Is Iran really one on the world’s best investments?

It has a good starting point -Iran’s economy is already bigger than Australia’s and it is also surprisingly diverse. You might think Iranian prosperity is likely to be based on the fact that it has some of the largest oil and gas reserves in the world (fourth-largest oil reserves and the largest gas reserves of all). You’re wrong, says Mr Bokor-Ingram. Despite all this  underground sun, the oil and gas industry made up only 10 per cent of GDP in 2014.There around 30 other sectors listedon the stock exchange: there may be no Rootes left, but the  car industry remains Iran’s second-biggest contributor to GDP (look up Iran Khodro -I wouldn’t mind one of their four wheel drives). You might also think that much GDP is devoted to military spending. Again, wrong. It’s 2.7 per cent.Sounds good doesn’t it? There are risks. Lots of them. There is the risk that the reformers’ progress isshortlived -that religious  ardliners take back control. And that the result of that is the thing investors in Iran most fear -“snapback,” or the automatic reimposition of sanctions.
Still, I’m prepared to overlook most of these risks. Why? Price. The Iranian stock market has risen 20 per cent since the end of sanctions but that still puts it on a
2016 price/earnings ratio of 5.5times with a dividend yield of 13 per cent (Mr Bokor-Ingram’s numbers). The Mobile Telecommunications Company of Iran has 6.5m subscribers and trades on a price/earnings ratio of 3.5 times. Buy it today and you’ll get a 12 per cent dividend. All thisdiscounts the kind of political and economic disasters that look increasingly unlikely (note that Russia, which I am also prepared to hold on  the basisof cheapness is on over seven times) -and makesvery little allowance for the improvements that look increasingly likely.

Finantial Times, 11 march 2016

– FT


FDI in Iran soars with sanctions relief – Financial Times

Economic rebound as country climbs regional FDI rankings

June 20, 2016, by: Cara Lyttle

Data from fDi Markets, an FT service that monitors cross-border greenfield investment, shows that before the lifting of sanctions, Iran was ranked 12th out of the 14 Middle East nations for FDI between January 2003 and December 2015, equating to a market share of 1.62 per cent.

Since sanctions were lifted this year, Iran has climbed to number three in the rankings, with a market share of 11.11 per cent, placed only behind regional powerhouses the United Arab Emirates and Saudi Arabia.

Lifting sanctions will unfreeze billions of dollars of overseas assets and allow oil to be sold internationally; a restriction that has cost Iran more than $160bn in oil revenues since 2012. Despite holding the second largest gas and fourth largest crude oil reserves globally, Iran has flagged behind other emerging Middle Eastern countries.

Global investment into Iran has been steadily increasing since 2013, a year in which the country attracted just three FDI projects. This increased to eight in 2014 and nine in 2015.

It was in the first quarter of 2016, however, that the impact of sanction relief became evident. Iran won 22 FDI projects during the quarter, the highest rate of investment since fDi Markets began recording data in 2003.

Job creation and capital expenditure also rose between 2013 and 2016. Some 352 jobs were created in 2013 with capital expenditure of $79m, rising in 2014 to 2,732 new jobs and capital expenditure of $1.67bn.

Although 2015 showed a 48 per cent increase in capital expenditure overall, the first quarter was notable in failing to attract any FDI projects, in stark contrast to the same period this year.

Predictably, Tehran attracted 36 per cent of recorded investments into the country during the first quarter of 2016, and 40 per cent of all FDI into Iran since January 2013.

Projects Capex $m* Jobs
Q1 2016 22 3,489 5,376
2015 9 2,473 541
2014 8 1,670 2,732
2013 3 79 352
Source: fDi Markets *includes estimates

Since the sanctions were lifted the leading sector for investment into Iran has been financial services, which has attracted four investments from separate companies with capital expenditure of $60m.

The country has also attracted investments from the automotive sector, business services, consumer electronics and textiles, among others.

The principal countries investing in Iran during the period were South Korea and Germany, which together committed to capital expenditure of $2.15bn.

South Korea-based steel producer Pohang Iron and Steel (Posco) has been the single largest investor in Iran this year, with plans to invest $1.6bn to build an integrated steel mill in the Chabahar Free Trade-Industrial Zone by March 2017. The company’s subsidiary Posco Energy also said it had entered a memorandum of understanding with Iran-based PKP to build a 500 megawatt off-gas power plant (using gas generated during steelmaking) nearby.

The upward trend recorded by fDi Markets suggests the economic rebound Iran is experiencing is set to continue. Nineteen investors signalled an interest in future investments in the country, representing an increase of 90 per cent from 2015.

Cara Lyttle is a research analyst at fDi Intelligence, an FT data service.

Are you ready to do business in Iran? – poll results by Clyde & Co provided to Bloomberg

More than half of global companies interested in doing business with Iran are holding back for fear of running afoul of sanctions that remain in place even after its nuclear deal with world powers, a new survey shows.

Fifty-eight of 100 executives of U.K.-based international firms said they aren’t confident they know what precautions need to be taken to protect their investments and avoid regulatory penalties, according to a report by global law firm Clyde & Co provided to Bloomberg. 

Businesses are also hesitant to expose themselves to the risk of nuclear-related sanctions being reinstated if Iran violates the deal, which would “very likely” lead to a loss of money, the report said.

