EFG-Hermes Starts Iraq Equity Swaps to Meet Investor Demand

EFG-Hermes Holding SAE, the biggest publicly traded Arab investment bank, started offering an equity-swap product linked to Iraqi securities, potentially allowing investors to benefit from the nation’s recovery from decades of war and sanctions.

“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 product will remove “both the domestic Iraqi broker counter-party risk and the labor-intensive procedures involved in domestic execution.”

Almost a decade after a U.S.-led invasion toppled dictator Saddam Hussein, Iraq’s economy is set to expand 12.6 percent in 2012, the fastest among MENA countries, according to the International Monetary Fund. Regional markets were hurt last year amid uprisings that ousted leaders in Egypt, Libya and Tunisia and investor concern Europe’s debt crisis may spread.

“The idea of investing in Iraq is appealing depending on the price one needs to pay for an opportunity, the reliability of the platform that you will invest through and the robustness of the investment propositions,” said Yazan Abdeen, a Dubai-based Middle East and North Africa fund manager who helps oversee $250 million at ING Investment Management (Dubai) Ltd. “Generally, it’s a market that should be interesting.”

Hedging Risk

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.

The ISX index fell 0.2 percent to 123.16 today, according to the bourse’s website.

Equity swaps are an exchange 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.

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