Investors eyeing Iran as sanctions fall away

MTN Group to repatriate about $1bn that was previously frozen

AFEW INVESTORS are racing to establish funds for Iran following last week’s nuclear deal with world powers, and many others are tapping into multinationals already present in the $400 billion (R4.97 trillion) economy.

The agreement has made some seek a foothold in Tehran’s $100bn stock market even before sanctions are lifted, although others are taking a more cautious approach.

Classified as an upper-middle income country, with a population of 78 million and annual output higher than that of Thailand or the United Arab Emirates, Iran is set to be the biggest economy to rejoin the global trading and financial system since the break-up of the Soviet Union more than 20 years ago.

Brokerage Renaissance Capital predicts $1bn will flow into Iran in the first year after sanctions end, although that is not likely to happen for months and may not occur in one go.

London-based boutique First Frontier Capital Ltd is in the process of setting up a sanctions-compliant fund dedicated to Iran, hoping to allow investors to take a position in Tehran’s bourse before sanctions are lifted. “This is a market where everyone is totally underweight and there will obviously be a lot of money going in, hot money at first but then also others,” said First Frontier’s co-chief executive, Richard Adley, who plans to launch the fund in the next couple of months and aims to have € 100 million invested by year-end.

“And then there is a big valuation gap there. Iran has a lot of catching up to do when you look at other frontier or emerging markets,” said Adley, who estimates valuations at a very cheap five-to-six times earnings.

In April, British-based Charlemagne announced it had teamed up with a Tehranbased firm, Turquoise Partners, to establish funds that will invest in Iranian securities.

Others, like Mena Capital’s Khaled Abdel Majeed, are also getting ready to invest, but worry that a dedicated country fund carries too many risks at this point. Instead, Majeed is aiming to invest part of his firm’s funds under management in Iranian shares – once the sanctions are lifted.

“At the moment it may be very marketable, but at some point it will become too expensive,” he said. “And there is also a lot of risk… and the regime itself is not stable enough to last another 50 years.”

Both Renaissance Capital and the investment consultancy Ecstrat have reported a sharp pick-up in demand for Iran-related research from asset managers. Some 780 million shares traded on the exchange on July 12, the latest data available on its website, representing about $64.2 million.

Iran mirrors Saudi Arabia in that both are diverse, geopolitically important markets with attractive demographics and stable populations.

Yet with issues of access and other trading logistics yet to be worked out for direct investments, international companies already doing business in Iran will stand to benefit, at least in the short-term until restrictions fall away, said Joana Arthur, equity product manager for London-based Ashmore, which has approximately $1.2bn invested in frontier strategies.

Larry Seruma, portfolio manager of the $434 million Nile Global Frontier fund, said he expects Iran to eventually become a “destination” for his fund. In the meantime, he is holding on to companies such as MTN Group, which owns 49 percent of Irancell, Iran’s second-largest cellphone operator.

MTN Group told investors in April that it expected to repatriate about $1bn in accumulated dividends and a loan repayment from its Iranian unit that had been frozen by international sanctions once a nuclear deal was finalised.

Multinational mobile phone companies, car makers and hospitality firms are seen as the most primed to benefit from the lifting of sanctions. – Reuters