Investing in Iran’s Capital Market

Overview of Iran’s Financial Instruments Equity Instruments Stocks Project Fund Options Embedded Put Option Debt Instruments Salam Ijara Murabaha Musharaka

Islamic Securities (Sukuk) The term Sukuk was first proposed for Islamic financial instruments in 2002 in a meeting at sharia committee of Islamic Development Bank. This word is an Arabic equivalent of the word “Cheque” in Persian language, meaning “Document” and “Promissory note”. In general Sukuk could be considered fixed or floating rate asset backed securities (ABS) that are tradeable in secondary markets and are created based on Islamic laws.

Islamic Securities (Sukuk) Difference between Sukuk and debt securities: Sukuk indicate partial ownership of a specific asset, whereas debt securities indicate a debt obligation. The underlying assets of Sukuk should be compliant with Sharia, where as debt securities are not concerned with this matter. Creditworthiness of Sukuk is independent of issuer and is evaluated based on the value of underlying assets, but debt securities’ rating is based on issuer's credit worthiness.

Islamic Securities (Sukuk) Difference between Sukuk and debt securities (cont.): Sale of Sukuk in secondary markets, is a sale of an asset ownership, but sale of debt securities is a sale of debt. In sukuk, there is a possibility of increase in the value of underlying asset and therefore the value of the sukuk itself, while the principal in the debt securities has no potential for increase.

Salam It is a contract in which price of the asset is paid at the time of signing the contract and the asset will be delivered to buyer in a certain date in future. Secondary transactions are possible in form of “Parallel Standard Salam”; in which original buyers can trade the assets with the same specifications of the first contract in secondary market and completely withdraw from original transaction and refer the new buyer to the original seller. The exchange traded Salam is called “Parallel Standard Salam”.

Characteristics of Parallel Standard Salam Being based on assets: It is issued with being backed by issuers production. Liquidity: It is tradable in secondary markets. Specification of minimum and maximum profit in Parallel Standard Salam: Minimum and maximum yield of the securities are determined by issuing embedded put and call options. Tax exempt status: Transaction of these securities is exempted from taxation. Possibility of physical or cash settlement by the choice of investor

Foreign Currency Parallel Standard Salam Based on assets with a global market (e.g. Petrochemicals) Issuance with foreign currency denomination Coupon payment with foreign currency denomination High profitability rate Tax exempt

Clearing and settlement of Foreign Currency Parallel Standard Salam transactions Custodian banks outside Iran Foreign currency denominated cash settlement Possibility of physical settlement by request of investor

Ijara Securities Ijara is a security that its holder is joint partial owner of its underlying asset. Characteristics of Ijara: Lease payment as coupons Fixed coupon Monthly, quarterly and semi-annual coupon payments Payment of principal at maturity Existence of guarantor for coupon and principal payments Market making of securities by authorized entities

Murabaha Securities One of the various types of purchase contracts is the Murabaha, which has been popular since old times. And it means that the seller discloses the cost of the goods, including the price of goods and the costs of transportation and maintenance and other related costs, to the customer then requests an additional amount or percentage as profits. Murabaha securities are securities whose holders are joint owners of the financial assets (debt obligation), which are obtained on the basis of the contract of Murabaha, and the security holder is the owner and creditor of that debt.

Murabaha Securities Characteristics of Murabaha Installments as coupons Fixed coupon Monthly, quarterly and semi-annual coupon payments Payment of principal at maturity Existence of guarantor for coupon and principal payments Market making of securities by authorized entities

Musharaka Securities Musharaka securities, are bearer or registered securities that are issued with a specified par value and maturity and are sold to the investors that intend to participate in the projects that are subject of article 1 of “The law on the issuance of Musharaka”. (Ratified by Iranian parliment). Holders of the securities will receive the profits of the project proportional to the par value and holding period of the securities. Buying and selling these securities directly or through exchanges is permitted Minimum share of contribution for issuer in each project (including cash and non- cash contributions) and the individual ceiling of issuable securities for projects that are subject of Musharaka, are determined by financial and credit status of issuer (Except for government’s for-profit construction projects)

Musharaka Securities Characteristics of Musharaka Interim partial profit payments Final settlement of profit at maturity Payment of principal at maturity Existence of guarantor for coupon and principal payments Market making of securities by authorized entities

Project Fund Project fund is a type of an investment fund which is created for completion of a project. Project means a manufacturing or service project that its general specifications are stated in the fund's prospectus and its detailed specifications are included in the project feasibility study. And the purpose of the fund’s activities is the financing the project until it reaches the operational phase.

Project Fund Characteristics of Project Fund No interim interest payments Investing in profitable projects Transfer of the project and identifying the profits of investment Market making of securities by authorized entities

About Arman Investment Bank

Financial Products & Services Investment Funds Financial Products & Services Fixed-Income Funds Islamic Securities Leasing Finance Project Finance Under Writing M&A and Valuation Asset Management Market Making Venture Capital

Our profile Leading Debt Issuer Established in 2011, Arman has issued ~$700 million of different bonds until June 2017 With a rapid growth, Arman has ~$100 million of bonds in pipeline, to be issued in 2017 Biggest Fixed Income Fund Manager Arman manages the biggest fixed-income fund of Iran AUM of ~$8billion #1 Iranian investment bank with ~$8 billion of asset under management Fastest growth amongst Iranian Investment Banks in terms of AUM Comprise of a number of credible and leading Iranian banks as shareholder Provider of the most comprehensive financial products’ platform in the country Rapid Growth Having an experienced local team (including former senior executives of Iranian SEO and exchanges), Arman is the first choice of many leading firms and institutions, for different advisory services Advisory, Valuation and M&A Services

Manager of biggest fixed income fund in Iran Current AUM is about 20% of total fixed-income AUM of the country Daily AUM Chart

Contacts Babak Bagheri Deputy Executive Officer of Investment Banking Division No.6 14th St. Beyhaghi Blvd. Argentina Sq. Tehran, Iran Phone: +982188171794-5 bagheri@armanib.com

http://en.armanib.com/