London’s first Iran-linked listing raises transparency concerns

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By:
Olivier Holmey
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An investment company linked to one of Iran’s largest investment banks failed to publicly disclose its focus on Iran when it listed on NEX Exchange, though it always intended to invest primarily in that country.

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Indigo Holdings Plc, the first foreign-listed vehicle investing in Iranian assets, deliberately excluded any mention of Iran in its official listing documents earlier this year, Euromoney has learned. The omission may have contravened listing rules.

Euromoney has found that Indigo, which was created by Iranian investment bank Turquoise Partners, chose to omit Iran from its public disclosures because it thought that its connection to that country could negatively affect its listing on London’s NEX Exchange. The omission was not officially authorised by the exchange.

The head of Indigo said the investment firm entered into an “unofficial” agreement with NEX to keep that information out. Euromoney has also learned that Indigo, which has so far invested exclusively in Iranian firms, intends to use its presence on the exchange to raise a further £10 million to £20 million through the sale of new stock – again to invest primarily, or solely, in Iran.

Thanks to Indigo’s listing on NEX, Turquoise can relay substantially more foreign money into Iran than it otherwise would.

Indigo is mainly targeting Iran’s technology and e-commerce sector. Companies in that sector are currently starved of cash, but represent one of the most promising areas of the country’s economy, with potential to generate huge returns for whoever can invest in them first.

Indigo and the various parties involved in the listing deny any wrongdoing. In a statement provided by Indigo’s lawyers, Carter-Ruck, the company said: "Indigo has fully complied with all NEX listing rules and has always been fully transparent with the exchange and its own investors.”

But Indigo’s desire to keep its Iran focus out of official records – and its success in doing so – raise questions about the lingering opacity that surrounds some Iranian business even after the signing of the Iran nuclear agreement, which was meant to generate a wealth of new and transparent business dealings between international investors and Iran, and has so far largely failed to deliver on that promise.

It also raises questions about compliance procedures at NEX.

We are focusing only on Iran’

Indigo, which was originally called Turquoise Holdings Limited when it was incorporated on the Isle of Man in July 2016, is the brainchild of Turquoise Partners, which its management calls “the leading investment bank in Iran”. Two of Indigo’s three board members are Turquoise employees, Turquoise is its largest shareholder, and its office, on New Bond Street, is also the representative office of Turquoise in London.

Indigo’s market capitalization on admission was just under £1.245 million. Indigo and Turquoise management say the initial shareholders are “friends and family”, meaning that the firm’s stock was sold to people with ties to Turquoise, rather than to the general public. The general public was able to buy and sell shares in Indigo from the moment the firm became listed.

Indigo announced its intention to float on NEX on January 27, and completed the listing on February 10.

NEX, which used to be called ISDX, is one of the youngest and least well-known London stock exchanges. Though far smaller than either the main London Stock Exchange or the junior market Aim, NEX is still home to close to 90 listed entities – the best-known being Arsenal Holdings, which owns Arsenal Football Club. Over the last year, there have been five admissions to NEX, including Indigo.

NEX is regulated by the UK’s Financial Conduct Authority and must abide by the same rules as other recognised investment exchanges such as the LSE and Aim.

In its admission document, the legal document in which a company makes disclosures to investors ahead of its listing, Indigo described itself as “an Investment Vehicle for the purpose of making investments and/or acquisitions in the Middle East, including the United Arab Emirates, Iraq, Kuwait, Qatar and Oman”. The document set out, as is common in such disclosure forms, the risk profile of each of those five countries. It did not mention Iran.

In late January, Indigo also published an intention-to-float document, to confirm that it intended to proceed with its listing, and in early February an official statement announcing the concluded float. Both statements said Indigo would focus on “the Middle East Frontier Markets”, and repeated the same five countries as potential targets for investment, again excluding Iran.

Although there was no mention of Iran in any of the three public disclosures, Indigo’s plan has always been to invest – at least largely, if not exclusively – in that country, according to on-the-record interviews with the CEO of Turquoise, Ramin Rabii, and the executive director of Indigo, Sarem Edward ‘Eddie’ Kerman.

