IRANS CAPITAL MARKETS THE FUTURE IS BRIGHT DECEMBER 2017 A SSET M - - PowerPoint PPT Presentation

IRAN’S CAPITAL MARKETS

THE FUTURE IS BRIGHT DECEMBER 2017

ASSET MANAGEMENT AND PRIVATE EQUITY

WHAT WE DO

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GRIFFON CAPITAL OVERVIEW

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Griffon Capital is an Asset Management and Private Equity group focused solely on the Iranian market

Founded and managed by a unique mix of shareholders and senior management

• n-the-ground

in Iran. The team has extensive experience in the Iranian market and has worked many years for top tier global financial institutions. Our team is further strengthened by a team of world class senior advisors who ensure that we align

• urselves with best international

practices Backed by a group of strategic shareholders, which include European and Middle Eastern family

• ffices

and international investment companies with extensive frontier market experience. These shareholders significantly increase the reach of our network and our ability to seed various investment vehicles and products

• ffered by our business units.

Our Asset Management and Corporate Finance Advisory platforms are fully licensed and regulated by the Securities and Exchange Organization (SEO) of Iran. We develop extensive in-house research covering over 16 sectors. Our Corporate Finance team has a successful track record of completing transactions for leading international clients.

Local / International Team Strategic Shareholders Licensed and Regulated

What do we do What sets us apart?

One of Griffon’s key differentiating factors is our competency to cover the whole spectrum of public and private equity markets. Aside from being able to provide a broader array of products to our investors, leveraging sector information from the public market as well as Private Equity insight, provides our team with a 360‘ view

• f the opportunities.

Public and Private Equity

THREE COMPLEMENTARY BUSINESS LINES

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Asset Management Cross-border M&A Private Equity

‒ Mergers & Acquisitions advisory ‒ Executed largest recent landmark k cros

• ss

bor border M&A de deals als in n Iran an ‒ Focused on creating synergies with Griffon’s PE fund ‒ Integrated an existing advisory firm in 2014 – ABIC ‒ an experienced team with over 13 13 ye year ars of f local exp xperie ience ‒ Strong deal track record ‒ Only team in Iran led by se senio ior investment ba bankers from top international investment banks ‒ Unique understanding of the local market ‒ Ongoing strategic dialogue with key players in the market ‒ Offering be bespoke po portfolio lio man management se servic ices that satisfy a broad mix of investor requirements ‒ Apr pril l 20 2016 16 launch- The he GIF GIF Fun und SP-

• pe

pen ende nded fun und investi ting in n listed equit quitie ies ‒ Investment philosophy and strategy based on fundamental, bottom up, proprietary research ‒ Strong team on

• n-the-ground- 50 years

combined (domestic & international)investment management experience coupled with analysts’ proprietary research covering 15 sectors ‒ Structure to allow institutional access ‒ Transparent and regulated structure ‒ Rob

• bust

t sa sanctio tions com

• mplia

liance framework k str tructured by by He Herbert Smit mith Freehills lls Lon London ‒ Cayman CIMA registered Fund with Fully licensed and regulated Domestic Manager ‒ Institutional standard risk framework and corporate governance ‒ Fir irst t Priv ivate Equ quity ity fund und and Club b Deal al pl platform for the Iranian market ‒ Focused on the consumer sector ‒ Unique team on the ground ‒ Unparalleled access to pr prop

• prie

ietary pi pipe pelin line of f de deals als ‒ 320+ companies met, 64 soft due diligence ‒ Building on strength of corporate finance team ‒ Unique position in the consumer and tech ecosystems ‒ Deep and extensive local l ne netw twork ‒ Focus on valu alue enh nhancement ‒ International level governance ‒ Reporting and auditing ‒ Operational efficiency ‒ Clear path to exit

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WHY IRAN?

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IRAN: THE FASTEST GROWING, LARGEST AND CHEAPEST ‘FRONTIER MARKET’

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Source: MSCI, TSE Source: MSCI, TSE

The highest dividend yield (hist.) The largest by Market Capitalisation The cheapest by P/E (hist.) ratio The largest number of listed equity securities

Source: Stock exchanges, TSE Source: MSCI, TSE

0.0 20.0 40.0 60.0 80.0 100.0 120.0 140.0 USD bn 438 383 342 335 299 195 190 172 150 124 83 73 67 45 6.5x 6.6x 8.4x 8.8x 10.7x 11.2x 11.8x 13.2x 13.5x 15.5x 15.8x 15.8x 19.9x 21.2x 10.6% 6.7% 6.5% 4.9% 4.5% 4.2% 3.7% 3.7% 3.4% 2.5% 2.4% 2.2% 2.1% 1.1%

WHY IRAN? FIRST MOVERS ARE ALREADY HERE..

