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“Forget the Donations, Stupid”: New Dynamics in Funding Reconstruction

By Ahmed Tabaqchali (pictured), CIO of Asia Frontier Capital (AFC) Iraq Fund.

This article was originally published in the Marsh to Mountain blog. Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

“Forget the Donations, Stupid”: New dynamics in funding the reconstruction of Iraq

Key Takeaways

In the months following the Kuwait Conference a sea change has taken place in Iraq’s financial health that has yet to be reflected in perceptions.

Higher oil prices, as a result of the changed dynamics of the oil market and the robust health of the global economy, has had a transformative effect on Iraq’s finances.

By end of 2018, based on realized oil prices of 2018 and average year-to-date for 2018, Iraq is on its way to have a cumulative two-year budget surplus of $18.8bn instead of the initially projected cumulative deficit of $19.4bn.  

This would allow it to start the reconstruction process on its own resources. Coupled with a potential surplus of $9.3bn in 2019 would give the country a great deal of flexibility to fund further reconstruction over the near-term. 

The surplus of $18.8bn by end of 2018 would equal a stimulus of 14.5% of non-oil GDP once reconstruction projects are underway, which would further accelerate economic activity. 

However, this three-year window of opportunity faces the twin headwinds of Iraq’s corrosive corruption and all of prior governments’ failures to spend oil wealth on  rebuilding the country’s infrastructure, spending it instead on expanding the state’s role in the economy.

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A great deal has changed since the Kuwait Conference on the reconstruction of Iraq, which was marred by misconceptions of international observers who bemoaned that it failed to achieve its objective in raising enough donations. These were not helped by an Iraqi side that went to the conference looking for donations (investments in Iraqi speak) by focusing its efforts solely on presenting a shopping list of projects that needed $88bn in funding over five years.

These misconceptions were addressed in a prior article[1] which highlighted that over five years, Iraq should be able to fund $77bn out of this $88bn through a combination of $50bn from its oil revenues and $27bn in borrowings. Crucially, this level of direct funding and borrowing would be consistent with maintaining macroeconomic stability, which means that funding the reconstruction would not distract from the government fulfilling its traditional role in the economy, and so the reconstruction will contribute to sustainable economic growth.

This ability to fund the $77bn was derived from the IMF estimates for Iraq’s budget for 2018-2022 based on updated market-implied future Iraq oil prices, i.e. the implicit price of oil from the futures markets. In February, the implied price for Iraqi oil was $60/bbl for 2018, declining to $51 by 2022. These are in sharp contrast to the IMF’s estimates in August 2017 which used Iraqi oil prices of $45.5 in 2018, increasing to $47.2 by 2022. The 2018-2022 estimates made in 2017 would have made it impossible for Iraq to fund any portion of the needed funding as it would have needed to borrow to balance its budget during these years[2].

Iraq’s high dependence[3] on oil means that its budget and GDP are highly sensitive to the volume of oil it exports and to oil prices. The massive change in oil prices over the last few years, as seen from the five-year Brent crude price chart below, played havoc with Iraq’s budget during the ISIS conflict 2014-2017. They forced the government into a sharp fiscal retrenchment by cutting costs and cancelling all investment spending, while increasing military spending which had substantial negative knock-on effects on the economy[4]. The significant effects of oil price changes extend to planning for funding the reconstruction directly by Iraq, and indirectly by its stakeholders who need to take into account these effects in relation to their level of contributions and expected investment returns.

Brent Crude Jun 2013-Jun 2018, Source: Financial Times[5]

The fundamentals of the oil market went through major changes over the last four years, from expectations of supply scarcity versus increasing demand up to mid-2014; fears of increasing supply overwhelming decreasing demand from mid-2014 into late-2016; easing somewhat to hopes for a rebalance by mid 2017; and finally, into growing demand exceeding declining supply. Overlay the robust health of the global economy and it is expected the oil market will continue to tighten in the immediate future. This outlook is complicated by disruptive technologies such as those behind the Shale oil boom in the US, and by geopolitics affecting major suppliers such as Iran and Venezuela. These are balanced somewhat by OPEC’s actions and shifting perceptions of either its increasing dominance or increasing irrelevance. These perceptions came into sharp focus with the OPEC & non-OPEC supply cut agreement in late 2016 that started the recovery process. Recently there is news that talks have been underway to increase supply as prices have risen too high in response to threats to Iranian and Venezuelan supplies.

These would make budget planning, let alone long-term reconstruction planning, for Iraq an exercise in folly if it were to use the latest market implied future prices or to accept the prevailing wisdom at any given time as a basis for planning. This pretty much explains the conservative assumptions used by the IMF -which the world financial community depends on in assessing Iraq’s financial soundness and its credit worthiness. These assumptions served as the basis on which Iraq and the IMF identified creditors and donors for Iraq to cover its estimated budget deficits for 2017-2022 as part of the IMF’s 2016 Standby agreement.  Moreover, the IMF updated these assumptions with new estimates for forward oil prices as part of its Kuwait Conference presentation.

A recent article[6] noted “using realized prices of Iraqi oil of $49.1/bbl for 2017, and assuming Iraqi oil prices of $60/bbl for 2018, then declining to $51/bbl in 2022, would produce a cumulative surplus of $47.4bn for 2017-2022 instead of the earlier assumed cumulative deficit of $17.6bn”[7].  While using higher estimates for oil prices would result in a cumulative surplus of $78.2bn. In the first scenario Iraq could fund the reconstruction by a combination of $50bn from its oil revenues and $27bn from borrowings, and the final $11bn from aid/donations, which is in-line with the assumptions made by the IMF at the Kuwait conference.  While, in the second scenario Iraq could fund the reconstruction by a combination of $80bn from its oil revenues and $8bn from borrowings which is a vastly different proposition.

Given the impossibility of forecasting future oil prices, especially up to 2022, this article will consider the data for 2017-2019 given the higher degree of predictability in this short timeframe.

The IMF updated its global growth projections to +3.9% for both 2018 & 2019, up from its previous projections of 3.7% for both which was made in late 2017 as part of its World Economic Outlook (WEO) in April[8]. It believes that the upswing that began in 2016 has accelerated since then but it expects that it will taper off afterword’s. These coupled with changed dynamics in the oil supply/demand imply higher oil price assumptions for the period, which for the short-term has positive implications for oil exporting nations in MENA as outlined in its Regional Economic Outlook (ROE) May[9].

For Iraq, these would have huge implications for its economic profile for 2017-2019 and thus to its ability to start funding the huge reconstruction demands. The table below looks at the original IMF estimates for Iraq’s budget 2017-2019[10] versus updated estimates for 2017-2019 based on the latest actual data for 2017 and updated estimates for oil prices.

For sources & assumptions see endnote[11]

The updated assumptions for 2017-2019 imply a cumulative surplus of $28.1bn vs earlier assumptions of a cumulative deficit of $22.8. Although Iraq has identified funding sources for each year during the budget planning stages, it is likely that it would have not utilized them due to the higher revenues as a result of the higher than planned oil prices. These unused funding sources could be as high as $14.3bn[12].

