Iraq Bourse Faces Challenge in Listing Telecom Firms
|November 8, 2011||Filled under Featured Article|
Baghdad, Investors monitor shares at the Iraq Stock Exchange in Baghdad. The fledgling market’s small size means it may struggle to cope with new listings
Foreign investors’ appetite for Iraq’s stock market is rising before planned IPOs by the country’s three mobile telephone operators, but the fledgling market’s small size means it may struggle to cope with the listings.
The Iraq Stock Exchange (ISX) is an outpost of private sector business in Iraq, which is still dominated by state-run firms almost nine years after the 2003 US-led invasion that toppled Saddam Hussain. Market capitalisation of the bourse, which started operating in 2004, is about $4bn with average daily trading value only around $2.8mn.
Successful stock market listings of the three mobile phone firms, Asiacell, Korek and Zain Iraq—a requirement of their operating licences—would be seen as a triumph for Iraq’s effort to create a diversified economy and a sign that it was establishing a stable development path after years of conflict.
The listings could also trigger a fresh wave of foreign interest in the market, which currently is heavily weighted towards banks, accompanied by a range of industrial, insurance, hotel and agriculture firms.
ISX chief executive Taha A Abdulsalam has said he expects the initial public offers of shares to double the market’s capitalisation. But with fewer than half of the 85 listed stocks active daily, such a boost in value could destabilise the market.
“The IPOs, first of all, they should put it in the market gradually,” Iraq Communications Minister Mohammed Allawi told Reuters. “If you put all the shares, the price will collapse for sure.”
While mobile phones were introduced in Iraq’s northern Kurdish region in 1999, the rest of the country did not have a mobile market under Saddam Hussain and the sector has grown rapidly since his ouster; there are now around 23mn mobile subscribers in the country, according to the Communications and Media Commission (CMC), the industry regulator.
With double-digit subscriber growth, telecommunications is believed to be the fastest growing major industry in Iraq after the oil sector. Mobile phone penetration is still low by Middle Eastern standards at 76%, according to 2010 data from the International Telecommunication Union. The communications ministry said last month that it planned to auction a fourth mobile licence in early 2012, pending government approval.
Taking the companies public will not be an easy task, however. The companies themselves have been reluctant to move quickly until the stock market is more developed and they can be sure of getting good prices for their shares.
Zain Iraq, a unit of Kuwait’s Zain, Asiacell, an affiliate of Qatar Telecom and Korek, part-owned by France Telecom SA and Kuwait’s Agility, all missed an initial August 31 deadline set by the CMC for their listings, which now look likely to go ahead sometime next year.
Foreign portfolio investment in Iraq is increasing; foreigners were net buyers on the ISX in the first 10 months of this year, purchasing 70bn shares for $118mn, according to Abdulsalam.
But such amounts fall far short of the expected size of the telecom IPOs, so local stock market investors would have to bear much of the burden. Local investment is also rising—the market’s main index has gained over 30% this year—but Iraq lacks big institutional investors and pension funds that could reliably channel large amounts of money into the IPOs.
“In our opinion, Iraq is very liquid, but it’s just (that) the mentality of investing in equity markets is not there,” said Asiacell CEO Diar Ahmed.
Valuations of the three mobile firms are still being studied but Korek CEO Ghada Gebara has said 25% stakes in each of the three operators would be worth about $5bn combined.
Securities firm Nomura has given Zain Iraq, which has appointed BNP Paribas, Citigroup and National Bank of Kuwait to run its share offer, an enterprise value of $4.9bn.
Nomura has valued Asiacell, whose IPO is being managed by HSBC and Morgan Stanley, at $4.4bn, making quarter-stakes in both firms worth about $2.35bn combined.
Before listing on the market, all the firms must first convert themselves into shareholding companies, and then obtain approval from the ISX board and Iraq’s securities commission, said Abdulsalam.
The CMC has said it is unlikely the three operators will conduct IPOS before the middle of next year.
“We cannot (list) all of them at the same time because each company is different to the other. We know that Zain is a Kuwaiti company. Asiacell is Iraqi,” said CMC Commissioner Ahmed Alomary.
“For a Kuwaiti company to be registered as an Iraqi company, it will take more time than Asiacell. Korek has a new partnership with France Telecom and they’re already working on having their holding company in Dubai. So each scenario is different.”
However, Alomary said it would be best for the companies to work on similar timelines for listing their shares, and to sell some equity as soon as possible.
Korek’s Gebara said it would be better to list the companies one after the other to give the market time to absorb the shares, and that one of the priorities should be to educate investors on how to receive the listings.
“It’s not a race. At the end of the day, we all want to maximise the value of our companies,” she said.
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