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Wha hat mak akes Iran attrac active

• Very low valuations compared to other

markets in the region and peers.

• Economy grew 13% last Iranian fiscal year.

The stock market was up 29% despite political tensions. In its Iran focused report, McKinsey referred to Iran as the next trillion dollar opportunity.

• Large- PPP basis the economy is larger

than Australia and with a large demographic dividend – 80m population, 60% under 35.

• Diversified economy: largest exporter of

cement, 9th largest auto manufacturer, 4th largest in oil reserves, 2nd largest gas reserves, 9th in copper, 1st in Zinc and a vibrant Tech startup scene.

• Surprisingly

well developed: well developed with: 101% mobile penetration, 73% banking & ATM card penetration, 54 airports, two stock exchanges with over 400 actively traded companies.

Other mul ultinationals alr already ha have

• You are in good company - committed FDI

in 2016 according to IMF was $12 bn.

• Many multinationals and their products are

already present in Iran.

• Coke, Pepsi, Nestle, Danone, Henkel are to

name a few.

• Henkel recently purchased a plant for €153

million.

• Boeing recently signed a contact to sell

$3bn of planes to Aseman.

St Strategic loc location

• Direct beneficiary of OBOR (One Belt one

Road)- Hugely strategic transit route, Silk Road economics stand 2,200 years later.

• Regional population cluster ~300m people -

Warm water access for landlocked countries

DIVERSIFIED AND GROWING ECONOMY

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Source: CBI, World Bank

Oil accounts for only about 12% of the GDP Lowest external debt in the region

Source: The Mobile World

High banking and mobile penetration Developed infrastructure

54

Commercial airports

215,157 km

Roads

10,407 km

Railway

15

Ports

Source: CBI

101% 63%

Mobile penetration rate (Iran) Mobile penetration rate (Global)

92% 87% 61% 57%

Account at a formal financial instutation(%age15+) Account at a formal financial female(%age15+)

Iran Global

718 646 370 390 330 404 165 176 8 67

110 627 94 119 16

Turkey KSA UAE Iran Egypt GDP, Current Prices External Debt International Reserves

Industry, 12% Construction, 5% Social & private services, 14% Hotel and Restaurant Business, 13% Agriculture, 13% Utilities, 5% Financial services, 3% Transportati

• n &

communicati

• n, 10%

Real estate and professional services, 15% Oil & gas, 12% Other mining, 1%

DEMOGRAPHIC DIVIDEND: LARGE, EDUCATED, COST COMPETITIVE POPULATION

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Source: IMF, WEO Oct. 2015, Central Intelligence Agency, World fact book, Est 2015

50 100 150 200 250 300 350 400 450 500 Russia US Iran Japan

• S. Korea

Thousands

Source: World Economic Forum/UNESCO. Rank our of 124 countries excludes China, India.

Country $USD/month Australia 1810 USA 1257 Saudi Arabia 800 Korea 1124 Turkey 839 Brazil 386 Russian Federation 274 Iran 247

Iran’s minimum wage - 2015 80 million population growing at 1.24% 3rd highest no. of engineering graduates - 2015 0ver $17k GDP per capita (PPP)

70% of all engineering and science students are female

26.0 15.6 17.3 14.3 6.2 20.4 0.00 5.00 10.00 15.00 20.00 25.00 30.00 Russia Brazil Iran China India Turkey

Thousands

Source: IMF, 2015 71% Between 15-64

2.3% 1.9% 2.3% 2.2% 1.1%

• 0.3%

0.2% 0.7% 1.2% 1.7% 2.2% 2.7%

10 20 30 40 50 60 70 80 90 100 Egypt Iran KSA Turkey UAE

Millions

above 64 15-64 0-14 Urbanization rate

91 79 31 78 9

Source: OECD

SOME OF THE MULTINATIONALS CONSUMER BRANDS CURRENTLY PRESENT IN IRAN

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LOW HANGING FRUIT- GROWING FROM A LOW BASE

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ECONOMY GROWING FAST OFF A VERY LOW BASE

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Source: IMF, World bank Source: IMF

GDP composition growth: 2016 v H1 2017 Real GDP growth accelerating GDP growth constant prices (2016) Diversified economy (Oil only ~12% of the GDP)

Source: CBI

Industry, 12% Construction, 5% Social & private services, 14% Hotel and Restaurant Business, 13% Agriculture, 13% Utilities, 5% Financial services, 3% Transportati

