World Business and Economic Analysis
World Business and Economic Analysis
Morteza Mirmohammadi Wrote in Financial Tribune Daily Newspaper that Iran’s first venture capital trust to get listed, will open for underwriting on Iran Fara Bourse on Monday, says Lotus Parsian Investment Bank’s chief executive.
Iran’s dip into the world of private equity is accelerating, as the public is allowed to buy investment units in venture capital trusts, which in turn invest in small tech companies and foster them.
Venture capital funds are a pillar of modern finance. They raise capital from wealthy investors and invest in risky startups. Later, they sell their equity in ventures that succeed.
However, VCTs, a British innovation, raise their money from investors through capital markets with less restriction on investors.
In the UK, £458 million were invested into VCTs in the 2015/16 tax year, according to figures compiled by the Association of Investment Companies.
A venture capital trust is designed for individual investors to gain access to investments via the capital markets. Its mandate is to seek out potential venture capital investments in small unlisted firms to generate higher than average risk-adjusted returns for its investors.
Lotus Parsian’s CEO Ali Teymouri Shandi said Rouyesh Lotus will be the first of its kind to offer its investment units to the public, the initial phase of which will take about a week from Dec. 19 to 25.
Teymouri hopes to raise 105 billion rials ($2.6 million at market exchange rates) for Rouyesh Lotus during the underwriting period from investors on IFB and 350 billion rials in the next six months.
The VCT will invest in healthcare, biotechnology and financial technology.
Rouyesh Lotus has strong ties with Royan Institute, which is one of the fund’s principal investors, and will fund research for cures to blood and breast cancer, diabetes, arthritis and deep wounds and burns, according to Securities and Exchange News Agency.
Royan Institute is dedicated to biomedical, translational and clinical researches.
VCT Regulations
VCT regulations were finalized by SEO in August, according to which, IFB will create a separate board to list them. The new regulations and procedures have been designed to garner more support for Iran’s small base of startups. It is part of a government objective to expand “knowledge-based economy” with the ultimate goal of diversifying the Iranian economy away from oil.
Based on regulatory requirements by the Securities and Exchange Organization, the VCT has to keep 30% of its investment capital in cash. This will help the fund’s liquidity and ability to take advantage of opportunities but is likely to diminish its returns.
According to IFB CEO Amir Hamouni, a group of four called the “Venture Capital Review Committee” has been formed to review applications for setting up VCTs.
The group will have three voting members. The head of the committee will be appointed by SEO. IFB’s board will appoint the second member. The IFB will also pick a Venture Capital specialist as the third member who is also approved by the SEO. An IFB executive will be chosen as the fourth member of the committee, and will act as the committee’s secretary.
As is evident from the makeup of this committee, SEO intends to keep it under its full control just like it treats TSE and IFB.
President of Bimeh Markazi Iran (Central Insurance of Iran) has travelled to Europe to launch negotiations with European insurers in Munich and London.
Abdolnaser Hemmati, President & Head of High Council of Insurance of Bimeh Markazi Iran (Central Insurance of IR Iran), is staying in Europe seeking to boost level of cooperation with international counterparts.
The Iranian official met and talked with CEO of Lloyd's of London insurance market Inga Beale on Friday.
Hemmati pointed to activities of Lloyd's of London in the Iranian insurance market before imposition of international sanctions adding “given Iran’s economic development plan and expansion of the country’s insurance industry, presence of Lloyd's of London in reinsurance coverage and Iran’s key risks holds great significance.”
Inga Beale, for her part, pointed to previous activities of Lloyd's of London in Iran’s market and stressed willingness of Lloyd's insurance syndicates to make presence in Iran; “presently, a total of 110 insurance syndicates are performing in Lloyds.”
Beale, while referring to existing obstacles in the banking system, emphasized the need to follow up issues related to money transfers in the insurance industry.
In response to the Iranian official’s proposal to form a committee to provide grounds for activity of Lloyd's insurance syndicates in Iran’s free zones, Beale urged two international directors of Lloyds to visit Tehran and conduct negotiations with senior officials of Central Insurance of IR Iran.
The meeting between president of Bimeh Markazi Iran (Central Insurance of IR Iran) and CEO of Lloyd’s of London came after a 12-year gap in official meetings between the two organizations.
Iranian banks must commit to increasing their capital and reaching a capital adequacy ratio of at least 8%, says a deputy economy minister.
"A minimum capital adequacy of 8% and reaching a capital adequacy of 12% must be pursued by the banks," Hossein Qazavi was quoted as saying by banker.ir.
"Privately-owned banks must improve their capital adequacy by selling their stocks and increasing the capital of state-owned banks should be the function of the government."
The deputy economy minister for banking and insurance affairs says budgetary constraints have indeed imperiled government moves to help increase the capital of banks. "But I hope that amendments to the budget law of 2016-17 which were approved by parliament will be implemented and capital adequacy of the banks will increase."
The amendments to the budget law of 2016-17, the implementation of which was officially proposed by President Hassan Rouhani in early November, contain measures to increase banks' capital and settle their debts.
According to another deputy minister of economy Shapour Mohammadi, the government has several plans to increase the capital adequacy of banks including cash injections with the help of foreign exchange resources of the Central Bank of Iran.
"It was proposed that proceeds from selling the shares of state companies could be utilized based on Article 44 of the Islamic Republic of Iran Constitution [which calls for the privatization of state firms]. These proceeds may be used to increase the capital of state banks which has won Majlis approval,” Mohammadi had said in June.
According to Qazavi, there is also the issue of several privately-owned banks in which the government holds a stake. If these banks choose to offer their stocks, he says, it should be "natural for the government to help in increasing their capital."
The official says in light of budgetary limitations, it seems that the government is willing to reduce its role in banks and let the capital market play its role in increasing their capital.
The main purpose of the amendments to the 2016-17 budget law is to allow the government to settle its debts to the banking sector by using the CBI foreign exchange resources. The government will have the authority to repay up to 450 trillion rials ($14 billion) of its debts to lenders through these resources.
Qazavi notes that when international banks want to collaborate with their Iranian peers, they look into their financial ratios, namely capital adequacy, non-performing loans, return on assets and stocks.
He, however, stresses that when a bank or country wishes to work with Iran on a large scale it should gauge the country within the framework of its extraordinary circumstances. He quickly adds that this does not mean the capital adequacy ratios of Iranian banks must not improve.
"This is a necessity. But in general, hurdles must be removed by way of improving or reforming the structure of bank's financial statements and giving the other side (foreign banks) the necessary assurances."
Qazavi adds that in the case of government-owned banks, foreign banks can be swayed even if the bank's capital adequacy is below 8% because the government would be its stockholder "and if problems arise, they know that the government is there to help the bank(s)."
Production Loans Lagging
A deputy minister of industries, mining and trade has criticized the banks' performance in allocating loans to promote production in the country.
"Unfortunately, even though 90 cases were sent to private banks to receive loans to improve production, the banks have paid no attention," Reza Rahmani said in the 62nd meeting of the government and the private sector.
Pointing to the CBI governor Valiollah Seif's promise of delivering 16 trillion rials ($499.4 million) worth of loans to the ailing small and medium-sized enterprises (SMEs), the official said "so far, only 11 trillion rials ($343.3 million) has been paid to 16,194 industrial units."
Rahmani recalled that the CBI head had promised that "if any SME does not get the funding by the time the 16 trillion rials has been paid out, the volume of loans will increase."
