* Asiacell's $1.35 bln IPO is country's biggest
* Success could energise stock market, lure foreign funds
* But valuation of offer does not look particularly cheap
* Questions over small market's ability to absorb shares
* Absence of foreign banks may limit interest abroad
By Aseel Kami
BAGHDAD, Jan 2 An advertisement for Iraq's stock
exchange, running in local newspapers over recent weeks, poses
the question: "How can I invest in shares?" It then assures
readers that the process is easy, advising them to contact
brokerages for details.
Another ad, by Iraqi mobile telephone operator Asiacell,
warns readers: "Be ready, because we are ready."
Investors will get a chance to buy into the country's
oil-fuelled economic boom this month as Asiacell seeks to raise
at least $1.35 billion by floating 25 percent of its share
capital on the Baghdad stock market.
It will be the country's largest-ever initial public offer
of equity, and one of the Middle East's biggest share offers in
the last several years - the first major IPO in Iraq since a
U.S.-led invasion toppled Saddam Hussein in 2003.
So it will be seen as a test of investor confidence in an
economy that is recovering from years of war, political
instability and financial sanctions.
Officials hope a successful IPO will galvanise the stock
market, luring foreign money into the country and helping make
the market a useful tool for Iraqi companies to raise funds for
But the country's small and undeveloped financial system is
lagging its economic growth, and this could hinder Asiacell's
IPO, preventing some of the shares on offer from being sold. The
stock market may have trouble absorbing the new supply, and
interested foreign investors may find it difficult to move their
money into the country.
Saad al-Bayati, an economist based in Baghdad, said a weak
investment environment because of political instability,
unreliable physical security and capital flight from the country
would jeopardise such a large IPO.
"All these are issues which affect the share market and do
not allow for rational economic predictions," he said.
FIRST OF SERIES
Asiacell, in which Qatar Telecom owns 54 percent,
will sell 67.503 billion shares at a price of at least 22 Iraqi
dinars ($0.02) per share in the IPO, which starts on Jan. 3, the
company said in a statement last week.
It is expected to be the first of three big
telecommunications IPOs in Iraq; Asiacell and its two domestic
rivals, Zain Iraq, a subsidiary of Kuwait's Zain
, and France Telecom affiliate Korek must
raise funds through IPOs as a condition of receiving their $1.25
billion operating licences from the government.
All three companies missed an earlier deadline of August
2011 to do so, arguing the stock market was not sufficiently
prepared at the time, and have been fined for the delay.
The IPO requirement is a way for authorities to try to
encourage private ownership in an economy still dominated by
state-owned companies, and to spread more of the wealth created
by Iraq's recovery around the population.
Taha Abdulsalam, chief executive of the Iraq Stock Exchange,
told Reuters that the listing of Asiacell's shares on Feb. 3
would be a boon to the market by adding the telecommunications
sector to investors' options.
Currently the market, where the main equity index fell about
8 percent in 2012, has about 85 listed firms with capitalisation
heavily focused on the banking sector, though there are also
stocks in industry, insurance, hotels and agriculture.
Abdulsalam predicted the market's trading volume, which was
around $3 million per day this year, would rise about 10 percent
because of the listing.
In the long term, telecommunications could be a great bet in
Iraq; the International Monetary Fund predicts Iraq's economy
will grow more than 10 percent this year and at least 9 percent
annually over the next five years, aided by rising oil output.
That should boost demand for higher-end data services.
Asicaell, which claims to have a 43 percent share of
revenues in the mobile phone market and 9.9 million subscribers,
posted net income of 474 billion dinars in the first nine months
of last year, against 505 billion dinars in all of 2011,
according to a company statement.
Based on a 22 dinar IPO price, Asiacell shares are likely to
be valued at about 9.6 times expected 2012 earnings, according
to Reuters calculations. That may not be seen by investors as
generous - the valuation is similar to that of Qatar Telecom in
Qatar's better developed, less risky stock market - but it could
be justified by Iraq's long-term growth prospects.
Asicell's IPO may not go as smoothly as the long-term
economic outlook suggests, however. The Iraqi stock market's
current capitalisation is only about 5.6 trillion dinars ($4.8
billion), so Asiacell's float may not be easy to absorb in one
gulp. All three telecommunications firms combined are expected
to roughly double the market's capitalisation.
Furthermore, a mass share-owning culture has yet to develop
in Iraq, where many people - mindful of the country's troubled
political history - prefer to keep their money in liquid cash or
"I do not invest my money in the bourse because there is no
profit expected. Most of the companies registered are not
profitable companies," said Akram Mohammed, a 30 year-old
engineer in Baghdad. He keeps his savings in a bank.
Foreign investors, whose ownership of listed shares rose to
19 percent at the end of 2011 from 3 percent in 2008, might be
expected to buy shares in Asiacell.
But this hope has been complicated after two international
banks, Morgan Stanley and HSBC, late last year
cancelled plans to help manage the IPO. The banks declined to
comment on their reasons.
Baghdad-based broker Rabee Securities has been left as sole
distributor and selling agent for the shares. Without the
involvement of foreign banks, it may be harder to drum up
international interest and to arrange share purchases in a
currency which is not internationally traded.
Abdulsalam insisted that Asiacell's IPO would attract
substantial foreign interest, however, and that it would help to
encourage more foreign equity funds to enter Iraq. Five foreign
funds currently operate on the Baghdad exchange.
"A lot of investors, whether Iraqis or non-Iraqis, send us
messages saying 'we are a portfolio or a fund company and we
want new shares, we want new companies'," he said.
"Can you imagine how much passion there will be? There is a
passion and a thirst" for shares in the Iraqi telecommunications
companies, he added.