Irrespective of the above, the upcoming government should have a cumulative surplus of $18.8bn by the end of 2018 which can be used to start the reconstruction process, which coupled with the likely surplus of $9.3bn in 2019 would give the country a great deal of flexibility to fund further reconstruction over the near-term. This flexibility would be augmented by $30bn, over five years, in investments and trade credit guarantees that Iraq received during the Kuwait Conference in February[13].

The effect of this spending flexibility on economic activity is enormous, in that should the surpluses be spent on reconstruction from 2019 over a two-year period, this would be equivalent to an economic stimulus of 14.5%[14] of 2019’s non-oil GDP over this period. This is a major economic stimulus by any account that would be magnified over the next five-years should the $30bn in pledges that Iraq received materialize.

However, the risk, and the likelihood, is that the upcoming government would succumb to public pressures to use some of this extra fiscal flexibility on populist measures. Such pressures have already been applied by parliament as it amended the budget by removing the 3.8% tax on salaries and pensions to appease an angry electorate in an election year. The elections marked by the continued pro-reform demonstrations since 2015, and the large active non-participation movement imply that the upcoming government would increase spending on populist measures to pacify the electorate and provide a visible peace divided.  In fact, the updated estimates for 2018 & 2109 in the table above reflect the expectations of higher expenditures, which would narrow the surplus for these two years, which in turn would detract from the funds available for infrastructure investment.

A further risk is the country’s corrosive corruption which would find breathing space as a result of higher oil revenues, especially if they are spent on populist measures, in the process relieving public pressures on the government to reform and to expose corruption. Moreover, the practice post-2003 of using state contracts as a means of reinforcing political influence on selected players in the private sector could continue, further entrenching corruption, with the government ability to fund the reconstruction and ability to award contracts.

Even, if the government would not succumb to populist measures, it would still need to resort to borrowing to continue funding the reconstruction. This is especially true given the high level of government expenditures, especially its public-sector payroll and social security spending. Moreover, higher oil prices for 2017-2019 will likely lead to the government to slow the pace of fiscal consolidation in response to public demands. This therefore means that budget surpluses will decline in time, especially as oil prices are likely to moderate in the coming years[15].

Borrowing, especially from the commercial debt markets, imposes a much-needed discipline on the government to adhere to sound fiscal policy and to continue the path of reducing its role in the economy and encouraging the development of the private sector[16]. Combined with the IMF’s 2016 Stand-By Agreement (SBA) this should help ensure sustainable macroeconomic stability.

Iraq’s ability to assume debt that is sustainable and within the confines of maintaining macroeconomic stability is much higher than assumed by many who merely look at the headline figure. An upcoming report by the author looks into the composition and background of Iraq’s debt[17]. The IMF estimates the total debt to be $122.9bn by end of 2017[18], made up of external debt of $73.7bn and domestic debt of $49.2bn.

However, $41bn out the external debt is to non-Paris Club creditors, mostly the GCC nations, that date back to the pre-2003 regime which are under negotiations to reduce them on the same terms as applied by the Paris Club of creditors. Should this happen they would likely be reduced by 90% to $4.1bn[19]. Therefore, including the unused borrowing for the 2017 deficit, this means that actual debt by end of 2017 is more likely to be $71.7bn[20] than the headline figure of $122.9bn. This would imply debt/GDP ratios of 37.3% for 2017 and 32.1% for 2018[21], giving Iraq plenty of scope to assume debts of up to $40bn and still keep debt/GDP ratio under 50% for 2018[22].

A sea change in Iraq’s position has taken place since the months leading up to the Kuwait Conference, but perceptions have not. Iraq’s position was that of a country with a debt/GDP ratio of 63.8%/65.3% for 2017/18, that needs to borrow to fund its budget deficit for the next few years and thus needs aid/donations to fund an urgent and massive reconstruction. The sea change, based on the IMF’s May REO, is that Iraq now has a debt/GDP ratio of 58%/54.7% for 2017/18, a budget surplus and can start to fund its reconstruction. This article further shows that Iraq can start funding its reconstruction in 2018 with $18.8bn in cumulative surpluses based on current oil prices. If the argument above on the underlying nature of its debt were to unfold then Iraq can add to this by accessing $40bn in the debt markets- which is far more than its immediate needs for reconstruction.

The underlying positive for Iraq that is fortunately to a large extent free from any government planning, or mismanagement, is that the reconstruction along the lines described by the joint study of the World Bank Group (WBG) and Iraq’s Ministry of Planning (MoP), on its own, will generate substitutional non-oil economic activity[23]. This activity can over the course of the next five years provide the non-oil economy with sufficient momentum for Iraq to escape its high oil dependence, which no government has attempted before. The silver lining of the trauma caused by the ISIS conflict, coupled with collapsing oil prices was that Iraq, in spite of all the improbable odds, united and climbed its way out of the abyss and of total disintegration. Given Iraq’s ability to start self-funding the reconstruction, a similar silver lining is that the recovery from the same trauma, in the form of reconstruction, could lead the country’s evolution away from pure oil dependence.

Disclaimer

Ahmed Tabaqchali’s comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

 

[1] http://www.iraq-businessnews.com/2018/02/22/its-not-the-donations-stupid-key-points-from-kuwait-conf/ – _edn3

 

[2] IMF’s estimates and presentation in the Kuwait conference are at:  Session 3 after clicking on the pdf icon of the presentation. Presentation starts at minute 8.20 on the youtube link on the link below: –

https://view.publitas.com/1692ac51-faf7-464f-a9c2-1784ed1da647/iraq-reconstruction-and-investment-part-3-investment-opportunities-and-reforms/page/1

IMF’s earlier estimates are from Country Report No. 17/251

 

[3] 2017 estimates: Oil exports accounted for 99% of all exports, Oil revenues accounted for 87% of government revenues which in turn accounted for 32% of total GDP. Moreover, Oil GDP accounted for 38% of total GDP and indirectly accounts for the bulk on non-Oil GDP as the government’s orders drives non-Oil GDP (source: Country Report No. 17/251).

 

[4] A report by the author discusses this dynamic and the government response http://www.iraq-businessnews.com/2017/07/17/economic-consequences-post-mosul/. Some highlights of which are “The government maintained overall spending on salaries and pensions, but it introduced new and increased existing consumption taxes on a large number of consumables while it also increased utility prices, Non-oil investments bore the brunt of the cuts as the government sharply curtailed all capital spending and investments.”

 

[5] https://markets.ft.com/data/commodities/tearsheet/summary?c=Brent+Crude+Oil

Iraqi oil sells for about $5/bbl discount to Brent.

 

[6] http://www.iraq-businessnews.com/2018/05/23/market-review-elections-the-economy-and-the-stock-market/

 

[7] The deficit of $17.6bn was based on IMF estimates made in 2017 (Country Report No. 17/251). The IMF has since then updated its revenue estimates higher based on higher oil prices which imply a much lower cumulative deficit than the one used here, but these estimates were only up to 2019 and hence old estimates are still used. Updated data is at: World Economic Outlook April 2018 & Regional Economic Outlook May 2018 in the two footnotes below.

 

The estimates depend on IMF projections which assume that the government spending would continue to be constrained but this is unlikely given public demands for an ease as a result of higher oil prices. This will be balanced in this report’s higher oil price assumptions such that the surpluses would be the similar as will be seen later in this report and in the author’s other recent publications.

