Taking stock of the markets

Iraq’s stock exchange is set to open soon, but what challenges lie ahead and how transparent will it be?

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By  John Irish Published  March 7, 2004

Baghdad’s stock exchange is gearing up for a radical revamp and an injection of international corporate governance. The exchange was expected to open at the end of January in a Baghdad hotel after being shut down nearly a year ago and its listings frozen. However, according to one analyst, the date has been put back several times since November due to technical delays and problems with the location of the bourse. At the time of going to press, Iraq’s Governing Council and the Coalition Provisional Authority (CPA) were said to be in talks to iron out the preparatory work. Stock markets are seen as one of the easiest and safest ways to attract foreign investors to buy shares in local companies for the first time and thus raise capital for the domestic market. Simply put, once the exchange is up and running, investors will be able to see which sectors and companies are performing well, encouraging external investment into those industries. “Everything [will be] regulated and governed by the new securities exchange commission, so it’s an easier way for foreign investors to come in and pump money into the Iraqi economy,” says Maria-Gabriella Khoury, head of research, Atlas Investment. The CPA is aiming to model the exchange on international standards to ensure corporate transparency. Analysts are expecting around 100 companies to be listed by the end of 2004. Trading will be done manually with the CPA gradually introducing an automated system partly based on the Amman Stock Exchange. An international authority will initially handle settlements. Bankers say the plan is to re-list 10 to 15 stocks a month; companies will be quoted once their accounts and major shareholders have been verified by reputed auditors. “The CPA wants each company to restate their balance sheets for the last three years, giving them a clean bill of health. They also want a detailed list of shareholders, because they need to fish out the old regime ownership and put that up for public auction,” says Khoury. The Baghdad Exchange first opened in 1992 and quickly became renowned for financial speculation. Its last official trading day was in March 2003, with shares in the 114 firms listed rocketing, as investors bet on a rapid US victory. Despite the ongoing security issues, Khoury believes the new exchange will be a prime opportunity for foreign investors and, particularly, adventurous Iraqis. “Ultimately, an exchange should be for locals and I don’t think an Iraqi would hesitate. Iraqis trying to repatriate their money back into the country would feel safer putting their money back into listed companies that answer to a security commission than a private venture,” she says. With the United States keen on promoting transparency in the region and the team responsible for restoring Baghdad’s Stock Exchange freely talking to the US media, Arabian Business attempted to contact CPA officials at the exchange. However, in an e-mailed response, our request was denied on the grounds that the official contacted was, “not speaking to any media until the stock exchange is open.” The biggest stock before the war was Baghdad Carbonated Beverages with a market capitalisation of around 47 billion Iraqi Dinars (US $150 billion as per the then official exchange rate). In terms of the economy, the exchange was small with a market capitalisation to GDP of around 50%, compared to 75% in the Gulf and 120% in Jordan. Stocks were classified under four sectors: agriculture, services, banking and industry of which banking and industrial sectors were more dominant. In another sign that Iraq’s economy is recovering, the Iraqi Central Bank said it had granted licences to foreign banks and would liberalise interest rates. Foreign banks left Iraq in 1964, shortly after the banking sector was nationalised. HSBC, Standard Chartered and the National Bank of Kuwait were the first to receive licences. “They can start operations as of the middle of March,” central bank governor Sinan Al Shabibi told reporters. “There will be another three foreign licences announced shortly.”

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