Iraq Stock Exchange Goes from Bunker Mentality to Boom Times

Telecom IPOs, led by Asiacell’s $1.3 billion deal, are boosting trading volumes and luring international investors.


The head of the Iraq Stock Exchange, Taha Abdulsalam, used to pack a pistol a half-dozen years ago when he was struggling to get the nascent bourse off the ground amid the daily chaos and violence of Baghdad life. Today, the CEO’s biggest gripe is the traffic on his morning commute.

“You know it takes me an hour to drive to work,” an exasperated Abdulsalam tells Institutional Investor over the phone from his Baghdad office, “It is a 15 minute drive on the weekend. This has to change; we can’t go on like this.”

It is a measure of the country’s progress that such routine concerns are at the forefront of the CEO’s mind. The exchange, which he founded in 2004, a year after the U.S.-led invasion overturned the regime of Saddam Hussein, is now flavor of the month after hosting the biggest initial public offering in the Middle East since 2008.

Asiacell, Iraq’s largest telecommunications company, went public on February 3 in a $1.3 billion offering that doubled the ISX’s market capitalization overnight and pushed trading volumes to an average of more than $5 million per day, up from just $600,000 in 2009. The Rabee Securities ISX index stood at 1,671.1 on March 24, up 3.5 percent from the start of the year. With Iraq’s remaining two telecom operators — Zain Iraq, a subsidiary of Kuwait’s Mobile Telecommunications Co. and Korek Telecom — contractually obliged to go public, many brokerages are expecting even better things to come. Zain Iraq has said it will launch its IPO by the end of June.

“The forthcoming IPOs will double and triple the ISX capital and the volume of trades on the ISX,” said Hasan Abdulkarim, chairman of Aljazera Brokerage Co. in Baghdad.

The ISX was formed out of the ashes of the Saddam-era Baghdad Stock Exchange, which was dissolved following the U.S. invasion. The Coalition Provisional Authority approached Abdulsalam about setting up a new exchange. The ISX began with just 15 companies. Trading took place only two days a week, with prices posted on whiteboards. Today, the ISX has nearly 100 listed companies with a market capitalization of $9.2 billion; electronic trading, using technology from Nasdaq OMX, takes place two hours a day, five days a week.


“Our biggest challenge now is persuading companies in Iraq to list, which will bring more investors to the exchange,” says Abdulsalam. “That’s how we increase market capitalization, which we showed with Asiacell.

“But actually, the biggest challenge is outside the ISX, it’s the economy,” he continues. “Iraq is a country with a GDP of $100 billion, and 90 percent of that comes from one source –– oil. We need to see the private sector not accounting for only 10 percent of GDP but 50 percent. You cannot build the economy without the private sector. We have 100 listed companies in Iraq; I want to see 1,000.”

Finance infrastructure, too, is a challenge. During the Asiacell IPO, one of the major challenges was collecting money from investors from inside and outside Iraq, due to delays in settlement and clearing between Iraqi and international banks. Abdulsalam was constantly frustrated with delays in transferring money, with Iraqi banks nowhere near ready to handle the pace of IPO transactions.

“If you need to transfer money from one bank to another you have to go through the central bank, which can take three days, and that is if you are in Baghdad. You can imagine what it is like if it is coming from outside Baghdad; it can take a week, even ten days. That is not good enough,” he said.

Two bills pending in the Iraqi parliament, which would create custodian banks, raise minimum capital requirements for banks and introduce mutual funds and online trading, will help the market develop further, says Aljazera Brokerage’s Abdulkarim. “Once these two bills become laws, I think we will see foreign investment on a large scale. Foreign banks will come to invest in Iraq. New private companies will be established, and later turn into public companies. This will drive the Iraqi economy,” he said.

Said Hirsh, a former Middle East economist with Capital Economics and now an independent financial analyst, cites a lack of transparency as the biggest problem for the fledgling ISX. Even after the Asiacell IPO, the exchange has minimal transparency in the operation of the listed companies and weak institutional oversight. “A lot needs to happen at the institutional and governance levels in Iraq before its stock market becomes an attractive bet,” he claims.

The ISX has become known for its frequent suspensions of companies, often for late or unsubmitted annual and quarterly reports and also for not informing the exchange about deals and mergers. Although some argue that such suspensions can put off investors, CEO Abdulsalam defends the practice.

“This is how we protect investors,” he says. “Some companies are very good with administration, when there is a disclosure they report it to us and we announce it. But some don’t inform us unless we ask. We might hear that there is a deal going through that they haven’t told us about, so we suspend them. We don’t want investors using old information.”

Shwan Taha, the chairman of Rabee Securities, the brokerage that arranged the Asiacell IPO, says suspensions are becoming rarer. “It is much better now than it was a year ago, and I believe as the market becomes more sophisticated this problem will disappear.”

Executives wish they could be as optimistic about the condition of Iraq’s basic infrastructure. “Iraq has big problems with services, electricity, water, schools, healthcare. This is the government’s responsibility, and it has been very slow with developing these things,” says Abdulsalam.

“We have our own generators, we have the soldiers that protect the building and we have everything backed up in another place. We have our recovery plans. When people ask me about risks in Iraq, I say inside the stock exchange there is zero risk, but outside there is risk.”

When it comes to security, conditions are far better than they were in the dark days of 2006 to 2008, when violence was rampant and Abdulsalam carried a pistol to work. But Baghdad is still Baghdad, not Dubai. With a staff of over 100 as well as brokers and investors visiting the ISX building daily, a great deal of the CEO’s time is taken up with security procedures.

“Everyday I have to check, I talk with the guards, I talk with their supervisors, I ask about procedures and I change those procedures every week or every ten days,” he says. “On top of that, it takes me more than an hour to check and check again, at least every two or three days.”

For Geoffrey Batt, a U.S.-based fund manager at Euphrates Advisors who manages a $52.5 million ISX-focused fund, Iraq is just the latest in a long line of markets that emerged from political and social turmoil to offer excellent prospects to brave investors.

“Great returns are made over time by investing in deeply misunderstood, out of favor asset classes and markets. This was the case in Russia after the fall of the USSR and, earlier, in South Korea, post WWII Italy, Hong Kong and a host of other countries throughout history,” Batt said.

“Violence is down substantially from 2007. The economy and oil sector are much larger today than five years ago. GDP increased 55 percent over the past 5 years. Iraq offers an investment opportunity much like Russia and Italy did in the early stages of their development.”