EFG-Hermes Offers Iraq Equity Swaps

Bloomberg reports that EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, started offering an equity-swap product linked to Iraqi securities.

This potentially allows investors to benefit from the nation’s economic growth, which the World Bank estimates at 12.6% in 2012.

“Despite the prevailing risk-averse nature of investment in the Middle East and North Africa region, we have seen a high level of demand for access to this new frontier market,” said Julian Bruce, the Dubai-based director of institutional sales trading at EFG-Hermes.

The Iraq Stock Exchange’s ISX Index advanced 17 percent last year, according to data on the bourse’s website. The MSCI Emerging Europe, Middle East and Africa Index dropped 23 percent in the period. The Iraq index, comprising 87 companies, had a market value of 4,930 billion Iraqi dinars ($4.2 billion) at the end of 2011. Foreign investors bought shares valued at $147 million last year compared with $52 million in 2010.

Equity swaps are an echange of cash flows between two parties that allows each party to diversify its income, while still holding its original assets. They also allow large institutions to hedge specific assets or positions in their portfolios.

The product will remove “both the domestic Iraqi broker counter-party risk and the labor-intensive procedures involved in domestic execution,” added Bruce.

(Source: Bloomberg)

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