Telco IPOs a Bullish Sign

The mobile phone operators are finally getting their IPOs [initial public offerings – A company’s first offering of common stock to the public] organized. Recently Asiacell and Zain began conversions to joint stock ownership. Zain is also reported to have engaged Citibank and BNP Paribas to work on valuation. So far as I know, Korek has not been in the news but it is presumably on a similar track.

These will be enormous offerings for a market as small as the ISX. Each company is required by the conditions of its license to list 25% of its shares. Asiacell alone will have to list 67.5 bn shares. (See this post.) At par (IQD 1), that would be about US$ 58 mn and they will certainly be looking for a higher price than that. With ISX daily volume now averaging only around US$ 2 mn, the total for the three IPOs could easily be the equivalent of a year’s worth of trading.

You might think the ISX would be overwhelmed. In fact, shouldn’t the market be falling already, as people raise cash for the new issues?

Actually there’s no cause for alarm. The companies clearly will not be trying to raise hundreds of millions of US dollars from local investors. The involvement of Citi and BNP makes it obvious that the main focus will be on foreign institutions, most of which are not yet in Iraq at all.

For these investors, the key obstacle to investing in Iraqi shares is the lack of a custodian bank. (See this post for more on the custody problem.) But this will be easy to fix. According to the Word Bank’s Republic of Iraq Financial Sector Review (p. 54), “a major international bank” [i.e. HSBC] has already made the necessary preparations to provide custody services and is just “waiting for the necessary licenses to be granted.” (There’s a link to the World Bank report here.)

The real significance of the IPOs is that they can provide the stimulus necessary to get those licenses issued. That, in turn, will allow a host of new foreign investors, potentially commanding far greater amounts of capital than the telcos will be raising, to get into the market. This portends not so much a flood of new shares as a deluge of new money.

Image by Angela See. Used by permission.

6 Responses to Telco IPOs a Bullish Sign

  1. george October 6, 2011 at 6:43 pm #

    Mr Deweaver,

    Can you find out what happened with Al-Warka International Banking after their AGM today,i have scoured the Net for any informaton,
    I am a share holder with this bank,but information from them is almost non existant.

    Kind Regards George.

  2. DeWeaver October 6, 2011 at 8:14 pm #

    George: Great question. I will check and see what I can find out.

  3. Julian October 10, 2011 at 9:49 am #

    Mr DeWeaver, I’m an ISX Investor. It will be exciting to see what happens when Telco IPO’s show up on the ISX. Will Kurdistan companies soon join the ISX or do you think they will establish their own stock exchange? I know Kurdistan Bank is in the ISX; but so far, no other companies from that area have joined the ISX.

  4. DeWeaver October 17, 2011 at 4:48 pm #

    Hi Julian: From what I have heard so far the Erbil Stock Exchange is going nowhere. It is also not clear if there are any Kurdish companies interested in listing. I’m told none have converted to joint stock ownership. Aside from BKUI, perhaps North Soft Drinks (BNSD) might count as a Kurdish company.

  5. Julian October 18, 2011 at 12:10 pm #

    Thank you Dr. DeWeaver. The low prices of shares shocked me when I first began buying shares. I know it’s a risky business, but the potential is there. Do you have any predictions or is it still too soon to guess what may happen in the coming months? Also thank you for the information you provide that is simply not available anywhere else.

  6. DeWeaver October 18, 2011 at 4:35 pm #

    Julian: Yes, the potential is certainly there. My only predicition is that one day the market will suddenly take off. But there’s really no way to say when. All we can do is wait patiently!