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Monday, November 21, 2005

The Iraqi Stock Market

The Iraqi Stock Market

There are currently 112 stocks on the Iraqi stock market.

Some examples:
Al-Hadder for Film and Television Production (not yet trading)
Al-Karkh Entertainment City (KARK) trading at 1/2 a US penny. They claim to be getting a high return on assets from 2000 to 2003. Incorporated in 1989, IPOed in 1992.
Al-Mosul for Entertainment Cities and Tourist Investments (MENT) also trading at 1/2 a US penny.

An article in the Christian Science Monitor.
American investors can't buy shares of Iraqi companies and most foreign firms doing work there are too big for their Iraq business to contribute much to the bottom line.
You can't invest in it yet, due to Iraqi law right now, but this is likely to change (the US lifted the investment ban in 2004).
Definitely our most asked question, as of 08/17/2005, the answer is "soon". The legal framework has been put in place by the Interim Iraqi government, but the final approval has yet to be given by the Iraqi Securities Commision. This approval appears to be waiting on the completion of the formation of the newly elected Iraqi government, which is taking some time to complete.As soon as this final approval is granted, the ISX will formally announce that trading will open to foreigners, and we will announce it as well through our member newsletter and on our front-page.
There's a stock picking contest underway.

The Coalition Provisional Authority law on the Iraq securities market.
The Baghdad Stock Exchange was replaced with the Iraq Stock Exchange, a not-for-profit, member-owned, self-regulatory organization, independent of the Iraqi Government and Ministry of Finance.

Listed companies must:
  1. Have held an annual meeting
  2. Submit publicly available financial statements not more than 6 months old.
  3. The Depository must certify the securities based on fuzzy and unclear requirements.
  4. The securities are not subject to legal restrictions on transfer.
  5. Vague requirement for public disclosure of information that might affect the stock price.
  6. The Exchange can remove a company's securities from trading.
  7. Unaudited quarterly results with balance sheet, income statement, and cash flows using GAAP standards that are totally unspecified right now.
  8. Audited annual results "in accordance with international accounting standards to the extend permissible under the standards in force in Iraq." What standards? The company has 150 days to file, with possible extensions. Wow, that's a long time.
  9. Annual report has comparative information to prior year.
  10. Auditor must sign report and give an opinion.
  11. Annual meeting within 60 days of audited results.
  12. The Exchange can impose additional requirements.
  13. The Board of Governors may adopt separate rules for listing and trading.
  14. You can't trade outside the exchange except for gifts and inheritance to relatives etc.
  15. Then there are various rules for brokers, such as having a high school education or equivalent.
  16. Oversight rules seem to be not very well spelled out.
  17. They do cover clearing and such.
  18. They have the usual officers and 10%er rules.
  19. The Exchange "shall have" a Business Conduct Committee which does enforcement.
Signed L. Paul Bremer (who is gone now)

This is one of those cases where you can write down whatever you want, but what counts is a functioning system with proven enforcement and actual compliance. I wouldn't expect this to be working well right out of the chute. And all those rules are going to be re-written soon.

I'd say the best way to benefit from the Iraq Stock Exchange would be to act as an analyst or a broker and get established as a source of knowledge and a focal point.

Iraqi Traders Complain about New Trade Policy
A general manager at the Iraqi trade ministry said that small Iraqi firms lacked the financial muscle to compete for tenders worth millions of dollars, and that previous dealings with them had been difficult.
Internet Cafe's spreading
Oil for Fraud
A Bahrain bank invests in Bank of Baghdad. I'd be curious to see their financial statements and how they compare to banks I've looked at in the US in terms of things like non-performing loans, interest rate spread, etc.
A former U.S. occupation official in Iraq bought real estate, cars, jewelry and home improvements with the kickbacks he received from a businessman who won more than $13 million in reconstruction work, federal authorities say.
He had a prior conviction in the US.

USAID is still doing lots of seminars to bootstrap the Iraqi private sector, which is important.

It's funny, you look at (scroll down to the bottom) the news from the local Iraq news sources and it's the basic stuff you expect to see from a functioning community, like reading a local newspaper. Then you look at the US news sources and it's all political posturing.

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