Iraq Stock Exchange Confident Despite IPO Uncertainty
Posted by IraqiXchange on Monday, January 2, 2012
By Marty Silk, SYDNEY
(ASIA PULSE)
July 25, 2011
The Iraq Stock Exchange (ISX) has been calling for three August share listings, tipped to be the biggest in the Middle East region in 2011, and despite rising doubts over whether the listings will occur on time, the bourse's confidence highlights how much it has developed.
Iraq's largest telecom operators -- Zain Iraq, Asiacell and Korek Telecom -- must list on the ISX by the end of August as a provision of their 15-year licencing agreements with the country's regulator.
At the minimum, each operator must list a 25 per cent of their shares to become joint stock companies. And these intial public offerings (IPOs) will be big.
Reuters recently reported that Japanese ratings agency Nomura gave Zain Iraq and Asiacell a combined enterprise value that would make "quarter stakes in both worth about US$2.35 billion."
In comparison, Middle East stock markets raised only US$21.5 million in the first quarter of 2011, according to Ernst and Young's Middle East IPO update.
FT Tilt analyst Tom Gara wrote that Zain's IPO alone would be a 'milestone' for the ISX and could be the biggest in the Middle East and North Africa (MENA) region in 2011.
The ISX remains one of the smallest and youngest bourses by Middle Eastern standards, with market capitalization under US$4 billion and daily turnover averaging about $1.6 million in May, 2011.
But next month, the market capitalization of the ISX stands to grow by more than 30 per cent.
"[These] IPOs would be a game-changer for the ISX, potentially attracting significant interest in what is considered the region's most profitable and fastest growing mobile segment," said Ahmad Saleh, a senior analyst with local market research firm IraqiXchange, in an email interview with Asia Pulse.
Mobile phones were banned by Saddam's Iraq, but since the U.S.-led invasion in 2003 telecommunications has been one of the country's few boom sectors, along with construction, agriculture and banking.
Investors on the ISX are keen to see more variety on a bourse where according to Saleh, the banking sector still dominates with approximately 70 per cent of its market cap and trading volume.
Iraqi mobile subscriptions and penetration levels are constantly rising. This is partly because patchy coverage areas and the military tampering with networks often require subscribers to own more than one simcard, but also because infrastructure is improving and reliance on mobiles by small and medium enterprises is growing. Operators offer a wide range of data and mobile banking services to a populace keen to avoid the hassles of the street and long lines to a bank teller.
"Iraq's telecoms have the best potential in the MENA region. Penetration is still low and fixed lines are almost non-existent making these IPOs an attractive investment for many," said Mr. Saleh in a later interview by telephone from Baghdad.
"Their IPOs would have a hugely positive affect on the bourse, not only attracting other large firms but also by breaking the dominance of the banks on the bourse to give asset managers and traders some more options."
However, most observers believe Iraq's telecom IPOs will probably not happen next month.
"The chances of listing in time are...no," said Mr. Saleh.
"It will not happen."
Iraq's telecom sector regulator, the Communications and Media Commission (CMC), is reportedly already preparing penalties as the watchdog believes the three are highly likely to miss the deadline.
Zain Iraq, which is speaking the most cautiously about its IPO, said its offering next month would be a "big challenge" but that it is "hopeful" it will list. The operator warns the IPO process will be long but having had four years to prepare for it, there seems little reason for Zain to delay.
And the operator is no stranger to penalties either: Zain Iraq has been fined more than US$280 million since it was launched by its parent firm, the Zain Group of neighboring Kuwait, in 2003.
In contrast, the country's other two largest operators, Asiacell and Korek Telecom, have confirmed their shares will hit the ISX boards next month. Both telecoms are foreign-backed: Asiacell is an affiliate of Qatar Telecom and Kurdistan-based Korek is partly-owned by France Telecom and Kuwaiti logistics firm Agility. And both operators are highly concerned about their mandatory IPOs. Asiacell claims liquidity will be a problem because investors may not have the funds to fully subscribe to its offering, and while Korek is ready, it is also apprehensive about the timing.
Korek CEO Humam Amara told Reuters he thinks "timing could be improved."
FT Tilt's Mr. Gara writes that foreign investors are eager to gain their own stakes in the telecoms and will snap up many of the shares.
CEO of the ISX, Taha Abdulsalam Al-Rubaye, cannot make sense of operators' concerns about their IPOs.
"In the past few days the news media reported un-named sources at one of the mobile operators in Iraq alleging that the ISX would not be able to handle the volume of trade as a reason for them not to list. The ISX deploys the Nasdaq OMX system and it is capable to handle large volume transactions. There is also enough liquidity in Iraq and a good interest by international funds to make a listing of any size a success; the liquidity of the market today is only limited by the availability of companies on the exchange, therefore it is illogical for any company to claim there is no liquidity before trying to list on the exchange," said Mr. Al-Rubaye in an announcement on the ISX website last month.