 

[8] https://www.imf.org/en/Publications/WEO/Issues/2018/03/20/world-economic-outlook-april-2018

 

[9] http://www.imf.org/en/Publications/REO/MECA/Issues/2018/04/24/mreo0518 (data only until 2019)

 

[10] IMF Iraq Country Report No. 17/251 (http://www.imf.org/~/media/Files/Publications/CR/2017/cr17251.ashx). The IMF assumptions are used throughout for assumptions made in 2017, instead of available Iraq budget figures for 2017 & 2018, to ensure consistency with other estimates used throughout. Moreover, the data from the IMF country report 17/251 are used instead of the IMF updated data (footnotes above) as the updated figures provide only headline numbers without specific details that are needed for a full analysis.

Note: figures are rounded, and so total figures might not add up fully.

 

Below are the main differences between IMF projections and those of Iraq’s budgets for 2017 & 2018, and Iraq’s actual 2017 budget spending.

 

Iraq’s budget vs IMF projections for 2017

  • Iraq’s budget
    • Total revenues of $66.8bn made up of oil revenues of $57.5bn based on oil price of $42/bbl, and total exports of 3.75mbbl/d. These exports include the KRG’s exports of 0.55mbbl/d.
      • The agreement with the Kurdistan Regional Government (KRG) was for it to export 0.55mbbl/d through Iraq’s State Oil Marketing Organization (SOMO). In return the KRG would receive 17%, less sovereign expenses, of the federal budget. However, neither have fulfilled their obligations, yet, both of Iraq’s budget and the IMF budget assumptions include the KRG’s oil exports and its share of expenditure.
    • Expenditures of $82.2bn, creating a deficit of $18.3bn.
  • IMF projections:
    • Total revenues of $69.2bn made up from oil revenues of $61.3bn based on oil price of $45.3/bbl and total exports 3.8mbbl/d, and non-oil revenues of $7.5bn
    • Expenditures of $79bn, creating a deficit of $9.8bn

 

Iraq’s preliminary budget vs IMF projections for 2018

  • Iraq’s budget
    • Total revenues of $77.5bn made up from oil revenues of $65.2bn based on oil price of $46/bbl, and total exports of 3.888mbbl/d. These exports include the KRG’s exports of 0.55mbbl/d.
    • Expenditures of $88.1bn creating a deficit of $10.6bn
  • IMF Projections
    • Total revenues of $73.9bn made up from oil revenues of $64.3bn based on oil price of $45.5/bbl, and total exports 3.9mbbl/d and non-oil revenues of $9.3bn
    • Expenditures of $83.4bn creating a deficit of $9.5bn

 

Iraq’s actual 2017 budget revenues and expenditures based on Ministry of Finance (MoF) data

  • Oil revenues of $55.3bn, which exclude the revenues from the KRG’s direct exports of 0.55mbbl/d (included in the IMF projections in the table used and in Iraq’s budget planning). These revenues would have been higher than planned by the government which assumed an oil price of $42/bbl total, including KRG, exports of 3.75mbbl/d vs the realized price estimated at $49.2. They are also higher than the IMF est.’s which assumed a $45.5/bbl on total exports of 3.8mbbl/d.
    • If the KRG’s exports of 0.55mbbl/d were sold at the same price, then total revenues would have been $73.6bn vs the Iraq budget plans of $57.5bn or the IMF’s estimate of $61.3bn. This reflects the budgets sensitivity of $1.4n to every $1 change in oil prices.
  • Non-oil revenues of $9.9bn for total revenues of $65.4bn (ex-KRG oil revenues).
  • Expenditures, which excluded the KRG’s share of the budget, were $63.8bn or showing a surplus of $1.6bn.
    • If the KRG’s planned $6.4bn expenditures were to be included, total expenditure would have been $70.2bn vs the planned $82.2bn, which would have resulted in a surplus of $3.4bn.

 

 

Note:  Revenues for 2017, and likely for 2018, benefited from higher than planned oil prices. But, expenditures in 2017, and likely in 2018, were lower than planned. The under execution of the budget expenditure, especially on capital spending, is an ongoing feature of Iraqi governments due to the country’s weak institutional capacity and which possess a risk to the reconstructing effort.

 

Sources for this footnote:

http://www.mof.gov.iq/obs/_layouts/obsServices/DownloadObs.aspx?SourceUrl=%2fobs%2fObsDocuments%2fYear-End+Report+Folder+-+مجلد+تقارير+نهاية+السنة%2fEnd-Year+Report+2017.xlsx

http://www.bayancenter.org/en/2018/03/1461/

(http://www.imf.org/~/media/Files/Publications/CR/2017/cr17251.ashx).

http://www.mof.gov.iq/obs/_layouts/obsServices/DownloadObs.aspx?SourceUrl=%2fobs%2fObsDocuments%2fYear-End+Report+Folder+-+مجلد+تقارير+نهاية+السنة%2fEnd-Year+Report+2017.xlsx

 

 

 

[11] Sources: IMF Iraq Country Report No. 17/251, IMF World Economic Outlook (WEO) April 2018 database, IMF Regional Economic Outlook (REO) statistical appendix, Iraqi Ministry of Finance (MoF).

Assumptions:

  • Updated figures for 2017 are from MoF which show revenues and expenditures for 2017 excluding those for the KRG. However, MoF and IMF estimates and planed budget include those of the KRG (see details in footnote 9).
  • Iraqi oil price averaged $63.5 for Jan-Jun, while Jun’s average was $69.9. The YTD average is used as an estimate for the full year.
  • Total updated revenues for 2018 & 2019 include higher non-oil revenues as the IMF in May’s REO increased its growth rate for non-oil GDP to +4.4%/+5% for 2018/2019 up from 2.4%/3.7%
  • Revenues are estimates based on updated oil price assumptions while expenditures are the updated IMF’s estimates.
  • Updated Expenditures reflect expectations that the government will ease back on its tight fiscal consolidation, however, they might very well be off-set by the historic tendency for lower budget executions.

 

[12] The IMF (Country Report No. 17/251 P: 28) notes “The program is fully financed through the next twelve months, but there is a financing gap of $7.1bn in late 2018 and 2019. The authorities have contacted one donor to fill the 2018–19 financing gap, for which there is good prospect”. The financing gap is made up of $5bn and $2.1bn respectively 2018 & 2019. Which implies that Iraq has achieved full financing for 2017’s $9.8bn deficit, $4.5bn out of 2018’s $9.5bn deficit., and $1.3bn out of 2019’s $3.4bn deficit.

 

Since the actual budget achieved a surplus for 2017 and would likely achieve a surplus in 2018, then Iraq has borrowed $14.3bn ($9.8bn + $4.5bn see above) to fund a deficit that did not materialize and so the funds could either not be drawn which would lower overall debit or used to fund reconstruction projects.

 

However, it should be noted that “fully financed” does not imply that the all of the funds were delivered to Iraq but that funding agreements were made.

 

[13] https://uk.reuters.com/article/mideast-crisis-iraq-reconstruction/factbox-pledges-made-for-iraqs-reconstruction-in-kuwait-idUKL8N1Q55RY

 

[14] This would be about 8.4% of 2019’s updated GDP estimate, but as it would be spent on reconstruction it would be a stimulus of about 14.5% of non-oil GDP. It would have an added significance in that the planned for deficits would have been accompanied by restricted capital spending and continued fiscal consolidation by the government, the reversal of which alone would have expansionary effects.

