EFG-Hermes Offers ISX Shortcut

[WhiteFeather]

EFG-Hermes Offers ISX Shortcut
Posted on 14 March 2012. Tags: Custodian Banks, EFG-Hermes, ISX

At the end of last month the Egyptian investment bank EFG-Hermes announced that it would begin offering equity swaps on ISX-listed shares to institutional investors. This new product has the potential to bring about a dramatic increase in foreign participation in the Iraqi stock market.

An equity swap allows an investor to earn the return on the underlying name without actually owning any shares. The issuer of the swap mimics the performance of the stock by doing trades in its own account that parallel clients’ buy and sell orders while simultaneously debiting or crediting their cash accounts by the corresponding settlement amounts.

Swaps have three main advantages. First, they replace local counterparty risk with that of the issuer. Second, they eliminate the need for a custodian bank. Third, they can greatly simplify the investor’s back office and audit work.

In a market like Iraq, these are all important considerations. Many foreign institutions will be unwilling to accept the risk of dealing directly with Iraqi brokers. So far no one is offering custody services for ISX-listed shares, which means that many funds cannot invest at all. (See this post for more on custodian banks.) And even when the Iraq Securities Commission finally gets around to issuing custodian banking licenses many investors are still going to find dealing with EFG-Hermes to be a lot less trouble administratively.

In fact, even in markets like the UAE, Qatar, and Kuwait—all of which have custodian banks—many foreign investors continue to prefer swaps solely for the sake of ease of settlement and execution.

The lack of a custodian for ISX-listed shares is suddenly starting to look like a red herring. Institutions no longer need to wait for this problem to be sorted out. Now they can start trading in the time it takes their own legal and compliance departments to review the EFG-Hermes swap agreement. (This is a non-ISDA document so this process may take a bit longer than it otherwise would.) Some may be ready to take the new shortcut to Iraq as early as the end of this month.

http://www.iraq-businessnews.com/201...-isx-shortcut/

[WhiteFeather]

EFG-Hermes Offers Iraq Equity Swaps
Posted on 28 February 2012. Tags: EFG-Hermes, Equity swaps, Stock Exchange, stock market
Bloomberg reports that EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, started offering an equity-swap product linked to Iraqi securities.
This potentially allows investors to benefit from the nation’s economic growth, which the World Bank estimates at 12.6% in 2012.

“Despite the prevailing risk-averse nature of investment in the Middle East and North Africa region, we have seen a high level of demand for access to this new frontier market,” said Julian Bruce, the Dubai-based director of institutional sales trading at EFG-Hermes.

The Iraq Stock Exchange’s ISX Index advanced 17 percent last year, according to data on the bourse’s website. The MSCI Emerging Europe, Middle East and Africa Index dropped 23 percent in the period. The Iraq index, comprising 87 companies, had a market value of 4,930 billion Iraqi dinars ($4.2 billion) at the end of 2011. Foreign investors bought shares valued at $147 million last year compared with $52 million in 2010.

Equity swaps are an echange of cash flows between two parties that allows each party to diversify its income, while still holding its original assets. They also allow large institutions to hedge specific assets or positions in their portfolios.
The product will remove “both the domestic Iraqi broker counter-party risk and the labor-intensive procedures involved in domestic execution,” added Bruce.

Note,
Iraq to Grow 36% in Three Years
Posted on 20 January 2012. Tags: gdp, Growth, World Bank

The World Bank says it expects Iraq’s gross domestic product (GDP) to grow by 12.6 percent in 2012, and 10.2 percent in 2013, following a growth of 9.6 percent last year.

If achieved, this would give a compound growth of 36 percent in just three years.

This follows a downward revision of growth expectations for the world as a whole, with the global economy expected to expand 2.5 and 3.1 percent in 2012 and 2013 (3.4 and 4 percent when calculated using purchasing power parity weights), versus the 3.6 percent projected in June for both years.