"The mobile operators by delaying their listing, are harming the investor and the citizens who would wish to invest and participate in their companies."
Mr. Saleh agrees with Mr. Al-Rubaye.
"The liquidity issue is an ongoing concern for the bourse. I mean daily turnover is under $2 million," he said.
"I think the real problem isn't so much related to overall liquidity but investors perception of the ISX. It is certainly not a traders' market where you can flip your positions daily, rather it is a unique opportunity to 'buy and hold' stocks and let them mature over time. So adding to the range of shares will likely increase turnover."
Investors claim that most shares are still undervalued and not as profitable as they could be, but hope to be much more active on a more diversely stocked bourse.
Amid the debate about the IPOs, attention has been drawn away from what should be celebrated: the success story the ISX has been since it was launched in 2004.
Only four years ago all trades were still being written out on chalk boards. And the ISX has also been hampered by the insurgency.
"In 2006-2007, the insurgency had gained control of the major cities and civilian fatalities reached 3,500 deaths per month at the peak, leading to a collapse in the stock market, and subsequently the closure of the exchange for several months," Mr. Saleh explained.
Since then the security situation has vastly improved, he said, and the investors have returned.
For the last three years the ISX has invested proactively to develop itself into a modern bourse that can compete with its regional rivals. In May this year the ISX linked its trading system to offices of a member brokerage in Erbil in the country's north, in what can technically be considered its first expansion outside Baghdad.
Last month, the bourse transmitted real time and delayed data first time using DirectFN technology. Soon it will be able to meet all membership requirements to join the World Federation of Stock Exchanges.
The numbers are equally impressive. When it was launched in 2004, the ISX had 15 listed firms, but by the beginning of 2011 it had 91. Brokers are also trading more regularly on the bourse. Trading sessions during the week occur on five days now, up from three. Annual trading sessions rose from 48 in 2004 to 119 in 2009. The market capitalization of the bourse has grown to just under $4 billion.
What's more, while Mr. Saleh may not believe August will be the time the operators list, he is extremely confident they will be ready to list within 12 months.
"In the next year the telecoms will almost certainly list," he said.
The fact that Iraq's fourth operator, the Kuwaiti-owned Kalimat, has already in April this year announced plans to list next year is indicative that the strengthening bourse can attract larger local firms to list without coercion. Eventually it is hoped that oil sector players too will follow the telecoms and float shares on the ISX, but that will take longer.
"There's no doubt that the ISX will remain a solid investment and continue to grow," said Saleh.
Now the bourse must wait for Iraq's telcos to make the same call.
(ASIA PULSE)
July 25, 2011
The Iraq Stock Exchange (ISX) has been calling for three August share listings, tipped to be the biggest in the Middle East region in 2011, and despite rising doubts over whether the listings will occur on time, the bourse's confidence highlights how much it has developed.
Iraq's largest telecom operators -- Zain Iraq, Asiacell and Korek Telecom -- must list on the ISX by the end of August as a provision of their 15-year licencing agreements with the country's regulator.
At the minimum, each operator must list a 25 per cent of their shares to become joint stock companies. And these intial public offerings (IPOs) will be big.
Reuters recently reported that Japanese ratings agency Nomura gave Zain Iraq and Asiacell a combined enterprise value that would make "quarter stakes in both worth about US$2.35 billion."
In comparison, Middle East stock markets raised only US$21.5 million in the first quarter of 2011, according to Ernst and Young's Middle East IPO update.
FT Tilt analyst Tom Gara wrote that Zain's IPO alone would be a 'milestone' for the ISX and could be the biggest in the Middle East and North Africa (MENA) region in 2011.
The ISX remains one of the smallest and youngest bourses by Middle Eastern standards, with market capitalization under US$4 billion and daily turnover averaging about $1.6 million in May, 2011.
But next month, the market capitalization of the ISX stands to grow by more than 30 per cent.
"[These] IPOs would be a game-changer for the ISX, potentially attracting significant interest in what is considered the region's most profitable and fastest growing mobile segment," said Ahmad Saleh, a senior analyst with local market research firm IraqiXchange, in an email interview with Asia Pulse.
Mobile phones were banned by Saddam's Iraq, but since the U.S.-led invasion in 2003 telecommunications has been one of the country's few boom sectors, along with construction, agriculture and banking.
Investors on the ISX are keen to see more variety on a bourse where according to Saleh, the banking sector still dominates with approximately 70 per cent of its market cap and trading volume.
Iraqi mobile subscriptions and penetration levels are constantly rising. This is partly because patchy coverage areas and the military tampering with networks often require subscribers to own more than one simcard, but also because infrastructure is improving and reliance on mobiles by small and medium enterprises is growing. Operators offer a wide range of data and mobile banking services to a populace keen to avoid the hassles of the street and long lines to a bank teller.
"Iraq's telecoms have the best potential in the MENA region. Penetration is still low and fixed lines are almost non-existent making these IPOs an attractive investment for many," said Mr. Saleh in a later interview by telephone from Baghdad.