 

[15] The major shortcoming of the successive governments since 2003, was to use most of the oil revenues on expanding the public payroll and social security spending as main vehicle for transfer of oil wealth. As a result very little of oil revenues went towards reconstructing and building the country’s physical capital that would contribute towards diversification away from oil and to economic sustainability. The upshot is high oil dependence with the resultant vulnerability to external forces, import dependence, weak/small private sector and a skewed labor market.

 

Without a fundamental change of track, such as that agreed by the IMF’s 2016 SBA, the fruits of the country’s expanding energy production profile as a result will perpetuate this process. However, this is unsustainable given Iraq’s large rapidly growing population whose needs for public sector jobs cannot be met under any optimistic scenarios for increased oil production or prices.

 

The upshot, is the fundamental change of track along the SBA guidance will take a number of years to unfold, and as such the public-sector payroll and social security spending will continue to account for the bulk of government expenditure and thus the need for accessing the debt markets to fund reconstruction down the road.

 

[16] As can be seen from the author’s report on Iraq’s debt (link on next footnote) that Iraq’s only debt on truly commercial terms are two Eurobonds worth $3.7bn: A $2.7bn bond issued in 2006, due in 2028 with a 5.8% interest rate; and a $1.0bn bond issued in 2017, due in 2023 with a 6.5% interest rate. However, the third $1bn bond issued in 2017, due in 2022, is guaranteed 100% by the U.S. government, with a 2.1% interest rate, and as such does not constitute debt on commercial terms.

 

Therefore, should Iraq access the commercial debt markets these would require fiscal discipline to assure the markets that debt would be serviced. Some of the requirements would take into account, debt repayments as a percentage of exports, currency stability and the level of foreign reserves in relations to months of imports, balance of payments, budget balance as a percentage of GDP. They would also take into account other liabilities and contingent liabilities such as the state guarantees discussed in footnote #22 below. All of these requirements will affect the amount of debt raised and the interest rate it would carry, which would place a much-needed significant fiscal discipline on the government. Coupled with the huge demands for reconstruction they should help ensure that Iraq’s governments pursue sound fiscal policies while following sustainable macroeconomic stability.

 

[17] Link to be provided in an updated version of this report.

 

[18] Updated figures in REO show that the updated figure for 2017 is $114.6bn of which foreign debt is $68bn. However, the older assumptions of 2017 are used as they are part of longer term projections, and crucially they served as the basis for Iraq securing finding for the expected deficits as explained in an earlier footnote.

 

[19] The IMF notes: “These arrears can be tolerated under the Fund’s policy on Arrears to Official Bilateral Creditors because the Paris Club Agreement was found to be adequately representative (i.e., Paris Club creditors provided most of the financing contributions required from official bilateral creditors in the context of that agreement) and the authorities have since been making best efforts to conclude agreements with non-Paris Club creditors on Paris Club comparable terms. Negotiations to implement debt relief on the same terms as with the Paris Club creditors, i.e. an 89.75 percent net present value reduction, are ongoing.”.

 

In the current environment of the rebuilding of the relationship between Iraq and the GCC it is very likely that these negotiations will lead to a grand bargain in which both sides agree to the same 90% debt reduction in exchange for investment opportunities and long-term agreements.

 

[20] $122.9bn less: (1) 90% of $41 or $36.9bn, (2) Unused deficit funding of $14.3

 

[21] The IMF’s updated GDP figures for 2017/2018 are $197.76bn/ $223.3 and GDP/Debt ratios of 58%/54.4%

 

[22] It should be noted that the government has issued 11 state guarantees that affect the total amount of debt that it can take as these are contingent liabilities. These are a total of $36bn made of which the largest is $32.4bn in guarantees of service payments to independent power producers (IPPs) in the electricity sector for the 14 years of the contacts.  This makes it essential for the government to continue with the electricity sector reform and ensure the collection of tariffs-the failure of which will make the state liable to fulfil its guarantees to the IPP’s which would add to the debt.

 

Separately, the IMF aware of all of the above liabilities, in its presentation in the Kuwait Conference, had argued that Iraq should be able to borrow up to $36bn over the next five-years while its debt to GDP would be around 50% by 2022-23. These were made under lower oil price assumptions, with more fiscal discipline in expenditures, over a longer time frame, but without the benefit of the 90% haircut to the $41bn in debt.

http://www.iraq-businessnews.com/2018/02/22/its-not-the-donations-stupid-key-points-from-kuwait-conf/ – _edn4

 

[23] The IMF has attributed reconstruction for increasing its non-oil GDP growth rates to +4.4%/+5% for 2018/2019 up from prior +2.4%/+3.7%.

 

These figures could be higher should the full $88bn in reconstruction spending be embarked upon over the next five years as that would be a stimulus equivalent to about 14% of non-oil GDP in each year over the five-year period. While, it is ambitious to assume that all of that amount would be properly spent, yet even half that amount would create the conditions for self-sustaining economic activity for the non-oil sector.

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS). He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

Iraq Stock Market Report

Advertising Feature

Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 14th June 2018).

Note: ISX will be closed starting from June 17, 2018 to June 19, 2018 due to the religious holiday of Eid Al-Fitr. The next trading session will be held on Wednesday (June 20, 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD803 (-0.5%) / $861 (-0.5%) (weekly change) (-1.1% and +3.0% YTD change, respectively). The number of week traded shares was 7.6 bn and the weekly trading volume was IQD4.2bn ($3.5 mn).

ISX Company Announcements

  • The Central Bank of Iraq decided to allow citizens to withdraw cash from the points of sale deployed at the agents of electronic payment companies and traders in the Iraqi market. (CBI)
  • Mosul Bank (BMFI) resumed trading on June 14, 2018 after discussing and approving 2016 annual financial results.
  • International Islamic Bank (BINT) resumed trading on June 10, 2018 after providing its 2016 annual and 6M17 financial results.

Market Review: Elections, the Economy and the Stock Market

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

Market Review:  The Elections, the Economy and the Stock Market

A key aspect of the Iraq investment opportunity is arbitraging the delta between real and perceived risk. The perceptions of the widely covered parliamentary elections fit within this arbitrage opportunity in that they miss the mark by a wide margin.

The May elections did not result in an overall winner with an outright majority (165 seats among the parliament’s 329 seats) enabling the formation of a government. Instead, they produced winners and losers who will eventually form a coalition government. At the lead is Sairoon, a coalition of Shia cleric Muqtada Al Sadr, Communists and Liberals, with 54 seats; followed by Fateh, a coalition of the political arms of the Popular Mobilisation Units (PMU’s), with 48 seats; finally, Nasr, the Prime Minister’s (PM) coalition, with 42 seats.

The rest are made up of: five different coalitions each with 18-25 seats; four coalitions each with 4-6 seats; and finally, a gaggle each with 1-3 seats. The next step would be the formation of an alliance of coalitions that would, on the first day of the new parliament by end of June, have the largest number of seats to enable it to have a PM with a chance of forming a government. The whole process should take a few weeks but, in the past, it took a few months.

