Capital Market Role in the Economy Improves Slightly

EghtesadOnline: Funding via the money and capital markets reached close to 36,860 trillion rials ($131 billion) in fiscal 2021-22.

News ID: ۷۸۷۸۵۱

10 May 2022

Iran’s capital market contributed 7,180 trillion rials ($25 billion) to the listed companies, accounting for 19.5% of the total.

According to data compiled by the Tehran Chamber of Commerce, Industries, Mines and Agriculture (TCCIM), this was slightly higher than the 18.9% made available a year ago.

Total funding by banks and the stock market rose 55.3% from the previous fiscal year. Banks’ role expanded 54% and contribution of the capital market was up 61% over the year before.

The TCCIM report said the money market accounted for 43.9 percentage points of annual growth in total funding while the share market share was 11.4 percentage points in the growth.

Last year, Iranian banks and credit institutions gave 29,681.6 trillion rials ($107 billion) in loans. According to Central Bank of Iran data, the majority of the loans went to businesses in the form of working capital.

Businesses and economic enterprises took out 19,378.6 trillion rials ($70.4 billion) in loans to boost working capital, accounting for 65.3% of the total lending.

Capital Market Funding

The TCCIM normally reports on two types of funding, namely equity financing and debt financing with a bigger space for the former. Equity financing is the method of raising capital by selling company stocks while debt financing occurs when a firm raises money by selling debt instruments to individuals and institutional investors.

Under equity financing, companies raise funds mainly via initial public offering and revaluation of assets.

Asset revaluation and selling debt were two major sources of funding last year.  Listed companies raised 2,690 trillion rials ($9.6 billion) through asset revaluation, mainly by re-assessing real estate whose prices have soared to historic highs following the rampant inflation in recent years.

In addition, 2,190 trillion rials ($7.8 billion) was made available through debt financing in the bond market, which is mostly dominated by the government.

The government sold 906 trillion rials ($3.5 billion) bonds via 36 weekly auctions. Apart from selling bonds, it generated 810 trillion rials ($3b) in treasury bills last year.

Raising capital and selling government debt accounted for 93% of the total funding. Corporate bond issued by private firms accounted for 4.5% of the total funds and 12.6% of finance via the debt market.

Data suggest that the share of corporate financing via debt instruments dropped 12.6% compared with year before.

IPOs Plummet

A glance at capital market data reveals that companies were less successful in raising funds via initial public offering last year apparently due the more than sluggish stock market.

Value of shares offered was 100 trillion rials ($357 million) throughout the last fiscal year – down 67% on the year before. Funding through IPOs accounted for barely 1.4% of total monies available in the year.

On why new companies refused to hold IPOs, market observers point to the bearish trend and regular capital outflow by retail investors in most of the previous year. They say new listed companies and their IPOs are no longer popular with investors like in the past.

Investor turnout during the latest IPO was almost a fifth compared to the heydays of the stock market less than two years ago.