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 The agreement has made some seek a foothold in Tehran's $100 billion
stock market even before sanctions are lifted, although others are
taking a more cautious approach.
Classified as an upper-middle income country, with a population of
78 million and annual output higher than that of Thailand or the
United Arab Emirates, Iran is set to be the biggest economy to
rejoin the global trading and financial system since the break-up of
the Soviet Union over 20 years ago.
Brokerage Renaissance Capital predicts $1 billion will flow into
Iran in the first year after sanctions end, although that is not
likely to happen for months and may not occur in one go.
London-based boutique First Frontier Capital Ltd. is in the process
of setting up a sanctions-compliant fund dedicated to Iran, hoping
to allow investors to take a position in Tehran's bourse before
sanctions are lifted.
"This is a market where everyone is totally underweight and there
will obviously be a lot of money going in, hot money at first but
then also others," said First Frontier's co-CEO, Richard Adley, who
plans to launch the fund in the next couple of months and aims to
have 100 million euros invested by year-end.
"And then there is a big valuation gap there, Iran has a lot of
catching up to do when you look at other frontier or emerging
markets," said Adley, who estimates valuations at a very cheap five
to six times earnings.
First Capital are not alone. In April, British-based Charlemagne
announced it had teamed up with a Tehran-based firm, Turquoise
Partners, to establish funds that will invest in Iranian securities.
Others, like MENA Capital CIO Khaled Abdel Majeed, are also getting
ready to invest, but worry that a dedicated country fund carries too
many risks at this point. Instead, Majeed is aiming to invest part
of his firm's funds under management in Iranian shares - once the
sanctions are lifted.
"At the moment it may be very marketable, but at some point it will
become too expensive," he said, adding that the firm was starting
its search for suitable local partners in Tehran.
"And there is also a lot of risk in the deal that has been agreed,
and the regime itself is not stable enough to last another 50
years."
Both Renaissance Capital and the investment consultancy Ecstrat have
reported a sharp pick-up in demand for Iran-related research from
asset managers preparing to make the leap.
CHEAP VALUATIONS
Some 780 million shares traded on the exchange on July 12, the
latest data available on its website, representing about $64.2
million.
Iran mirrors Saudi Arabia in that both are diverse, geopolitically
important markets with attractive demographics and stable
populations, said Asha Mehta, portfolio manager at Acadian Asset
Management in Boston who runs $500 million in frontier market assets
for institutional investors.
Yet with issues of access and other trading logistics yet to be
worked out for direct investments, international companies already
doing business in Iran will stand to benefit, at least in the
short-term until restrictions fall away, said Joana Arthur, equity
product manager for London-based Ashmore, which has approximately
$1.2 billion invested in frontier strategies.
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Larry Seruma, portfolio manager of the $434 million Nile Global
Frontier fund, said that he expects Iran will eventually become a
"destination" for his fund. In the meantime, he is holding on to
companies such as South African mobile network firm MTN Group Ltd,
which owns 49 percent of Irancell, Iran's second-largest mobile
phone operator.
MTN Group told investors in April that it expected to repatriate
about $1 billion in accumulated dividends and a loan repayment from
its Iranian unit that had been frozen by international sanctions
once a nuclear deal was finalised.
Multinational mobile phone companies, car makers and hospitality
firms are seen as the most primed to benefit from the lifting of
sanctions.
Bank of America Merrill Lynch said it sees Turkey and the United
Arab Emirates as likely beneficiaries from Iranian foreign trade,
which could increase to $200 billion by 2020 from $80 billion now.
Higher imports are likely going to come from the machinery, vehicle,
iron, steel, food and consumer goods sectors, BAML said. Dubai's
real estate and hospitality sector could also see an influx of
Iranian cash and visitors.
Specific companies that could benefit in the short-to-medium term,
highlighted by BAML, are Dubai real-estate company Emaar Properties,
Turkish oil refiner Tupras, Italian oil services company Saipem ,
and Saudi Arabian food and packaging distribution company Savola
Group.
Among automakers, Turkey's Tofas Turk Otomobil Fabrikasi and Dogus
Otomotiv could get a boost, as well as French carmakers Renault and
Peugeot.
Iran's urgent need to upgrade its fleet of planes could bring a
potential bonanza for Brazil's Embraer, Europe's Airbus and Boeing
of the United States.
Private equity firms will likely be another early mover, either
taking direct ownership stakes in companies or providing financing
to businesses looking to expand to take advantage of the young and
well-educated populace. That will likely lead to more corporate bond
offerings once the country is fully open to international investors,
analysts say.
"Firms like ours are now starting to check under the hood. There are
a lot of assets there that are going to need restructuring," said AJ
Mediratta, co-president at emerging market debt specialist firm
Greylock Capital Management in New York.
(Additional reporting by Bozorgmehr Sharafed Nouri in Dubai and
Sujata Rao in London; editing by Kevin Liffey and Philippa Fletcher)
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