The winning coalitions, irrespective of their lead player, are all cross-sectarian unlike the prior ethno-sectarian monolithic blocs that dominated over the past 14 years – a division that was the root cause of Iraq’s political and social instability since 2003. Moreover, for the first time since 2003 there was a strong mass opposition to these ethno-sectarian monolithic blocs that manifested

in an active non-participation movement. This led to an election participation turnout of 44.5%, which in turn had huge effects on the seats won and lost by the different coalitions.

Drilling further into the leading blocks shows neither they nor their leading players conform to simplistic assumptions. For example, Muqtada Al Sadr is often described as a firebrand cleric who is anti-secular, anti-Western and pro-Iran as a result of his leading role in Iraq’s dark history since 2003. Yet, at least outwardly, he went through a transformation to a firebrand cleric who is anti-Iran and anti-its proxies in Iraq, whose alliance with Communists and Seculars kept the 2015 pro-reform demonstrations alive and relevant.

Moreover, he was a leading player in rebuilding Iraq’s relationship with Saudi Arabia and the UAE – both received him in their capitals in 2017 to further this rebuilding. The second leading coalition, Fateh, a grouping of the political arms of the supposedly pro-Iranian PMU’s, although not all are, is led by Iranian-allied Bader Organization. Yet Bader has been a part of every Iraqi government since 2005, responsible for the Ministry of the Interior, and as such a major part of the next phase of Western support for Iraq in rebuilding its security apparatus in the long-term fight against ISIS.

The most visible fruit of which has been the decline of violence since the end of the Mosul campaign and in the first violence free elections (see chart below). Finally, the Naser coalition which is led by the PM and while much admired for leading the fight against ISIS, he suffers from perceptions of failure to address the demands of the demonstrators since 2015. Although an unfair criticism given the overriding priority to deal with the ISIS invasion, it was behind much of the reason for his collation’s third place showing. Nonetheless, his chances of returning as a PM capable of leading a workable government are high.

UN Casualty figures for Iraq November 2012 – April 2018

(Source: United Nations Assistance Mission for Iraq (UNAMI), for 8 months from 2015 UNAMI, in some cases, could only partially verify certain incidents)

Optimists see the potential for a coalition governing with a clear reform agenda and with a proper opposition in parliament providing a check on the government. The pessimists however see a repeat of the prior coalition governments that were made up of all groupings in parliament, and thus no real change to the failures since 2003. However, irrespective of who would be right, a few things are clear that would have implications for Iraq’s economy, the investment opportunity in Iraq and the stock market.

The combination of the lead by Sadr’s coalition, the continued pro-reform demonstrations since 2015, and the large active non-participation movement together imply that the upcoming government would need to address the issues at the heart of the public’s anger. This would be the provision of services and reconstruction, which require much needed overdue investments in the country’s infrastructure and the reconstruction of the liberated areas.

The new oil price dynamics have a huge positive implication on Iraq’s ability to provide funds for this massive investment spending estimated at USD 88bn over the next five years. Current estimates for the country’s revenues for 2017-2022 are based on Iraqi oil price assumptions of USD 45.3/bbl in 2017 and increasing to USD 47.1/bbl by 2022. These estimates would result in a cumulative deficit of USD 17.6bn, thereby increasing the debt load, necessitating borrowing to fund the deficit and restrict the ability to fund reconstruction. This implies the need for outside aid and investment to fund reconstruction.

However, different assumptions based on the new oil price dynamics would provide a vastly different picture. For instance, using realized prices of Iraqi oil of USD 49.2/bbl for 2017, and assuming Iraqi oil prices of USD 60/bbl for 2018, then declining to USD 51/bbl in 2022, would produce a cumulative surplus of USD 47.4bn instead of the earlier assumed cumulative deficit of USD 17.6bn. In other words, this equals a turnaround of USD 65bn in potential available funds.

While, an assumption of an oil price of USD 64/bbl for 2018, then declining to USD 55/bbl by 2022 would produce a cumulative surplus of USD 78.2bn, or a turnaround of USD 95bn in in potential available funds.

Granted some of this windfall will result in higher government spending, especially on populist measures which would be detracting from the funds available for infrastructure investment. Though this would nevertheless be a large positive for consumer confidence and economic activity, all of which would ultimately support the earnings profile of consumer service providers and the banking sector.

In the immediate term, given the impossibility of forecasting future oil prices out to 2022, if Iraq’s oil price was to hold the YTD average for the remainder of 2018, it would convert the IMF 2018 projected deficit of USD 9.5bn into a surplus of USD 10.9bn. This means a turnaround of USD 20bn in potential available funds. Coupled with a slight positive variance to 2019 projections, this would provide Iraq with enough fiscal flexibility to start directly funding the immediate needs for reconstruction. This changed fiscal position would further allow it to comfortably access debt markets at reasonable rates to build upon this reconstruction. The potential addition of regional investments led by Saudi Arabia, as discussed here in the past, could lead to a self-reinforcing investment cycle.

The stock market’s action in the weeks before and after the elections has been business as usual and very much followed the same themes discussed over the last few months. This is an indication of how much negative news the market has discounted over the last three years that saw the index, as measured by the RSISUSD Index, decline -68% from its 2014 peak to the 2016 bottom.

Through 22nd May the market was down -3.9% for the month, bringing the year to date gains to +5.8%. The daily market action has been almost identical to that of the prior month with the same low turnover, the same buying in the selected leading stocks and the same selling in the banks based on the same fears.

The response of the currency to the elections for the most part matches that of the market with the market price of the Iraqi Dinar (IQD) weakening versus the USD in the days around the elections but returning to the same levels at the start of the month. The upshot, is that the premium of the market price of the IQD over the official exchange rate increased from 1.2% at the end of April, reaching 2% just before the elections and is now back to 1.2%.

The issue that continues to dominate the market is the timing of the return of liquidity as a result of the expansionary effects of higher oil prices and the end of conflict. As discussed here in the past, the observed time lag between Y-Y changes in oil revenues and Y-Y changes in M2 has been about 7-9 months which suggests that M2 growth should see improvement over the next few months as the chart below implies: it shifts the Y-Y percentage change in M2 back by 9 months versus the Y-Y percentage change in oil revenues. However, it is complicated by the additional time taken up by pre and after elections, and the additional time needed for the formation of the new government. All of which will delay this recovery but would likely result in a large back-end loaded return of liquidity.

Oil Revenues (green) vs the RSISUSD Index (red)

(Source: ISX Central bank of Iraq, Iraq’s Ministry of Oil, AFC.)
(Note: M2 as of Jan. with AFC est.’s for Feb & Mar, Oil revenues as of Mar with AFC estimates for Apr & May)

As argued here in the recent past, the backdrop continues to be positive: historically the equity market, as measured by the RSISUSD Index, has tended to follow oil revenues with a time lag of 3-6 months as the chart below shows.

Iraq’s Oil Revenues (green) vs the RSISUSD Index (red)

(Source: Iraq’s Ministry of Oil, Rabee Securities, Iraq Stock Exchange, AFC)
(Oil revenues are as of Mar with estimates by AFC for Apr & May)

Given the time lag involved and the delay over the formation of the new government, this will probably unfold over the next few months and the recovery will likely be in fits and starts with plenty of zig-zags along the way. This continues to underscore the opportunity to acquire attractive assets that have yet to discount a sustainable economic recovery.