At the time of its listing, Indigo already had a pipeline of serious potential investment targets in Iran, according to both Kerman and Rabii. It did not waste any time investing in Iran: Indigo completed its first investment – in Iranian car-share app Carvanro – on February 20, just 10 days after listing on NEX. Since its admission, Indigo has invested in four companies – all of them in Iran.


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Ramin Rabii, CEO of Turquoise


The five countries that did appear in the listing documents never contained serious prospects for Indigo, Kerman and Rabii said. Rabii said Indigo has been pitched investment opportunities by companies in Turkey and Dubai, but said none of them were “interesting”. Rabii added: “We are focusing only on Iran.”

Kerman and Rabii disclosed all of this information readily to Euromoney, only becoming concerned about the implications of those statements, in the case of Kerman, and declining to comment further, in the case of Rabii, once the magazine pointed out Iran’s absence from the listing documents.

An unofficial discussion’

Turquoise had long wanted to list outside Iran an investment vehicle focused on Iranian assets. Rabii said that around 2011, Turquoise contemplated listing such an entity on the Istanbul exchange. That project was made impossible by the sanctions regime in place at the time, before the Iran nuclear deal eased relations between Iran and the outside world.

“Because of sanctions, the financial institutions were not willing to work with an Iran vehicle,” Rabii said, “so we dropped the idea.”

Rabii said that as soon as the deal lifting sanctions against Iran was signed in July 2015, Turquoise began to consider ways to resurrect that plan. It decided to try and list the projected entity in London, rather than in Istanbul. Indigo is the result of that decision.

“We always wanted to be the first company that launches one of these listed vehicles,” Rabii said. “It’s the first of its kind anywhere in the world.”

And he added: “We’d never had one vehicle whose sole purpose was to invest in Iran. This one is it.”

Because it was always clear to Turquoise and Indigo that the investment firm would primarily focus on Iran, the absence of any mention of that country in the listing documents may raise some questions.

No offer was made to the public in the context of its admission to the exchange, so Indigo did not have to publish a full prospectus, which is particularly onerous in terms of disclosure. However, it did have to comply with the NEX Exchange rules and with a number of financial regulations that apply to publicly traded entities.


I’m very comfortable that we did everything by the book 
 - Sarem Edward Kerman, Indigo

Of the admission document, NEX says: “Although less onerous than a full Prospectus, this document contains all the information an investor might need to make an informed decision about the business and its offering.”

NEX rules state that the exchange may, upon written request, authorise the omission of information from an admission document if the information is of minor importance only, and is not likely to influence an assessment of the issuer’s financial position or prospects, or if the omitted information is publicly available elsewhere.

In this case, the information omitted from the documents – that the firm would invest largely in Iran – is not, by Rabii’s own admission, of minor importance. Indeed, he tells Euromoney that Indigo’s focus on Iran is one of the two most important facts about the firm. The other, he says, is its interest in the technology and e-commerce sector.

As for the other option – that the omitted information already be publicly available – a thorough search through online information available at the start of the year, as well as through the documents filed with the Isle of Man’s companies registry, suggests this condition was not met either.

Asked if a special exemption was obtained to exclude Iran, Kerman said no. He said that, instead, Indigo had “an unofficial discussion” with NEX, during which the exchange agreed for Indigo to omit the information.

“We had discussed it with them clearly,” Kerman said, adding that the omission of Iran was deliberate: “We didn’t want it in the document.”

Asked if Indigo had publicly disclosed enough information ahead of its listing, Kerman said: “I’m very comfortable that we did everything by the book.”

He added: “There’s nothing which specifically requires us to list all the countries we’re investing in.”

But when informed that Euromoney would need to contact NEX to confirm whether an “unofficial” agreement had indeed been reached to omit Iran from official documents, Kerman sought to dissuade us from doing so, saying: “I don’t want their compliance department to be shouted at by the CEO, which I don’t think would happen, but given the fact that they were kind and helpful to us, I don’t particularly want anyone to get in trouble on my behalf.”

