Foreign investors' appetite for Iraq's stock market is rising before planned IPOs by the country's three mobile telephone operators, but the fledgling market's small size means it may struggle to cope with the listings.
The Iraq Stock Exchange (ISX) is an outpost of private sector business in Iraq, which is still dominated by state-run firms almost nine years after the 2003 US-led invasion that toppled Saddam Hussein. Market capitalisation of the bourse, which started operating in 2004, is about $4 billion with average daily trading value only around $2.8 million.
Successful stock market listings of the three mobile phone firms, Asiacell, Korek and Zain Iraq - a requirement of their operating licences - would be seen as a triumph for Iraq's effort to create a diversified economy and a sign that it was establishing a stable development path after years of conflict.
The listings could also trigger a fresh wave of foreign interest in the market, which currently is heavily weighted towards banks, accompanied by a range of industrial, insurance, hotel and agriculture firms.
ISX Chief Executive Taha A. Abdulsalam has said he expects the initial public offers of shares to double the market's capitalisation. But with fewer than half of the 85 listed stocks active daily, such a boost in value could destabilise the market.
While mobile phones were introduced in Iraq's northern Kurdish region in 1999, the rest of the country did not have a mobile market under Saddam Hussein and the sector has grown rapidly since his ouster; there are now around 23 million mobile subscribers in the country, according to the Communications and Media Commission (CMC), the industry regulator.
With double-digit subscriber growth, telecommunications is believed to be the fastest growing major industry in Iraq after the oil sector. Mobile phone penetration is still low by Middle Eastern standards at 76 percent, according to 2010 data from the International Telecommunication Union. The communications ministry said last month that it planned to auction a fourth mobile licence in early 2012, pending government approval.
Taking the companies public will not be an easy task, however. The companies themselves have been reluctant to move quickly until the stock market is more developed and they can be sure of getting good prices for their shares.
Zain Iraq, a unit of Kuwait's Zain, Asiacell, an affiliate of Qatar Telecom and Korek, part-owned by France Telecom SA and Kuwait's Agility, all missed an initial August 31 deadline set by the CMC for their listings, which now look likely to go ahead sometime next year. Foreign portfolio investment in Iraq is increasing; foreigners were net buyers on the ISX in the first 10 months of this year, purchasing 70 billion shares for $118 million, according to Abdulsalam.
But such amounts fall far short of the expected size of the telecom IPOs, so local stock market investors would have to bear much of the burden. Local investment is also rising - the market's main index has gained over 30 percent this year - but Iraq lacks big institutional investors and pension funds that could reliably channel large amounts of money into the IPOs.
"In our opinion, Iraq is very liquid, but it's just (that) the mentality of investing in equity markets is not there," said Asiacell CEO Diar Ahmed.