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS). He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

_______________________

[1] Source of current estimates on Iraq (deficit, oil price, revenues etc) are from the IMF Iraq Country Report No. 17/251 (http://www.imf.org/~/media/Files/Publications/CR/2017/cr17251.ashx). Updated assumptions are the author’s calculations based on the above source

Iraq Stock Market Report

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 10th May 2018).

ISX will be closed tomorrow (May 13, 2018) due to the elections that will be held today (May 12). The next trading session will be held on Monday (May 14, 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD831 (-2.3%) / $888 (-2.7%) (weekly change) (+2.4% and +6.2% YTD change, respectively). The number of week traded shares was 16.9bn and the weekly trading volume was IQD21.6bn ($17.8 mn).

ISX Company Announcements

  • Trans Iraq Bank for Investment (BTRI) will hold AGM* on May 17, 2018 to discuss and approve 2017 annual results. ISX will suspend trading of BTRI starting May 14, 2018.
  • Commercial Bank of Iraq (BCOI) will hold AGM* on May 16, 2018 to discuss and approve 2016 annual financial results and distributing 4.75% cash dividend (IQD0.0475 dividend per share). ISX will suspend trading of BCOI starting May 14, 2018.
  • Credit Bank of Iraq (BROI) resumed trading on May 10, 2018 after discussing and approving 2016 annual financial results and deciding to distribute 3% cash dividend (IQD0.03 dividend per share, 4.8% dividend yield).
  • Al Nibal Al Arabya for Money Transfer (MTNI) will hold AGM* on May 15, 2018 to discuss and approve 2017 annual financial results. ISX suspended trading of MTNI starting May 10, 2018.
  • Baghdad Soft Drinks (IBSD) resumed trading on May 9, 2018 after discussing and approving 2017 annual financial results and distributing 10% cash dividend (IQD0.10 dividend per share, 2.5% dividend yield).
  • Al-Ameen Financial Investment (VAMF) will hold AGM* on May 14, 2018 to discuss and approve 2017 annual financial results. ISX suspended trading of VAMF starting May 8, 2018.
  • ISX approved the following companies to pay their annual subscription fees in installments and if these companies do not pay full installments, they will be delisted from the ISX:  Dar Es Salaam Investment Bank (BDSI), Dijlah & Furat Bank for Development (BDFD), Modern Paint Industries (IMPI), Al -HiLal Industries (IHLI), Iraqi Carton Manufactories (IICM) and Babylon Bank (BBAY).
  • Cross Transactions: 11.95 bn shares of Al-Qabedh Islamic Bank for Finance & Invest. (BQAB) on May 7 and May 9, 2018, which represent 4.78% of BQAB capital.

Market Review: Market Consolidates & Banks Correct

By Ahmed Tabaqchali, CIO of Asia Frontier Capital (AFC) Iraq Fund.

Any opinions expressed are those of the author, and do not necessarily reflect the views of Iraq Business News.

The market’s consolidation continued for the second month running with both turnover and the market continuing to decline. Average daily turnover declined by about -57% from that of the prior month, itself down about -15% from the preceding month. The market, as measured by the RSISUSD Index, paced these declines, down -5.8% for the month (see chart below) but up +10.1% YTD.

While a monthly market decline of -5.8% following a -2.6% decline the prior month might be thought of as a correction and a not a consolidation. Yet the term consolidation is more appropriate given the internal market dynamics which are not captured fully by the RSISUSD Index given its heavy representation by banks with a 51% weighting and almost 40% of that accounted for by lower-quality banks.

(Source: Iraq Stock Exchange (ISX), Rabee Securities, Asia Frontier Capital (AFC))

Buying by both locals and foreigners continued in the high-quality names such as mobile operator Asiacell (TASC) and Pepsi bottler Baghdad Soft Drinks (IBSD), up +68% and +49% respectively YTD. Foreign buying in these names has been consistent and persistent since early December, 2017 driven by improving fundamentals as discussed in January’s article. The high-quality banks which joined the rally in February, discussed in February’s article, have been dragged lower over the last two months by concerns over the earnings outlook for the lower-quality banks.

This concern has been driven by the declining margins on foreign exchange dealings as a consequence of the narrowing of premium of the market price over the official exchange rate of the Iraqi dinar (IQD) vs the USD, as will be explained below.

As discussed in the last few months, increasing signs of an improvement in liquidity in the broader economy have resulted in steady improvement in the market price of the IQD vs the USD, lowering its premium over the official exchange rate to 1.2%- the lowest point in a number of years from just under 6% at the end of 2017, and  10% at the end of 2016 (see chart below). Although, the premium would likely return to the 2-4% range once this liquidity feeds into increased consumer spending and the resultant increase in demand for imports.

(Source: Central Bank of Iraq, Iraqi currency exchange houses, Asia Frontier Capital)

(Note: The Spikes in 2012, 2013 & 2015 were due to CBI policies that restricted the sale of USD, but abandoned after causing a rise in market rates)

The Central Bank of Iraq (CBI) conducts daily currency auctions in which participating banks buy the USD at the official exchange rate on behalf of clients: international transfers mostly to finance private sector imports, and fixed/limited cash payments to meet citizen’s needs for travel. The attractiveness of buying the USD at the official rate and selling it at the market rate has made the system susceptible to abuse and has led to lower-quality banks focusing on it almost exclusively as a source of revenues.

Higher quality banks, in particular those majority owned by regional banks, have either avoided the auctions or tended to use them sparingly especially in the last two years. The upshot is that while FX spreads constitute the bulk of earnings for the lower quality banks, they are one of many sources of revenues for the higher quality banks.

Worries on the banks’ earnings power from shrinking FX spreads have been one of many reasons that high-quality banks have outperformed the lower-quality ones in the last few months, yet the speed of the narrowing of FX spreads has led to fears that this would affect the higher quality banks in a similar fashion. Coupled with foreign selling in some of the higher-quality names exasperated these declines and resulted in them trading at valuations that are at extreme odds to the underlying improving fundaments in their outlooks.

These are the bottoming of the negative developments that prevailed over the last three years, i.e. declining/negative deposit growth, declining/negative loan growth and increasing non-performing loans (NPL’s). Their outlook is brightening as the expansionary effects from the reversal of the escalating costs of conflict and collapsing oil prices that crushed the economy in 2014 provides them room to recover further and grow.

The valuations of the higher quality banks are as attractive as they were in mid-2017, discussed in the July 2017 article, but the current outlook and the state of the economy are significantly better today.  The table below is a snapshot of current valuations of three of the “bluest-chip” banks, but to appreciate the significance, a quick review of the banking sector:

  • Less than 20% of the population have bank accounts and out of those that do, about 60% have their deposits and loans with state banks, which in turn control over 90% of total assets and deposits;
  • Lending is a small part of most bank’s income stream which is mostly from trade related fee income esp. trade financing, other fee income, interest income from T-Bills, and deposits with the Central Bank of Iraq (CBI);
  • Banks are extremely liquid; most assets are in cash and cash equivalents, consisting of cash deposits with other banks and with the CBI, CBI & Ministry of Finance T-Bills;
  • Book values are understated vs banks elsewhere given the low interest income generation and the high dividend-pay-out ratio;
  • Note: Bank of Baghdad’s dividends are assumed to be in-line with last year’s which might be optimistic, Mansour Bank’s are based on dividends declared in March and Commercial Bank’s are based on its stated dividend intention to be confirmed in its upcoming AGM next week.