He said the revelation of this deliberate omission would have no ramifications for him or for Indigo, but he added that he did not want NEX to get “adverse publicity” because of it.

Rabii, meanwhile, said: “We disclosed everything we had to."

Rabii, who was involved in the decision to list Indigo, was not, however, responsible for the contents of the listing documents.

Euromoney called Vivienne Cassley, who already worked at NEX at the time of Indigo’s listing and is the sole regulatory officer currently listed on the exchange’s website. Cassley said she had not personally worked on Indigo’s listing. She declined to comment any further on the matter, saying she could not discuss any company listed on NEX.

Euromoney also spoke with Guy Miller, a corporate adviser at Peterhouse Corporate Finance Limited who advised Indigo on its listing. Asked if he was aware of the fact Iran was excluded from Indigo’s listing documents though the company had always planned on primarily investing in that country, Miller said: “Absolutely.” Asked if the omission constituted a breach of listing rules, he said: “There is no breach at all, there is no breach whatsoever.”

Miller continued: “It was a Middle Eastern-focused fund. It just so happens that the people investing are Iranian and that’s where it has tended to go. It intended to invest in a variety of countries in the Middle East, trying to move away to other countries, but because they’re Iranian-centric, that would be the natural direction to go in.”

We didn’t want the Iran fact to create any problems’

Several London-based lawyers and bankers with experience of listings in the City, who spoke on the condition of anonymity to avoid being cited in relation to a case they had not personally worked on, said the facts brought to light by Euromoney were a potential cause for concern.

One senior lawyer with years of experience working on London listings said there were many UK rules that might be breached by making misleading public statements in an NEX admission document. Those included, he said, NEX rules, the Financial Services and Markets Act, the Financial Services Act, misrepresentation laws and breach of contract laws.

“There are lots and lots of wide-ranging legal implications to making inaccurate statements,” the lawyer said.

Even if Indigo had initially not considered Iran its primary investment target, but changed its mind post-admission – which is not the case here – the firm would still have been expected to publish a statement announcing a change in its investment strategy, the lawyer said.

Because Iran was not mentioned in the listing documents, Indigo did not publish a risk profile for that country, as it did for the UAE, Iraq, Kuwait, Qatar and Oman. Yet lawyers working on Iran say remaining US sanctions and widespread concerns over the future of the Iran nuclear deal under a Trump administration that has been openly critical of the deal mean there are many risks to consider when investing in Iran. Kerman himself told Euromoney there was “political risk” when investing in Iran. Lawyers said this risk should, typically, be disclosed publicly. 


The regulation with Aim generally speaking is very difficult. Having an Iran product just makes it much more difficult 
 - Ramin Rabii, Turquoise 

Lawyers consulted by Euromoney said it was perfectly legal to set up an Iran-focused investment vehicle in London, so Indigo could in theory have simply disclosed officially that it would focus on that country. But because of the aforementioned risks of dealing with Iran, many firms prefer not to deal with Iranian business at all. Iranian firms have found it hard to find foreign partners with which to work, even since the implementation of the nuclear deal.

Kerman acknowledged the difficulty created by having links to Iran, saying of the decision to omit that country from the official documents: “We didn’t want the Iran fact to create any problems with listing.”

He added: “In the post-sanctions, post-Fatca [Foreign Account Tax Compliance Act]world that we live in, a lot of exchanges today would still be far more cautious about a vehicle like this.”

Of the way compliance departments deal with requests to do Iranian business, he said: “Generally speaking, and with all due respect to my friends in compliance, they’re rarely incentivised to say yes to anything.”

Rabii concurred: “When you are dealing with an Iran transaction, it makes it so much harder when you want to get listing approvals, from financing to regulation to structure.”

Rabii said Turquoise spoke to Aim about listing Indigo there, but because of Aim’s regulatory hurdles quickly switched to NEX.