• n &

communicati

• n, 10%

Real estate and professional services, 15% Oil & gas, 12% Other mining, 1%

Source: SCI 3% 29%

• 6%

4% 18%

• 14%

1% 7% 2% 15% 4% 9% 10% 5% 12% 11% 2016 2017 H1

0.3% 0.3% 6% 3%

• 8%
• 0.3%

3%

• 2%

13% 4% 4% 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E

13% 6% 6% 5% 4% 3% 3% 3% 2% 1%

• 2%
• 2%

EARNINGS- ‘THE ONLY WAY IS UP’

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Industry-level earnings growth Corporate earnings bottomed and now growing

Source: Codal.ir

The earnings upgrade cycle has just started

• All figures are based on a sample of 338 listed companies

2016/2015(hist.) 2017/2016(hist.) 2018/2017(e.) EPS Growth

• 28.8%

23.2% 11.3%

114 30 194 177 29 132 187 30 121 Upgrades unchanged Downgrades # of companies 2016/2015(hist.) 2017/2016(hist.) 2018/2017(e.) 2017/2016(hist.) 2018/2017(e.) EPS CAGR 2yr(e.) Base metals 2434.2% 88.6% 591.3% Motor vehicles 813.2%

• 48.7%

116.4% Refineries 140.8%

• 7.2%

49.5% Metal products

• 11.4%

123.4% 40.7% Metallic ore 55.4% 21.5% 37.4% Leasing 22.1% 27.6% 24.8% Investment companies 13.1% 24.9% 18.9% IT & computers 22.9% 10.7% 16.6% Telecommunication 13.1% 8.8% 10.9% Communication )Other( 17.9% 4.4% 10.9% Rubber & tyre 73.8%

• 33.5%

7.5% Utility 5.6% 8.5% 7.0% Insurance companies

• 11.6%

28.9% 6.8% Pharmaceuticals 10.5%

• 2.3%

3.9% Chemicals

• 9.8%

6.5%

• 2.0%

Foods excl. sugar

• 11.0%

3.1%

• 4.2%

Cements, limes & plasters

• 44.9%

60.2%

• 6.0%

Transportation & storage

• 10.0%
• 5.5%
• 7.7%

Engineering

• 7.7%
• 15.7%
• 11.8%

Banking

• 44.1%

34.1%

• 13.4%

Conglomerates

• 9.6%
• 23.9%
• 17.0%

GROWTH DRIVERS AND THE UPSIDE

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MARKET GROWTH DRIVERS

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Source: World bank *Estimate from Ministry of Economy and Finance Source: European Union, Eurostat

FDI started & foreign portfolio inflow to follow Real interest rates falling Iran-EU trade doubles

Source: CBI, TSE

2.3 2.0 2.0 3.0 3.6 4.3 4.7 3.0 2.1 2.1 11.8 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016* USD bn

2 4 6 8 10 12 14 16 18 20 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 H1

EUR bn Exports Imports

China trade resumes growth

30. 30.3 27. 27.5 14. 14.8 14. 14.8 24. 24.3 16. 16.4 5 10 15 20 25 30 35 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E

USD bn Export Import

7.2 8.8 6.5 9.2 2016-H1 2017-H1

25.7% 27.0% 25.5% 24.0% 24.0% 23.8% 23.3% 22.1% 18.5% 16.6%

8.6% 8.7% 9.0% 9.4% 9.8% 10.2% 10.3% 10.0% 9.9% 9.8%

17.2% 18.3% 16.5% 14.6% 14.2% 13.7% 12.9% 12.1% 8.6% 6.8% Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Average T-bill YTM Inflation Real interest rate

VALUATION DISCOUNT IS TOO LARGE: BASE CASE OF ~30% CAGR FOR NEXT FIVE YEARS

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Proprietary and Confidential

Source: MSCI, TSE, Bloomberg

TEDPIX P/E ratio- historical range Lowest PE ratio & highest dividend yield

PE ratio(hist.) Dividend Yield Expected returns scenario 2018 2019 2020 2021 2022 EPS Growth

10% 13% 16% 18% 20%

Dividend yield

8.3% 6.9% 5.7% 4.7% 4.5%

P/E ratio

7.2x 8.0x 8.7x 9.5x 10.0x

Total (local) Return

36% 36% 35% 36% 32%

USD/IRR depreciation

6% 6% 6% 6% 6%

USD Return

28% 28% 27% 29% 25%

5 yr. expected CAGR 27% - the ‘double kicker’

