Erbil Stock Exchange
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Erbil Stock Exchange ESX in Iraqi Kurdistan working hard to reap fruits of labour

Tuesday, 06 May 2014 08:43 AM February 20, 2014

ERBIL-Hewlêr, Kurdistan region 'Iraq',— Sat in his office on the fourth floor of the Erbil Stock Exchange (ESX), Lukman Surji has an unobstructed view of the city growing before him.

“Look, two years ago it was empty, and two years from now you won’t even recognise it,” says Mr Surji, the smooth-talking ESX communications boss, in a southern US drawl picked up from three decades living in Nashville, Tennessee.

It is a situation he hopes can serve as an analogy for the ESX, the headquarters of which — like Erbil — remains noticeably unfinished. Its bare concrete lobby and sparse offices demonstrate that Iraqi Kurdistan’s first bourse is still a work in progress, but the ambitious returning Kurds from Europe and the United States who staff the building talk excitedly about what is to come.

As we wait for the new stock exchange chairman Abdullah Abdulraheem, Mr Surji is visited by a parade of staff and he introduces each new face in turn.

“Californian, British, Swedish,” he says proudly.

“I get so excited when Kurds return to Iraqi Kurdistan to serve. You don’t have to serve with a gun, you can serve with ideas.”

Such talk is much in keeping with the paradigm of Iraqi Kurdistan. Flush with cash and foreign interest and sat on millions of barrels of oil, a development boom has overtaken Erbil, already home to hundreds of new companies.
In light of that, this year looks like an appropriate time for the perennially delayed ESX – first mooted in 2010 – to get off the ground. With Mr Abdulraheem – a former economic adviser to the Kurdistan Regional Government’s (KRG) council of ministers – at the helm, it is due to launch this year, with promises of half a dozen initial public offerings from a range of sectors.

Mr Abdulraheem’s dual intentions are to persuade the millions of Kurds who do not trust banks and never have done to get on board with the country’s first bourse, as well as showing international investors that Iraqi Kurdistan is a long way from Baghdad, which is wracked by security woes and bureaucracy.

Mr Abdulraheem is apologetic about the delays to the launch of the exchange, but stresses that the extra work – which sees them working with Nasdaq OMX and the US-based consultant Louis Berger Group – was for the best. Indeed, analysts seem to agree.

“They have worked for sometime now on it and what I like is that they will try to fix everything before they launch,” says Shwan Ibrahim, the chairman of Rabee Securities, the Iraqi brokerage that arranged the Asiacell IPO in Baghdad last year.

One of the key challenges Mr Abdulraheem, Mr Surji and their team have faced is changing a mindset in the business landscape of Iraqi Kurdistan that has always been dominated by large, government-linked and family-owned firms. Just like in Dubai and Abu Dhabi, the exchange has had to persuade such firms that opening their books is not a bad thing, and point to the huge capital benefits of launching an IPO in a cash-rich country amid a financial boom.

But there is an elephant in the room: how does the ESX fit in with the Iraqi Stock Exchange (ISX) in Baghdad? On the surface, those associated with the ESX are quick to stress that the two bourses are partners, but the fact remains that with so many companies in the country up for grabs they will eventually have to choose between Baghdad or Erbil – or opt for dual listings.

Nothing illustrates this point better than the Iraqi telecommunications market. All three of Iraq’s telecoms are bound by law to go public as part of their licensing agreement, yet so far Asiacell is the only one to do so.

Last year the ISX’s chairman told The National that the other two, Zain and Korek, would eventually list in Baghdad; but as Korek is based in Iraqi Kurdistan, the question is whether it might in the end choose to list in Erbil.

Mr Abdulraheem shrugs when asked about the prospect. It is up to the companies themselves where they list, and they will choose whatever works for them — Erbil will be “a gateway” to Iraq either way, he says.

“Despite the fact that the ISX is in Baghdad and the ESX is in Erbil, we both back up the Iraqi economy. We have good relations with Iraq Securities Commission and Baghdad both. We have one goal.”

Mr Surji also stresses repeatedly that the ESX and ISX are not in competition with each other. “If they decide on Baghdad, then I will be happy for them,” he says with a smile.

Analysts agree, saying that the two exchanges will in the end compliment each other.

“I don’t think ESX is being put up to compete with ISX. It will only help promote further investments in places like Iraq,” says Ruchir Desai, a senior investment analyst at Asia Frontier Capital in Hong Kong.

At the ESX office in Erbil, the Iraq securities commission chairman Abdul Razzaq Al Saadi also sees the presence of two exchanges in Iraq as a positive step for the country.

“I think it is good for the private sector to have two [exchanges] fighting to see who will be the best. Personally, I like it, and also as a commission.”

For his part, Mr Abdulraheem is thinking big as he looks ahead to the launch of the ESX, pointing out that international companies could opt for dual listings in Erbil as well as the Arabian Gulf, Europe or the US as a way of cementing their presence in Iraqi Kurdistan and attracting a great deal of local capital in the process.

Emaar has already waded into the region — launching a US$3 billion project in Erbil last year — and while the UAE’s Dana Gas remains locked in a dispute with the Kurdish government over unpaid fees, it also has a significant presence in Iraqi Kurdistan.

Then there are the oil companies and the myriad service providers who follow them.

At the Erbil Stock Exchange office, the team is planning the future even as their current form remains a work in progress.

“We’re moving to a new building actually,” says an ESX board member.

“It’s definitely just temporary here,” he laughs. “It’s too small.”

And, as the well-worn phrase has it, from acorns do oak trees grow.