“The regulation with Aim generally speaking is very difficult,” Rabii said. “Having an Iran product just makes it much more difficult.”

Turquoise would also have needed larger service providers to help with an Aim listing than with a NEX one, which again would have been difficult because of the Iran connection.

Kerman also said that Aim regulations were overly burdensome.

A fair and transparent venue for raising capital’

The revelations raise questions about whether or not Indigo followed all of the relevant listing rules. If Kerman’s statement about an “unofficial” agreement with NEX is correct, it also raises concerns over whether or not agreements to omit important information from public disclosures are accepted practice at the stock exchange.

NEX has sought to avoid the sort of risky market characterization that sometimes befalls smaller exchanges. NEX says it provides “a fair and transparent venue for raising capital and trading securities”.

In an interview with London newspaper City AM in March, NEX’s chief executive Patrick Birley said that the cost of listing on NEX was far less than on Aim, but that this did not mean NEX compromised on standards.

“Somebody recently compared us to the EasyJet and the Ryanair of exchanges, and I’m perfectly happy with that,” Birley said. “The safety standards aren’t any different, the safety standards are just as good with those airlines as they are with the traditional airlines.”

NEX has aggressively sought to increase the number of companies listed on its exchange. For instance, NEX recently offered to automatically accept on its exchange all Aim-listed companies “of good standing”, for free. To benefit from this offer, interested companies had “only a couple of forms” to complete.

A spokesperson for the exchange told Euromoney: “NEX Exchange takes its legal and regulatory responsibilities very seriously, and all companies admitted for trading must undergo an extensive due diligence process. NEX Exchange seeks to grow the number of companies on its market, but only when in compliance with its legal and regulatory obligations.’’

Though NEX does not enjoy the celebrity of either LSE or Aim, listing on that exchange can still benefit an investment firm like Indigo, looking to feed money into Iran. Indeed, having such a listed firm in principle makes the task of attracting international investment into Iran much easier for Turquoise.

One challenge holding back international investors’ involvement in Iran since the nuclear deal has been the difficulty of transferring money to Iran. No US bank conducts such transfers, nor do most international banks, because they do not wish to fall foul of remaining US sanctions.

On the European continent, only a few small banks do conduct such business. No bank in the UK does, as the clearing banks there have so far not allowed their customers to use their banking facilities to transact with Iran.

Having a London-listed investment vehicle means retail or institutional investors do not have to concern themselves with such technical issues: they can now gain exposure to Iran simply by buying stock in Indigo through their broker, as they would with any other London stock. As Kerman put it: “This is a listed entity: pick up the phone, call your broker, buy the shares.”

Turquoise then takes care of the more onerous aspects of the transaction. The bank exchanges the funds from sterling into euros, then, through one of the small banks willing to do business with it in Germany, Italy and Switzerland, transfers the money to Iran.

Being listed on NEX also means, at least in theory, access to NEX’s network of close to 45 brokers, which include some of the biggest names in UK finance.

Turquoise would not itself be able to use most of these banks’ services, as they have so far refused to do business with Iran.

Some lawyers believe that these banks would also avoid indirectly transacting with Iran, which might prevent them from acting as brokers for Indigo, a UK-incorporated firm investing in Iran. But Rabii said UK banks could in fact act as brokers for Indigo, as such work means “they’re not involved with Iranian banks, they’re not involved with any [direct] transfers to and from Iran.”

Kerman said Indigo had made clear that it would not be appropriate for US investors to invest in the firm. He did not explain why, but US sanctions do largely prevent US investors from gaining exposure to Iran. Brokers for Indigo would therefore have to make sure no US investor buys into the stock – a task that, while not impossible, would be somewhat onerous. At the time of going to press, Indigo had not clarified what provisions are in place to ensure no US investor buys into the stock.

Because Iran is still considered a risky market by many business people, investors may also be reassured to be dealing with a London-listed entity, as it means the firm is regulated by the FCA and is expected to meet strict disclosure requirements.

