ratios.

Also, businesses are reluctant to devalue their assets, which are mostly kept as collateral with banks. Shrinking asset value will diminish their borrowing power.

International Financial Reporting Standards is a single set of accounting standards, developed and maintained by the International Accounting Standards Board. These standards are capable of being applied on a globally consistent basis by developed, emerging and developing economies, and provide investors and other users of financial statements the ability to compare the financial performance of publicly-listed companies on a like-for-like basis with their international peers.

IFRS standards are now mandated for use by more than 100 countries, including the European Union and by more than two-thirds of the G20 states.