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Capital Markets

Frontier markets: Iraqi equities get a boost

Telecom IPOs prepare for market; Bank M&A activity in pipeline

The Iraqi equity market is in a growth phase, with M&A in the fragmented local banking sector and possibly the exchange’s biggest-ever IPOs at hand.

Iraqi mobile phone firms Asiacell, a unit of Kuwaiti phone firm Zain and Kurdish operator Korek are preparing to undertake IPOs on the local market. A minimum 25% local listing was a condition of the three 15-year mobile-phone concessions issued in 2007.

The listings were supposed to happen by an August 31 deadline. With the possibility of penalties from the local telecoms regulator now looming, Zain Iraq told local media last month that it had hired Citi and BNP Paribas to help value the company in advance of an IPO.

Valuation

Asiacell also issued a statement to the Iraq Stock Exchange (ISX) last month, stating it had hired two international banks and a local financial institution (it did not name the banks). "Initial indications [are] that the value of the company may reach $5 billion," Asiacell said in the statement.

Both Asiacell and Zain Iraq said they were converting from a limited liability company to a joint stock company in preparation for the listing. Analysts say Korek will need to do so too.

Shwan Taha, chief executive of Baghdad-based Rabee Securities, reckons the first of the three listings could take place as early as next year. However, he says the firms will need an exemption to capital markets regulation, because the existing framework requires firms to have been joint stock companies for at least one year before an IPO.

mobile phone companies’ estimated contribution to Iraq’s GDP 

mobile phone companies’ estimated contribution to Iraq’s GDP

Taha says all three firms have healthy profits and revenues. With around 23 million mobile phone subscribers in Iraq, he estimates the phone companies alone might constitute about 5% of the war-damaged country’s GDP. "Opening up to local investors would be great marketing for the firms," says Taha.

Although indexing data is unreliable, analysts say the Iraqi market is up year-to-date and that it has outperformed most global peers this year. New production agreements in the oil sector are a big factor.

Investors are also taking note of the potential impact on trading activity of the mergers and acquisitions being discussed among the 20-plus banks whose listings account for the majority of trading on the exchange. M&A talks are partly being prompted by gradual central bank increases in minimum capital requirements for banks.

A three-way merger between listed lenders Ashur Bank, Mosul Bank and Union Bank is already believed to be under way. Consolidation is deemed desirable by the authorities as the private banks are competing for only a small minority of Iraqi bank assets not controlled by the long-struggling state lenders Rasheed and Rafidain.

Foreign banks look to buy

The banking sector in Iraq is still experiencing setbacks. This summer a public spat between prime minister Nouri Al Maliki and the chairman of state-owned and unlisted Trade Bank of Iraq Hussein Al Uzri led to the resignation of Al Uzri. But even international financial institutions appear to be considering acquisitions among the listed banks.

Standard Chartered has long been rumoured to be looking to establish a presence in the country. Most recently an Iraqi central bank official told Reuters that Standard Chartered was negotiating to buy a stake in Warka Bank, one of the biggest banks on the exchange. Officials from Warka also told Bloomberg in August that negotiations were under way. Standard Chartered did not comment.

Warka has been in need of new capital since a run on deposits last year, as well as because of the central bank increases in minimum capital.

Although it also declined to comment on the matter, Citi is rumoured to be sniffing around Iraq, possibly on the look-out for a potential acquisition. Citi does not have a presence in Iraq as yet.

But earlier this year the bank appointed an Amman-based country head for Iraq: former financial attaché to the US embassy Denis Flannery. Citi already does transactional banking for multinational clients operating in Iraq via a partnership with Kuwaiti-owned Bank of Baghdad.

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