Baghdad bourse offers a sign that Iraq is on its way back
When the Iraqi telecoms giant Asiacell Communications launched its initial public offering on the Iraq Stock Exchange last month, it provided compelling evidence that the fledgling bourse – and indeed the country – had at last turned a corner 10 years since the United States-led invasion.
The IPO, worth US$1.24 billion (Dh4.55bn), doubled the market capitalisation of the Baghdad-based ISX from $4.7bn to $9.3bn overnight. Meanwhile, since the offering, trading volumes have increased to $5 million, up from a 2009 level of $600,000. For those who had taken an early bet on Iraq, things were looking up. The “mainstream media portray Iraq as a failed state, but failed states do not have capital markets capable of raising more than $1bn from foreign and domestic investors,” says Geoffrey Batt, a fund manager in the US at Euphrates Advisors. Asiacell is the biggest of three telecoms companies in Iraq, all of which are required under the terms of their licence to list at least 25 per cent of their shares on the ISX. The second largest telecoms provider in the country, Zain Iraq, is expected to list midway through this year. The concept of forcing companies to go public may be an unorthodox tactic to stimulate a country’s capital markets – but it appears to be working. Mr Batt, who launched his ISX focused fund – now worth US$53m – in 2010, argues that history is full of examples of out-of-favour nations offering great returns for brave investors. Russia after the fall of the Soviet Union, South Korea, Hong Kong and even Italy in the years after the Second World War. “The key in all those countries was that they turned the corner. These transitions are often bumpy, and fairly violent, social and political upheaval is common, but from an investment perspective, macrostability matters more than social and political discord, or even outright violence,” says Mr Batt. And on paper, things look good for Iraq. The Economist Intelligence Unit (EIU) has predicted a healthy 8.2 per cent GDP growth for the country this year and 9 per cent in the years leading up to 2017. GDP has increased by 55 per cent over the past five years, driven largely by oil production and exports. Violence has also eased. This is all good news for the ISX, which has increased its roster of companies to 91 from the 15 that started out in 2004, a year after the Saddam Hussein-era Baghdad bourse was closed down. Foreign investment was permitted in 2007, with electronic trading coming two years later. With the Iraqi telecoms industry booming, the sector’s IPOs – led by Asiacell – represent the next big milestone. “It will be a game-changer in the sense that Asiacell has put Iraq and the ISX on the radar screens of funds and fund managers. But you cannot be overly optimistic because, simply, we have come from such a low point that any normalisation in the financial system in Iraq would be a huge gain,” says Shwan Taha, the chairman of Rabee Securities, the brokerage that arranged the Asiacell IPO. Mr Taha cites significant challenges in arranging the IPO, particularly with organising share purchases, both in Iraq and abroad. But he is confident the ISX and Rabee Securities have learned lessons. “This was the first time it had been done in Iraq. The second time around it will be much easier,” he says. Hasan Abdulkarim, the chairman of Hasan Abdulkarim Company, points out it is not just logistics that are a challenge for the exchange – the Iraqi government has still not passed a security bill or an investment bill after years of delay. “These are the two biggest barriers facing ISX brokerage firms,” he says. While proud of the Asiacell listing, the ISX chief executive Taha Abdulsalam is not as bullish as some analysts about the prospects for the future, particularly in terms of the Iraqi economy. He points out that about 90 per cent of Iraq’s $100bn economic output comes from one source – oil. The private sector, he says, is woefully inadequate for a country of Iraq’s size. “We need to see more companies. We need to see the private sector not accounting for only 10 per cent of GDP, but 50 per cent. You cannot build the economy without the private sector.”