‘The first, but absolutely not the last’

Turquoise’s deft use of a London exchange to find new funds for investment in Iran has not gone unnoticed in the Iran-focused business community.

Of the move, William Breeze, a partner and Iran specialist at law firm Herbert Smith Freehills, said: “It’s fantastic. I’m really encouraged seeing that people are beginning to get involved in Iran and make investments. There’s a very good opportunity there.”

Breeze said Indigo might be the first to have seized upon the opportunity of such a listing, but that others are now looking to follow in its footsteps. Breeze, whose law firm is working with some of its clients toward bringing similar products to market, said: “Indigo is the first, but absolutely will not be the last.”

Breeze would not comment on Indigo’s disclosures, but he said it was important to be perfectly transparent about one’s business dealings with Iran.

Indigo intends to make the most of its presence on NEX by raising funds in coming months through the sale of new shares. It is looking to bring in more investors in a fundraising exercise that could greatly increase its investment capacity.

Rabii said that Indigo was in negotiations with various, mainly European investors – family offices, tech investors, emerging market investors – to raise between £10 million and £20 million in a secondary offering. Indigo is aiming for a syndicate of five to 10 new investors.

At its last AGM in July, Indigo passed a resolution to allow the issuance of up to 260 million new shares which, at current trading, would total £13 million.

Indigo would use that money to buy into high dividend-yielding listed companies in Iran, Rabii said. Such a fundraise would also enable the firm to make substantial acquisitions and investments in the Iranian tech and e-commerce sector, which is widely considered one of the most promising parts of the Iranian economy in the wake of the nuclear deal.

Because two thirds of Iran’s population of 80 million is under the age of 35 and because after a period of restriction, internet and mobile penetration is now high, Iran is said to be on the verge of a digital revolution.

Iran’s minister of information and communications technology has said that 24,000 e-commerce websites operate in Iran. All are angling for a share of the country’s 40 million smartphone users – up from just two million in 2013 – but the vast majority of those firms have little cash to grow.

Turquoise, which says the Iranian e-commerce sector “is at a very exciting stage”, is hoping to tap into this nascent market.

Rabii said he thought tech would be “the number-one sector in terms of performance in Iran in the next five to 10 years”.

He added: “Because of the sanctions, a lot of the larger, especially US, companies are not present in Iran. That basically opens the way for local equivalents to grow and gain market share and develop themselves.

“We are at the beginning of the Iranian tech boom,” Rabii said.

‘One of the fastest growing opportunities globally’

It is hardly surprising that Indigo would focus on Iran, considering the profile of those responsible for its creation.

Turquoise Partners, which is headquartered in Tehran, has always been an Iran-focused investment bank. Rabii has been the CEO of Turquoise since its inception in 2005, and Kerman has worked at the bank since 2007, now under the title of chief legal and compliance officer.

Iran is by far the country in the Middle East that Rabii and Kerman have the best knowledge of, and access to. For those reasons, both say that they are more likely to find investment opportunities in Iran than anywhere else in the region.

Once it had completed its listing on NEX, Indigo started to promote its Iran focus publicly.

Indigo’s website is heavy on Iranian imagery, with pictures of the Imam Mosque in Isfahan and of the Milad Tower in Tehran. While the ‘About Us’ section of the site still describes Indigo as an investment company “targeting opportunities in the frontier markets of the Middle East”, it makes no mention of the UAE, Iraq, Kuwait, Qatar or Oman.

In July, more than five months after Indigo’s listing, Turquoise issued a press release which said: “Turquoise Partners is pleased to announce the launch of Indigo Holdings plc, the first foreign-listed vehicle investing in Iranian assets.”

It continued: “Indigo is primarily focused on investing in a concentrated handful of fast-growing private e-commerce companies in Iran.”

The release said Indigo had a “strong pipeline” of e-commerce opportunities in Iran. It made no mention of the Middle East as a whole, nor of any country other than Iran. Instead it extolled Iran’s startup scene, which it said was “one of the fastest growing opportunities globally”.

