Griffon Capital, the Iran-focused advisory and asset management firm, is banking on Iran’s new nuclear deal to spur foreign investor interest and help it raise US$150 million for listed equities and private equity funds.
Tehran-based Griffon, which was founded by Iranian expatriates with European investments, is aiming to seed and then raise cash for a $75m fund investing in Iranian equities this year, said the chief executive and founding partner Homan Harandian.
The firm is also planning to raise a $75m private equity fund. For both funds, Griffon wants to tap foreign investors, mainly in Europe, Asia and the Middle East.
“The approach is to provide investors with an overall exposure to the economy with the due consideration to liquidity in the market,” said the 42-year old Iranian chief executive. “It [the listed equities fund] will have the consumer theme as well as potentially some of the natural resources play.”
Iran is considered a frontier market with untapped potential for investments. It sits on 10 per cent of the world’s oil reserves, placing it No 4 globally and 18 per cent of global gas reserves, ranking second after Russia.
The Tehran Stock Exchange has a market capitalisation exceeding $100 billion and 316 listed stocks.
The exchange is dominated by the petrochemical sector and its byproducts, which accounts for 23 per cent of the market capitalisation, followed by the financial sector and basic metals. It has a price to earnings (p/e) ratio of 5.4, according to the exchange’s May monthly report. In comparison, the MSCI Frontier Markets 100 index has a p/e ratio of 13.7.
The stock market, though, suffers from poor liquidity and some foreign ownership restrictions.
“Valuations are quite cheap but there are certain limitations and constraints in terms of liquidity and free float,” said Mr Harandian.
The private equity fund will also focus on the consumer, given Iran’s rising middle class.
Already the firm was involved a high-profile acquisition last year, when it advised Digikala, an internet retail marketplace similar to Amazon.com, which sold a stake to an unnamed Swedish investment fund in a deal valuing the company at $150m.
“Definitely there is increase in interest from strategics to come to the country and acquire existing operations, and that is more or less the focus of what the private equity side is going to do,” said Mr Harandian.
Besides the nuclear deal, investors are expected to be attracted to a country with a population of about 80 million, mostly made up of young consumers who have suffered under decade-old UN economic sanctions. With a GDP forecast at $393.5bn this year according to the IMF, Iran is set to be the second-largest economy in the Middle East region after Saudi Arabia.
All of these deals will depend on the pace and form of lifting the sanctions. Removing sanctions will be more complicated in the US, which has its own set of sanctions that differ from those imposed by the United Nations.
The type of investors who are expected to come to Iran will be high net worth individuals and family offices and possibly niche and frontier market institutions, but larger institutional investors will probably take some time until they feel comfortable with the legal environment in the country.
However, the oil price crash has left its mark on the Iranian economy, which needs an oil price of $92.5 per barrel to break even, according to the IMF.
Inflation also remains high. The consumer price index is forecast to rise to 16.5 per cent this year from 15.5 per cent last year – although is has fallen by half since 2013, when it stood at 34.7 per cent, based on IMF figures.
But the biggest bugbear for investors will be the restrictions on banks, which have affected the flow of cash into the country. The impact of sanctions on the economy is still being felt and will take years to repair and replace past policies with growth-focused strategies.
“Everybody’s eagerly waiting to see how long it will take for restrictions on the banking sector to be lifted and how quickly transactions between international banks and Iranian banks can be opened up,” said Mr Harandian.
dalsaadi@thenational.ae