 The findings show the challenges Iran needs to overcome as it seeks to reap the benefit of last year’s landmark nuclear accord. The agreement was a milestone for President Hassan Rouhani, whose administration now faces criticism from opponents over investors’ qualms about doing business with the Islamic Republic.

Nuclear-related sanctions, including a ban on the country’s use of the SWIFT system for international financial transactions, were lifted in January following the nuclear deal. Other international sanctions related to terrorism and ballistic-missile development remain in place, as does a U.S. ban on American commerce with Iran and restrictions on dollar-denominated trades related to Iran.

Keeping Mum

Some 30 percent of executives questioned said they were not comfortable discussing plans to enter Iran with their banks, according to the survey conducted by Clyde & Co at a seminar on Iran-related sanctions relief held in London in conjunction with the London Chamber of Commerce and Industry.

“If a third of the businesses looking to enter Iran are so worried about sanctions that they are fearful of discussing their plans with their own banks, then there is a problem,” said John Whittaker, a partner at Clyde & Co. “The high level of regulation involved is proving too arduous for most banks, coupled with concerns over handling Iran-related business.”

 European companies have been at the forefront of the race to enter a market of 80 million consumers. Iran announced a $27 billion order for 118 jetliners from Airbus Group SE on the day the nuclear deal was formally enacted in January. Siemens AG in March signed a preliminary rail accord worth as much as $2.3 billion. Belleli reached energy agreements with Iran worth $5 billion, Italy’s Economic Development Ministry said last month.

At the same time, major EU banks are reluctant to provide the financing, after they or peers were slapped with fines incurred over commerce with the Islamic Republic. BNP Paribas SA agreed to pay a record $9 billion to the U.S. two years ago, in part for dealings with Iran. Commerzbank AG agreed to pay $1.45 billion in 2015 in connection with allegations it breached U.S. sanctions against countries including Iran. Credit Suisse settled an Iran probe for $536 million in 2009.

‘Huge Amount’

At the same time, the International Monetary Fund’s first deputy managing director, David Lipton, said in an interview in Tehran on Tuesday that Iran also needs to tackle issues in its banking system and bolster anti-money laundering and terrorism financing laws as part of its effort to reconnect to the global economy.

While a quarter of the respondents cited remaining U.S. sanctions as being their greatest concern, fears are also compounded by other existing penalties. Dozens of Iranian individuals and entities are blacklisted by the European Union, the U.K. and the U.S., leading to compliance challenges given the non-transparent nature of the Iranian business world.

“Exporters may unwittingly trade with a designated person or entity,” Whittaker said. “Thorough due diligence is the key which comes at a cost, so there has to be sufficient margin to make the trades viable.”

European banks – US – penalties – Iran

US Secretary of State John Kerry is set to meet with key European bankers in London to reassure them that they will not be penalized for having business with Iran.

(May 12, 2016)

Kerry and his British counterpart Philip Hammond will meet with the representatives of the major banks in London’s Mayfair district on Thursday to ask the financial institutions not to use the US as “an excuse” for not doing business in Iran.

Executives at Standard Chartered, HSBC, Barclays, Deutsche Bank, BNP Parisbas, Santander, Lloyds Banking Group and Royal Bank of Scotland are among the  banks invited to attend the meeting.

Some UK banks are reportedly willing to do business with Iran but remain uncertain about US punitive measures against possible deals with Tehran.

The banks apparently remember past fines from US regulators for ‘breaking’ sanctions. StanChart and HSBC banks have paid more than $15 billion in fines for breaching sanctions in various countries over the past five years.

BNP Paribas SA was sentenced last year to five years probation by a US judge in connection with a record $8.9 billion settlement over claims that it violated sanctions against Iran, as well as Sudan and Cuba.

File photo shows US Secretary of State John Kerry (R) and his British counterpart Phillip Hammond. ©AFP

Also, US regulators said in November 2015 that the Deutsche Bank will pay $258 million in fines for doing business with US-sanctioned countries like Iran and Syria.

The Thursday meeting comes only a few weeks after the British Bankers Association (BBA) established a high-level panel to assess the removal of Western sanctions on Iran.

The removal of sanctions was part of a last July agreement reached between Iran and the permanent UN Security Council members plus Germany (P5+1) that went into effect in January.

Under the deal, Tehran agreed to put some restrictions on its nuclear energy program in exchange for relief from economic sanctions that had been imposed on Iran over accusations that it was pursuing non-civilian objectives in its nuclear program.

Earlier, Hammond said in a statement sent to the Financial Times ahead of the meeting that “we want our banks to be able to support British companies working in Iran.”

“It is in our economic interest, as well as Iran’s, that legitimate business is supported. After many years of restricted relations some challenges remain, but we are working through them with international partners, Iran and the banking community,” the statement added.

The UK government has urged British banks to expand economic ties with Iran ahead of an official visit of a trade delegation led by Business Secretary Sajid Javid to Tehran later in May.

Kerry told reporters on Tuesday that “businesses should not use the United States as an excuse if they don’t want to do business, or if they don’t see a good business deal … that’s just not fair, that’s not accurate. We sometimes get used as an excuse in this process.”

Hammond, however, has said that there is a gap between the political intentions of the United States and the reality for European banks.