In March, Forbes wrote of how Indigo “makes it easier for investors from outside Iran, though not Americans, to invest in Iranian startups, and for Iranian firms to access foreign capital”.

The Forbes article, which described how Indigo intends to target the “hot investment” that is Iranian e-commerce, featured quotes from Kerman and his fellow Indigo board director Nicholas Harwood. In a video interview with website Proactive Investors in May, Kerman said: “We’re not precluded either to e-commerce, or for that matter Iran, but that’s where we’ve initially focused on, partially because of my professional background and access to deals there.”

An investment firm that originally had not publicly disclosed any interest in Iran was, three months after its listing, presenting itself as “initially focused” on Iran, in the words of its executive director.

As for Rabii, he said in an interview on Bloomberg TV in July: “For the first time, we have actually listed a product in London with exposure to Iran, so people just can buy and sell the shares on the markets here.”

In none of the interviews was the omission of Iran from Indigo’s listing documents mentioned.

‘A testing ground’

In its listing, Indigo shares were offered only to a small group of investors. Turquoise itself holds 32% of the stock, making it the largest shareholder.

Rabii holds 11% and Kerman 1.6%. Rabii’s brother Radman Rabii holds 5.3%, and Turquoise executive chairman Rouzbeh Pirouz holds 3.2%. Harwood owns 0.9%.

Other shareholders include a certain Arshia Aghamardi, through BSI Bank Geneva, and a Vassilis Karatzas. Celeste Investment Capital Ltd, a firm mentioned in the Panama Papers as owned by Mai Revice Munib Masri, owns 20%, while Darya Capital Ventures Ltd owns 3.5%.

There is no indication that any shareholder other than those on Indigo’s board would have been involved in deciding the disclosures made or omitted from the listing documents.  

Of the £818,000 in net funds the firm had on admission, Indigo has so far invested about £690,000, according to its public disclosures to NEX.

The largest investment, totalling about £320,000, gave Indigo a 1% stake in the company that fully owns Sheypoor, an Iranian online classifieds marketplace. Rabii is the co-founder and a board member of Sheypoor.

The other investments were in online groceries delivery company FMCG, online job-search platform 3sootjobs and the car ride-sharing app Carvanro.

All in – including payment to NEX and to the various firms that assisted with the listing – the cost of listing Indigo totalled a little under £150,000, Kerman said. He added that listing on Aim would have likely cost about half a million pounds. Kerman said NEX was “a testing ground” for Turquoise before eventually listing entities such as Indigo, only larger and more liquid, on a global exchange.

Peterhouse was the corporate adviser to Indigo on its listing. British law firm Hill Dickinson acted as legal adviser to the company. Chapman Davis were reporting accountants and auditors, and as such would not have been involved in deciding the listing disclosures discussed in this story.

After being informed of the information Euromoney intended to publish, Hill Dickinson’s chief executive, Peter Jackson, replied: “We have spoken to our client and NEX stock exchange following receipt of your email and can confirm that the listing went through a completely normal due diligence process that they were satisfied with and it remains a company in good standing on the stock exchange.”

Indigo’s three board directors are Kerman, Harwood and Hamish Hamlyn Harris. As directors, they are responsible for the contents of the admission document and for the company’s compliance with NEX rules.

Turquoise chose Kerman as executive director of Indigo in part because he had experience of London listings, having previously worked as a lawyer on the admission to Aim of 14 companies. Non-executive chairman Harwood also had substantial experience of stock exchanges, having previously been head of equity at Russian bank Sberbank, and before that having held senior roles in equity divisions at UBS and Citigroup. Harwood is also a senior adviser at Turquoise.

Harris is Indigo’s independent non-executive director. He has worked in market risk management at various banks and now works for Nivalis Capital, a private equity firm that focuses on mining and agriculture in eastern Europe.

Harwood and Harris had not responded to Euromoney’s requests for comment prior to publication.