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Iraqi Stock Exchange

Iraq's Growing Stock Market

Written by Briton Ryle
Posted March 18, 2013

Like springs of water vitalizing an oasis in the desert, a steady flow of investment has been springing to life the Iraqi stock market.

Asiacell—a Qatar Telecom-affiliated telecommunications company—has just last month raised over U.S. $1.3 billion from its IPO. It is the largest initial public offering in the whole of the Middle East since 2008.

Fascinating as that may be, what is even more astounding is where it listed: on the Iraqi Stock Exchange.

Iraq’s stock market has come a long way since the country’s invasion, when the old Baghdad Exchange gave way to the new Iraqi Stock Exchange (ISX). Its 2004 beginnings seemed to be a tribute to stock exchanges from a hundred years prior, with open outcry bidding for its limited selection of just 15 companies and changing stock prices felted onto erasable boards.

Opened to foreign investors in 2007, and with electronic trading introduced in 2009, the ISX has been flourishing like an oasis in the desert.

“Since the bourse launched in April 2004,” recounts Zawya, a Middle Eastern business paper, “the number of listed companies has expanded by over 42% from 59 to 84 in 2013. Market capitalization of ISX also grew by 40% in 2011 and 23% in 2012, mainly due to the banking sector's growth, reaching USD 5 billion at the end of last year. It more than doubled to USD 10.2 billion as of February this year following the listing of Qatar Telecom affiliate Asiacell.” [Asiacell was required to list only 25% of its shares.]

Canada’s Chronicle Herald cites similar figures from Taha al-Rubaye, head of the ISX. “With Asiacell’s share offer, the market capitalization of the ISX nearly doubled to about $9 billion, up from $4.7 billion.”

And the ISX’s capitalization is expected to continue growing substantially throughout 2013 with the final stage of a 2010 rule designed to “make private banks more active”, Zawya explains.

The paper elaborates:

“In March 2010, the Central Bank of Iraq (CBI) announced a new policy, which set a minimum capital of IQD 250 billion for all private banks with an advised schedule of IQD 100 billion by the end of 2010, IQD 150 billion by end-2011 and IQD 250 billion by end-2012.”

“In October 2010, CBI extended the deadline by six months for each target capital with the last set on June 2013. To date, 19 out of 21 listed banks have already reached the second target capital or are continuing the capital increase procedures.”

Though banks once made up over 85% of the ISX’s capitalization, it is the rapidly growing telecommunications sector that now dominates the Iraqi market at 50% of its value, pushing the banks down to 41%. And there are still two more telecommunications companies getting ready to join the ISX within the next two years – namely Zain Iraq and Korek Telecom.

Yet the fairly young Iraqi stock market has a rather diverse sector representation.

“Aside from banking and telecom, other sectors trading on the ISX include industry (23 companies), hotels and tourism (10 companies), services (10 companies), agriculture (six companies), investment (eight companies) and insurance (five companies),” lists Zawya.

At present, trading volume exceeds U.S. $3 million per session, or almost 0.03% of the entire exchange’s value changing hands daily.

However, the major part of this trading volume is conducted by local Iraqis, and Zawya offers the reason. “Local investors remain the major players in the Baghdad bourse market due to a lack of custody that has kept foreign investors on the sidelines. This issue also remains as a significant challenge for institutional investors. As a result, international players' shares in total trading volume plunged dramatically to just 6.2% in 2012 from 12% the previous year.”

What is this issue with a “lack of custody”? As the International Financial Law Review (IFLR) explains, “Iraqi securities aren’t yet regulated by a comprehensive securities law, but existing regulations are straightforward and allow foreign investors the same rights as domestic investors.”

With last month’s Asiacell IPO, however, foreign enthusiasm for the Iraqi market appears to be improving. “During Asiacell's flotation,” Zawya informs, “foreigners purchased 70% of the company's shares (representing 67.5 billion shares for a total of IQD1.48 trillion or USD 1.2 billion).”

This renewed foreign interest in the Iraqi market was applauded by Geoffrey Batt, a New York-based fund manager who has been investing on the [ISX] since 2008. “Asiacell is demonstrable evidence that Iraq does in fact have a viable capital market,” quotes the Chronicle Herald. “It indicates that this is a market capable of attracting significant investment from local and foreign sources.”

With ever-increasing sources of investment bubbling up from local Iraqis to foreigners alike, the Iraqi Stock Exchange seems well watered to continue expanding its boundaries as a financial oasis in a blossoming Iraqi economy.

Joseph Cafariello


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