Corporate Iran pins hopes on overseas financial charm offensive

October conference will be the largest gathering of Iranian commercial officials in London for years
Corporate Iran pins hopes on overseas financial charm offensive
By Reuters
Thu 09 Oct 2014 11:11 AM

Iranian banks and firms will seek European investors willing to bet on thawing ties with the outside world in London next week, hoping to overcome caution or even outright hostility among Western governments and pressure groups.

The October 15-16 conference, the largest gathering of Iranian commercial officials in London for years, aims to attract capital which the country badly needs due to its long isolation under international sanctions.

But the Europe-Iran Forum is being held at a politically sensitive moment as world powers try to reach a deal with Iran on its nuclear programme before a Nov. 24 deadline.

While two former Western foreign ministers are due to speak, no top government officials are listed as participants. Britain says it still does not encourage trade with Iran despite an easing of tensions since President Hassan Rouhani, viewed as a pragmatic cleric, succeeded the fiercely anti-Western Mahmoud Ahmadinejad in 2013.

The US Treasury, tasked with enforcing sanctions, declined to comment on the Forum, while one campaign group said the meeting could ease the economic pressure on Tehran to halt its nuclear programme, which the West fears has military aims despite Tehran's denials.

Iran's economy has struggled, particularly since the tougher, nuclear-related sanctions were imposed in 2006. Its banks have been frozen out of financial markets and much of its oil export revenues have been blocked.

But Rouhani won the election on promises to repair Iran's relationship with the outside world, and this has raised hopes for the conference - which the organisers have billed as being fully compliant with sanctions - after some false dawns.

"There is a sense among participants that change is about to come. We have all been wrong before," said Amir-Ali Amiri, a founding partner in ACL, an investment firm focused on Iran. "We are all in it for long-term value creation. So more exposure of the private sector in Iran to competition with other sectors is a good thing for us. There is a first step in every journey."

Scheduled speakers include Martin Sorrell, chief executive of advertising group WPP, as well as Jack Straw and Hubert Vedrine, former British and French foreign ministers respectively. The Forum also has the blessing of Rouhani, whose chief of staff has written a letter of support to the organisers, media company European Voice.

With a population of close to 80 million and more of its young people going into higher education, Iran wants to diversify beyond oil to everything from technology to pharmaceuticals.

The IMF forecasts its economy will grow 1.5 percent in the current fiscal year, rising to 2.2 percent in 2015. This marks a rebound from a 1.9 percent decline in 2013, but remains far from 5 percent growth rates achieved before the sanctions bit.

ACL's Amiri, who is also a director of the Iranian agent for Renault Trucks, said the automotive sector also wanted to develop. He estimated a potential annual market of 1.5 million cars, 20,000 trucks and 3,000-4,000 buses, equal to the rest of the Middle East put together, excluding Egypt.

Majid Zamani, chief executive of Iran's Kardan Investment Bank, said the Islamic Republic needed about $100 billion in foreign capital overall, and he expected it to attract $20-$30 billion over three to five years. "We need foreign capital for these projects. There is no other way," he said.

Outlining Kardan's plans, he said: "Our aim is to raise funds in the range of $500 million to $1 billion in the next couple of years for a variety of oil, gas and petrochemicals projects."

Iranian banks want closer cooperation with companies in the United States and Asia as well as in Europe, said Parviz Aghili, chief executive of Tehran-based Middle East Bank. "We certainly would be involved in financing and being the local advisers and opening l/cs (letters of credit) for these various industries. We will expand our international business," said Aghili.

Middle East Bank says it focuses on financing humanitarian trade, including food and pharmaceuticals, which is exempt from the sanctions. Nevertheless, it was put on the US Treasury's sanctions list in August under measures against the broader Iranian banking system.

For all the improvement in the diplomatic mood under Rouhani, Iran's isolation remains far from over.

Tehran struck a preliminary nuclear agreement last year with the world powers, known as the P5+1, winning a limited easing of the sanctions. However, talks in New York last month on reaching a final settlement before the deadline made little progress.

Western governments are not ready to push for better economic ties through events such as the London Forum.

A spokeswoman for the British Foreign Office said: "We don't support the event but may attend some sessions to ensure UK government policy is fully understood and to offer a realistic assessment of the current sanctions/trade picture. Our policy remains not to encourage trade with Iran."

A US Treasury spokeswoman declined to comment on the London conference, but Washington has made clear it is not going soft on enforcing the sanctions, penalising a number of firms and individuals in February for breaking them.

This sent a message that the United States would "come down like a ton of bricks" over such violations, David Cohen, undersecretary for terrorism and financial intelligence at the Treasury, said in April.

French bank BNP Paribas agreed in June to pay US authorities a record $8.9 billion penalty over sanctions violations with countries including Iran and related conduct.

Even if the diplomats achieve a settlement, President Barack Obama will find it tough to sell such a deal to a sceptical Congress. In a letter sent last week to Secretary of State John Kerry, hundreds of lawmakers expressed concerns that a deal might not require sufficiently strict inspections of Tehran's nuclear facilities.

Israeli Prime Minister Benjamin Netanyahu bluntly told Obama last week that he must make sure that any final deal does not leave Iran at the "threshold" of being able to develop nuclear weapons.

One US pressure group, which backs tougher sanctions against Tehran, has already criticised the London conference. "The presence of European businesses at the Europe-Iran Forum directly contravenes the efforts of the international community to maintain economic pressure on the Iranian regime," said United Against Nuclear Iran.

Iranian business leaders accept that capital is unlikely to flood in rapidly even if the sanctions are eased further. However, they hope compatriots abroad will set the ball rolling.

"I believe that the first group who will enter post-sanctions will be expat Iranians who have a level of familiarity with the Iranian investment scene," said Kardan's Zamani.

Amiri said ACL was working on raising money to invest in the Tehran Stock Exchange but was not accepting funds yet. "Until that situation resolves itself, which is a function of sanctions-lifting to cover funds flowing into the country, we won't be taking subscriptions," he said.

With a liquid and well-developed stock market and diversified economy, Iran represents a major investment attraction, but achieving this would take time, said Dominic Bokor-Ingram of asset manager Charlemagne Capital.

"My estimate is it would take at least a year before most people would be able to invest," said Bokor-Ingram, who visited Iran this year and planned another trip soon. "The sanctions that particularly need to be lifted is the ability to transfer money. It is difficult to make investments otherwise."

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