Investors in the Iran’s capital market helped businesses raise 853 trillion rials ($7.1 billion) since the beginning of the current fiscal year (March 2019), says Ali Sahraee, the managing director of TSE.
Businesses borrowed 1,250 trillion rials ($10.4 billion) from the capital market in the last fiscal year (March 2018-19), using various instruments such as treasury bonds, debt financing or IPOs, he added.
Drawing parallels between the share of stock market financing in Iran and the developed countries, Sahraee said businesses in Iran are largely bank-oriented when it comes to borrowing.
“The contribution of funding via the stock market in Iran is about 11% it is 50% in many developed countries,” Fars News Agency quoted him as saying on Saturday.
He pointed to the costs involved as a key factor determining the inclination of businesses toward borrowing from banks.
Giving an example, the TSE chief pointed to the potential of put and call option contracts as one of the effective financial instruments in financing a large part of businesses, saying tax is the main snag in financing via the stock market.
“Put and call option can procure funds worth 10 trillion rials for businesses, but the fact of the matter is that tax liabilities raise the costs for businesses.”
A call option gives the buyer the right, but not the obligation, to buy the underlying security at the exercise price, at or within a specified time.
A put option gives the buyer the right, but not the obligation to sell the underlying security at the exercise price, at or within a specified time.
Tax Factor
To increase the contribution of capital markets in the financial system, Sahraee says, "We need to rewrite taxation rules."
He went on to add that "Capital is exempt from tax if it is provided by banks, whereas this is not the case when the money is raised from the stock market," he said.
Capital market managers have made proposals to address the issue, but "Considering the current economic conditions, the government does not want tax exemptions. The government is planning to rely on taxes as its main source of revenue."
He also supported the Central Insurance company’s plan to increase contribution of the insurance industry to the capital market from 20% to 40%, saying that participation of 32 insurance companies would augment the tight financial market.
"Insurers are familiar with risks and market analysis, therefore their presence in the market could help prevent herding behavior," Sahraee was quoted as saying.