(Source: Company reports, ISX, AFC, Data based on latest trailing 12 months)
(Note: Prices as of 03 May 2018. Fundamental data from the latest quarter (unaudited) and not average of last two years as in the last few quarters some banks have cut their loan books significantly through increased provisions and write-offs and enforcing loan repayments)

As reported in the March article, the improved government finances have yet to be reflected in a return of liquidity to the economy as measured by growth in broad money supply.  While this is likely to happen over the next few months, the timing would probably be delayed and complicated by the uncertainties and government paralysis ahead of the parliamentary elections on 12th May, and the subsequent negotiations over the formation of the new government.

The low turnover during the month, a likely function of the uncertainties during the election season, underscores that the increased liquidity in the form of both local and foreign inflows reported over the last few months needs to be maintained for the market’s consolidation to lead to further recovery and for this recovery to be sustainable.

The backdrop continues to be positive as the sustained improvements in government finances should ultimately lead to better market action. The time lag involved coupled with the election uncertainties, implies the recovery will likely unfold over the next few months and it will likely be in fits and starts with plenty of zig-zags along the way. Which continues to underscore the opportunity to acquire attractive assets that have yet to discount a sustainable economic recovery.

For those who have not been to Baghdad recently, this article is worth a read as it shows that the decline of violence is felt with a return of night life in Baghdad.

Please click here to download Ahmed Tabaqchali’s full report in pdf format.

Mr Tabaqchali (@AMTabaqchali) is the CIO of the AFC Iraq Fund, and is an experienced capital markets professional with over 25 years’ experience in US and MENA markets. He is a non-resident Fellow at the Institute of Regional and International Studies (IRIS) at the American University of Iraq-Sulaimani (AUIS). He is a board member of the Credit Bank of Iraq.

His comments, opinions and analyses are personal views and are intended to be for informational purposes and general interest only and should not be construed as individual investment advice or a recommendation or solicitation to buy, sell or hold any fund or security or to adopt any investment strategy. It does not constitute legal or tax or investment advice. The information provided in this material is compiled from sources that are believed to be reliable, but no guarantee is made of its correctness, is rendered as at publication date and may change without notice and it is not intended as a complete analysis of every material fact regarding Iraq, the region, market or investment.

Iraq Stock Market Report

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 15th Mar 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD927 (-1.2%) / $878 (-1.2%) (weekly change) (+14.3% and +17.1% YTD change, respectively). The number of week traded shares was 20.3bn and the weekly trading volume was IQD11.9bn ($9.7mn).

ISX Company Announcements

  • Al-Mansour Bank (BMNS) will hold AGM* on Mar. 29, 2018 to discuss and approve 2017 annual financial results. ISX will suspend trading of BMNS starting Mar. 26, 2018.
  • Iraqi Land Transport (SILT) will hold a GA on Mar. 18, 2018 to elect new BoDs as private sector representatives. The company has been suspended since Aug. 6, 2017 for not disclosing 2016 annual financial results.
  • Metallic & Bicycles Industries (IMIB) will be suspended from trading on Mar. 18, 2018 if the company fails to explain why the prices touched the lower limit on Mar. 14 and Mar. 15, 2018.
  • National Chemical & Plastic Industries (INCP) will be suspended from trading on Mar. 18, 2018 if the company fails to explain why the prices touched the lower limit on Mar. 14 and Mar. 15, 2018.
  • Original shares of Al-Mosul for Funfairs (SMOF) resumed trading on Mar. 11, 2018 after discussing and approving 2013 annual financial results and increasing the capital from IQD400 mn to IQD800 mn through 100% bonus issue.
  • Iraqi Agricultural Products (AIRP) resumed trading on Mar. 11, 2018 after electing five BoD members as private sector representatives.
  • ISX requested Al Taif Islamic Bank to submit a number of documents in order to be started trading in the banking sector as an Islamic Bank.
  • ISX requested Dar Al-Salam for Insurance (NDSA) to provide updates regarding the capital increase process.
  • ISX requested Al-Karada Court to set up a new date to auction 40 mn shares of AL- Batek Financial Investment (VBAT) and 50 mn shares of Al-Hamraa for Insurance (NHAM) owned by Sadiq Abdul-Hadi Faraj for the payment of debt to Bilad Islamic Bank (BLAD). The court representative didn’t attend the auction on Mar. 12, 2018.
  • According to ISX announcement on Mar. 12, 2018, Rabee Securities will hold a GA on Mar. 27 to elect five BoD members and other five alternative members.
  • Cross Transactions: 6.0 bn shares of Iraqi Islamic Bank (BIIB) on Mar. 13, 2018, which represents 2.4% of BIIB capital.

Iraq Stock Market Report

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 8th Mar 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD939 (-0.5%) / $990 (-0.7%) (weekly change) (+15.7% and +18.5% YTD change, respectively). The number of week traded shares was 9.9bn and the weekly trading volume was IQD6.9bn ($5.6mn).

ISX Company Announcements

  • ISX announced that no bond from the first issue has been deposited due to the short listing period. ISX closed their trading channels on Mar. 5, 2018 for the first issued bond because the maturity date of the first issued bond is Mar. 14, 2018 according to the instructions of bonds trading.
  • The Central Bank of Iraq (CBI) organized a workshop aimed at introducing the project to settle the salaries of state employees in the office of the province of Maysan. A number of Iraqi banks participated in the workshop. (CBI)
  • Erbil Bank for Investment and Finance (BERI), having IQD265bn paid-in capital, started depositing their shares and will start trading in the non-regular market on Mar 27, 2018. The price will be free for the first three sessions and then will have +/-20% price change limit.
  • Al-Khatem Telecom (TZNI) will hold AGM* on Mar. 13, 2018 to discuss and approve 2016 annual financial results. ISX suspended trading of TZNI starting on Mar. 8, 2018.
  • Gulf Insurance and Reinsurance (NGIR) will hold AGM* on Mar. 12, 2018 to discuss and approve 2016 annual financial results. ISX suspended trading of NGIR on Mar. 7, 2018.
  • Iraqi Agricultural Products (AIRP) will hold a GA on Mar. 8 to elect five BoD members, as private sector representatives. ISX suspended trading of AIRP on Mar. 5 and AIRP will resume trading on Mar. 11, 2018.
  • ISC decided on Mar. 4, 2018 to keep Zain Al-Iraq Islamic Bank for Investment (BZII) suspended from trading until the bank discloses the reason for not completing the quorum on Feb. 11, 2018.
  • Al Taif Money Transfer (MTAI), having IQD100bn paid-in capital, has completed procedures to convert the company from a money transfer company into an Islamic Bank. The name of the bank will be Al Taif Islamic Bank.
  • According to the letter of Companies’ Registrar published by the ISX on Thursday, Companies’ Registrar confirmed that Rabee Securities completed all the required legal procedures to convert the company from a Limited Liability Company into a Private Joint Stock Company by increasing its capital from IQD2.00 bn to IQD2.05 bn.