"Their IPOs would have a hugely positive affect on the bourse, not only attracting other large firms but also by breaking the dominance of the banks on the bourse to give asset managers and traders some more options."
However, most observers believe Iraq's telecom IPOs will probably not happen next month.
"The chances of listing in time are...no," said Mr. Saleh.
"It will not happen."
Iraq's telecom sector regulator, the Communications and Media Commission (CMC), is reportedly already preparing penalties as the watchdog believes the three are highly likely to miss the deadline.
Zain Iraq, which is speaking the most cautiously about its IPO, said its offering next month would be a "big challenge" but that it is "hopeful" it will list. The operator warns the IPO process will be long but having had four years to prepare for it, there seems little reason for Zain to delay.
And the operator is no stranger to penalties either: Zain Iraq has been fined more than US$280 million since it was launched by its parent firm, the Zain Group of neighboring Kuwait, in 2003.
In contrast, the country's other two largest operators, Asiacell and Korek Telecom, have confirmed their shares will hit the ISX boards next month. Both telecoms are foreign-backed: Asiacell is an affiliate of Qatar Telecom and Kurdistan-based Korek is partly-owned by France Telecom and Kuwaiti logistics firm Agility. And both operators are highly concerned about their mandatory IPOs. Asiacell claims liquidity will be a problem because investors may not have the funds to fully subscribe to its offering, and while Korek is ready, it is also apprehensive about the timing.
Korek CEO Humam Amara told Reuters he thinks "timing could be improved."
FT Tilt's Mr. Gara writes that foreign investors are eager to gain their own stakes in the telecoms and will snap up many of the shares.
CEO of the ISX, Taha Abdulsalam Al-Rubaye, cannot make sense of operators' concerns about their IPOs.
"In the past few days the news media reported un-named sources at one of the mobile operators in Iraq alleging that the ISX would not be able to handle the volume of trade as a reason for them not to list. The ISX deploys the Nasdaq OMX system and it is capable to handle large volume transactions. There is also enough liquidity in Iraq and a good interest by international funds to make a listing of any size a success; the liquidity of the market today is only limited by the availability of companies on the exchange, therefore it is illogical for any company to claim there is no liquidity before trying to list on the exchange," said Mr. Al-Rubaye in an announcement on the ISX website last month.
"The mobile operators by delaying their listing, are harming the investor and the citizens who would wish to invest and participate in their companies."
Mr. Saleh agrees with Mr. Al-Rubaye.
"The liquidity issue is an ongoing concern for the bourse. I mean daily turnover is under $2 million," he said.
"I think the real problem isn't so much related to overall liquidity but investors perception of the ISX. It is certainly not a traders' market where you can flip your positions daily, rather it is a unique opportunity to 'buy and hold' stocks and let them mature over time. So adding to the range of shares will likely increase turnover."
Investors claim that most shares are still undervalued and not as profitable as they could be, but hope to be much more active on a more diversely stocked bourse.
Amid the debate about the IPOs, attention has been drawn away from what should be celebrated: the success story the ISX has been since it was launched in 2004.
Only four years ago all trades were still being written out on chalk boards. And the ISX has also been hampered by the insurgency.
"In 2006-2007, the insurgency had gained control of the major cities and civilian fatalities reached 3,500 deaths per month at the peak, leading to a collapse in the stock market, and subsequently the closure of the exchange for several months," Mr. Saleh explained.
Since then the security situation has vastly improved, he said, and the investors have returned.
For the last three years the ISX has invested proactively to develop itself into a modern bourse that can compete with its regional rivals. In May this year the ISX linked its trading system to offices of a member brokerage in Erbil in the country's north, in what can technically be considered its first expansion outside Baghdad.
Last month, the bourse transmitted real time and delayed data first time using DirectFN technology. Soon it will be able to meet all membership requirements to join the World Federation of Stock Exchanges.
The numbers are equally impressive. When it was launched in 2004, the ISX had 15 listed firms, but by the beginning of 2011 it had 91. Brokers are also trading more regularly on the bourse. Trading sessions during the week occur on five days now, up from three. Annual trading sessions rose from 48 in 2004 to 119 in 2009. The market capitalization of the bourse has grown to just under $4 billion.
What's more, while Mr. Saleh may not believe August will be the time the operators list, he is extremely confident they will be ready to list within 12 months.
"In the next year the telecoms will almost certainly list," he said.
The fact that Iraq's fourth operator, the Kuwaiti-owned Kalimat, has already in April this year announced plans to list next year is indicative that the strengthening bourse can attract larger local firms to list without coercion. Eventually it is hoped that oil sector players too will follow the telecoms and float shares on the ISX, but that will take longer.
"There's no doubt that the ISX will remain a solid investment and continue to grow," said Saleh.
Now the bourse must wait for Iraq's telcos to make the same call.