Country Start date Year 1 Year 3 Year 5 Turkey (XU 100) Mar 13, 2001 25% 32% 39% Russia (RTS) Sep 04, 1995 85%

• 14%

19% Vietnam (VN index) Jun 30, 2000 316% 13% 19% Prague (IPX) Sep 07, 1993 116% 20% 10% Pakistan (KSE 100 ) Dec 18, 1992 62% 6% 7% Shanghai (SHSEC) May 08, 1992 165% 7% 25%

New markets tend to perform well – CAGR guidance

3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17

6.5 19.4 15.8 15.5

2016

10.6% 2.4% 2.4% 2.2%

2016 Iran World Avg. EM Avg. FM Avg.

THE GIF FUND SP

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SERVICE PROVIDERS, STRUCTURE AND TERMS

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La Lawyers s & sa sanc nctions: Herbert Smith Freehills LLP Cayman Leg Legal Counsel: Walkers LLP Au Auditor: Grant Thornton (Cayman) Adm Administrator: Circle Partners (Netherlands) Ban Bank pa paying ag agent: Reyl & Cie Geneve Cus ustodian: Central Securities Depositary of Iran (CSDI) The Fun Fund: GIF Fund SP - a Cayman open ended Fund (SPC) The Investment Man anag ager: Griffon Asset Management (Cayman) Sub Sub Ad Advisor: Modababran Homa, fully licensed asset management firm, regulated by the Securities Exchange Organization of Iran (SEO) ISI SIN KYG3864W1015 De Denomination: Euro Sha Share Cla lass ss: Class A Man anag agement Fee ee: 2% Per erformance Fee ee: 20% Min inimum Sub Subsc scription: Eur100,000 Loc Lock up up: 6 months Hur urdle: 5% HWM: Yes Liq Liquidity Sub Subscriptions: Monthly Liq Liquidity Redemptions: Monthly (90 day notice)

STOCK MARKET - RECENT PERFORMANCE

TED TEDPIX Far arabourse

800 840 880 920 960 1000 1040 1080 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 75000 78000 81000 84000 87000 90000 93000 96000 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

89,501 61,164 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 70,000 75,000 80,000 85,000 90,000 95,000

• Govt increase in feed stock and

raw raw mat material pr price ces

• Contractionary monetary policy
• Concerns about negotiations
• Period of consolidation post JCPOA led

sentiment t & liquidity ra rally

• High real interest rates
• Banking sector challenges
• Slower than anticipated engagement of large

inte nternati tional ba bank nks with Ira ran

TEDPIX – THE MAIN INDEX - BREAKS ABOVE ITS ALL

ALL-TI TIME HIGH

20

• 32%

JC JCPOA Imp mplementation Da Day

• Real interest rates fall

sign gnifica cantl tly

• Higher commodity prices &

export led d growth

• Strong corporate earnings

208%

• Sign

gnificant incr ncrease in n liquidity

• Und

ndervalued pr privatiza zations

• De

Devaluation of

• f the

he cur urrency and nd weight t of

• f

exporters in n the he ind ndex

95,601

21

COMPARATIVE GROSS PERFORMANCE (GAV)

850 950 1,050 1,150 1,250 1,350

Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 GIF RIAL GIF USD GIF EURO TEDPIX RIAL (rebased)

STRESS TESTING AND RISKS

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• 100
• 50

50 100 150

• 20%
• 10%

0% 10% 20% 30% 40% 50% 60%

Inflation, average consumer prices GDP growth Oil revenue

STRESS TESTED: RESILIENT ECONOMY DESPITE WAR AND SANCTIONS

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1979 1979 U.S. bans Iranian imports 1995 1995 U.S. bans energy investment, trading in

• Iran. Sanctions foreign

firms investing in Iranian energy sector 2006 2006 U.N. freezes assets

• f those linked with

nuclear program Mar r 07 07 U.N. imposes arms, financial sanctions, extends asset freeze Oc Oct 07 07 U.S. sanctions Banks Melli, Bank Mellat and Bank Saderat Mar r 08 08 U.N. imposes travel and financial curbs, trade ban Jan n 11 11 U.S. announces new unilateral sanction on Iran Nov

• v 11

11 Wester states step up sanctions on Iran in response to a report suggesting it had worked on designing an atomic bomb Jan n 14 14 JPOA outline agreed between Iran 5+1. Iran EU lifts sanctions on petrochemicals, Auto and gold. Iran receives $700 million every month from blocked oil sales proceeds.