Stock Market Up 25% since End-October

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 15th Feb 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD951 (+2.7%) / $991 (+2.7%) (weekly change) (+17.2% and +18.6% YTD change, respectively). The number of week traded shares was 7.1bn and the weekly trading volume was IQD7.9bn ($6.3mn).

ISX Company Announcements

  • Al-Mosul for Funfairs (SMOF) will hold AGM* on Mar. 4, 2018 to discuss and approve 2013 annual financial results and increasing the capital from IQD400mn to IQD800mn through 100% bonus issue. ISX will suspend trading of SMOF starting Feb. 27, 2018.
  • Babylon Hotel (HBAY) will hold a GA on Mar. 1, 2018 to discuss the offer of deferred investment contract postponed from the previous AGM held on Nov. 19, 2017.  ISX will suspend trading of HBAY starting Feb. 26, 2018 and the company will resume trading on Mar. 4, 2018.
  • Mouta for Remittance (MTMO) will hold a GA on Feb. 26, 2018 to elect a new BoD. The company has been suspended since Jan. 21, 2018 because the company was converting from money transfer company into an Islamic bank.
  • Iraqi Agricultural Products and Marketing Meat (AIPM) will hold a GA on Feb. 20, 2018 to elect a new BoD. ISX suspended trading of AIPM starting Feb. 15, 2018 and the company will resume trading on Feb. 21, 2018.
  • Asiacell (TASC) will be suspended from trading on Feb. 18, 2018 if the company fails to explain why the prices touched the higher limit in the last two trading sessions (Feb. 14-15, 2018).
  • AL- Kindi of Veterinary Vaccines Drugs (IKLV) will hold AGM* on Feb. 18, 2018 to discuss and approve 2016 annual financial results. ISX suspended trading of IKLV starting Feb. 13, 2018.
  • Commercial Bank of Iraqi (BCOI) announced that it will start distributing 2.6% cash dividend (IQD0.026 dividend per share) from 2015 profit starting Feb. 18, 2018.
  • Ashur International Bank for Investment (BASH) resumed trading on Feb. 12, 2018 after discussing and approving 2016 annual financial results.

Iraqi Stock Market Continues to Climb

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 8th Feb 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD926 (+5.7%) / $966 (+5.9%) (weekly change) (+14.2% and +15.5% YTD change, respectively). The number of week traded shares was 11.3bn and the weekly trading volume was IQD8.6bn ($6.9mn).

ISX Company Announcements

  • According to the letter (dated Jan. 29, 2018) sent to Al-Rafidain Bank, Al-Rasheed Bank, and Trade Bank of Iraq (TBI) related with treasury bonds regulations and payments to contractors for 2018, Central Bank of Iraq (CBI) will pay the past due payments to contractors on behalf of the Ministry of Finance (MoF) after the completion of the auditing by the Federal Board of Supreme Audit. In the letter it was mentioned that the bond’s annual interest will be 5% with a maturity of three years. The Ministry of Planning will prepare the list of names and contractors and the amounts due to them and send it to the MoF. The role of the CBI is to deliver the bonds to the contractors according to the required payments. (CBI)
  • The Anti-Money Laundering (AML / CFT) Council announces the preparation and issuance of the National Strategy for Combating Money Laundering and the Financing of Terrorism for the years 2017-2020 according to the international requirements, which is the first strategy in Iraq in this regard. (CBI)
  • Regarding the request of ISC from Economy Bank for Investment (BEFI) on Dec. 14, 2017 to clarify unclear items in 2016 annual financial results since their earlier clarifications weren’t clear and financial statements do not represent the current financial position of the bank, ISC mentioned that the bank replied that these cases will be amended in 2017 annual financial results. ISC declared that the problems remain unsolved and the report is unclear and thus the BEFI will remain suspended from trading until these issues will be resolved.
  • According to Bada’a Al-Karada court decision on Aug. 28, 2017, ISX will auction starting March 6, 2018 North Bank (BNOR) shares amounted 4.8 bn owned by Omer Mohammed Ahmed Al-Jaff for payment of IQD2.3 bn debt to Al-Mansour Bank (BMNS).
  • Iraq Noor Islamic Bank for Investment (BINI) will hold a GA on Feb. 22, 2018 to elect a new BoD. ISX will suspend trading of BINI starting Feb. 19, 2018. BINI will resume trading on Feb.25, 2018.
  • Metallic & Bicycles Industries (IMIB) disclosed signing investment contracts with the Chinese Company for Motorcycles Production and the British Himalaya Enterprise.

Iraqi Stock Market Jumps 11%

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Rabee Securities Iraq Stock Exchange (ISX) market report (week ending: 1st Feb 2018).

Please click here to download a table of listed companies and their associated ticker codes.

The RSISX index ended the week at IQD876 (+10.8%) / $912 (+11.0%) (weekly change) (+8.0% and +9.1% YTD change, respectively). The number of week traded shares was 5.8bn and the weekly trading volume was IQD4.6bn ($3.7mn).

ISX Company Announcements

  • In accordance with the duties of the Central Bank of Iraq provided in its law, and in order to ensure the stability of the banking sector and increase confidence in it, “the contract of establishment of the bank deposit guarantee company was signed with the founding body”, which included government and private banks, (6 government banks, 22 commercial banks and 16 foreign banks, 44 banks in total). It is expected that this company will play a major role in protecting the banking sector, especially the deposits of the public (individuals and companies), which will enhance confidence in the banking sector inside Iraq and in the correspondents of banks outside Iraq, which will contribute to attracting more deposits and reuse them in credit and investment to serve the Iraq economy. The capital of the company is IQD100 bn, of which 30% is owned by the private banks, 25% is owned by the government and remaining 45% will be offered for public subscription. (CBI)
  • The Director of the Information Office of the Central Bank of Iraq (CBI), Acer Jabbar said that the CBI is keen to diversify its foreign reserves and diversify the basket of currencies in the investment portfolios as well as the geographical distribution of investments of the bank. According to that, the CBI signed an agreement with People’s Bank China which will contribute to the development of banking relations with global economies, especially with the Chinese economy. (CBI)
  • According to the CBI letter (dated back on Jan. 24, 2018) sent to all licensed banks and money transfer companies regarding letters of guarantee (LG), CBI BoD decided that the money transfer companies will decide on one of the following options for providing LG to the CBI without violating their license: 1) Providing the CBI an LG of 50% of their capital issued by one of CBI’s licensed banks. 2) Depositing IQD100 mn in the margin accounts of the CBI by depositing it in one of CBI’s licensed banks instead of providing an LG as mentioned in the first article. (CBI)
  • AL- Kindi of Veterinary Vaccines Drugs (IKLV) will hold AGM* on Feb. 18, 2018 to discuss and approve 2016 annual financial results. ISX will suspend trading of IKLV starting Feb. 13, 2018.
  • North Bank (BNOR) will resume trading on Feb. 4, 2018 after fulfilling ISC disclosure requirement and publishing 2016 annual financial results. The opening price will be IQD0.20 with +/-50% change for the first trading session.
  • Sumer Commercial Bank (BSUC) will resume trading on Feb. 4, 2018 after discussing and approving 2016 annual financial results.
  • The ISC approved on Jan. 23, 2018 trading of Trans Iraq Bank for Investment (BTRI) in the regular market instead of the non-regular market starting Jan. 28, 2018.