80 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

War US Sanctions UN Sanctions EU Sanctions

1980 1980 – 1988 1988 almost 200,000 killed or MIA Estimated economic loss

• f US$550 - 650 billion

Oil Production level dropped from 7 million bpd to almost 1 million bpd as fields were targeted by Iraq.

(%) (%) (bn USD)

16 Jan n 16 JCPOA Implementation day on January 2016

CURRENCY- LOWER INFLATION & MORE CURRENCY STABILITY

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• The average annual depreciation of the Iranian rial versus the US dollar, over the last 3 years, has been ~ 6.5%/year.
• Current US/IR CPI differential is around 7-8%. With increase in oil and export revenues since the Nuclear deal was struck, the

risk of devaluation has significantly diminished. Nevertheless, despite the recent stability its prudent to consider a gradual depreciation in line with the CPI differential.

• 20%

0% 20% 40% 60% 80% 100% 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017Q3 FX change (free market rate) Inflation differential (Iran & US)

WHAT ABOUT SANCTIONS?

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• Vast majority of sanctions removed (EU, UN & US secondary)
• Risk is now to a large extent eliminated, especially for non-US persons
• US persons for the most part fall outside the scope of the JCPOA
• A number of sanctions remain (namely nuclear and human rights related)
• According to IAEA Iran is in compliance with the agreement (JCPOA). Certain steps

taken by Iran to comply are irreversible. In the unlikely event that sanctions return, the flow of funds will become restricted as many of the banks that currently deal with Iran will likely halt/reduce their operations.

• The agreement is between Iran and 5+1 meaning Germany, UK, Russia, France, US and
• China. A series of none compliance reports/warnings and voting would need to take

place for sanctions to return. It will not be an overnight event and there will be ample

• pportunity to unwind liquid positions.
• As for PE and VC its important to note that even during sanctions many large foreign
• wned multinationals continued to operate in Iran in the consumer sector. Sectors

related to food and medicine were never targeted by sanctions.

DISCLAIMER

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“IMPOR ORTANT: This presentation (the “Presenta tati tion”) has been prepared by Griffon Capital exclusively for the benefit of the recipient to whom it is addressed, which shall in particular not include any US or any other persons subject to the remaining sanctions laws or authorities (the “Reci cipient”). The Recipient (i) is not permitted to reproduce in whole or in part the information provided in this Presentation (the “Information”) or to communicate the Information to any third party without Griffon Capital’s prior written consent; and (ii) is to keep permanently confidential all Information that is not already public. This Presentation (i) is for discussion purposes only; (ii) is not intended as an invitation, offer or solicitation for making an investment in any jurisdiction; and (ii) speaks only as of the date it is given, reflecting prevailing market conditions. The views expressed are subject to change based upon a number of factors, including market conditions. Neither the delivery of this Presentation at any time nor any future investments shall under any circumstances create an implication that the Information is correct as of any time after such date. Neither Griffon Capital nor any of its affiliates, subsidiaries, employees, members, advisors, representatives or agents (collectively, "Representa tati tives") have made or make any representation or warranty as to the accuracy or completeness of the Information and the Representatives shall have no liability for any misstatement or omission of fact or any opinion expressed herein. The Presentation is not exhaustive and does not serve as legal, business, accounting, tax or any other advice, and it may not be relied upon by the Recipient in evaluating the merits of investing in the suggested jurisdictions. Nothing herein shall be taken as constituting the giving of investment advice and this Presentation is not intended to provide, and must not be taken as, the basis of any decision and should not be considered as a recommendation by Griffon Capital. The Recipient must make its own independent assessment and such investigations as it deems necessary such as consulting business, legal and tax advisors. Only these business, legal and tax advisors will be able to appropriately take into account the circumstances relevant to the legal implications and/or tax treatment of each investor. It is the responsibility of the investors to satisfy themselves that any investments made will not expose them to liability under the laws of any state to which they are or may become subject. Under no circumstances is Griffon Capital or any of its Representatives acting or deemed to be acting as the agent representative or fiduciary of the Recipient. Griffon Capital, together with a group of international legal sanctions experts, have integrated a robust compliance procedure to adhere to the remaining US and EU sanctions against Iran, and related international regulations. The Recipient of this Presentation, acknowledges and agrees that neither Griffon Capital nor its Representatives shall have (a) any duty to provide access to any additional information or to update or correct any information or (b) any liability to the Recipient or its Representative resulting from the use of such Information.

DECEMBER 2017

101, No 38, Golfam Alley, Africa Blvd, Tehran, Iran Tel: +98 21 26231278 www.griffoncapital.com

ASSET MANAGEMENT AND PRIVATE EQUITY