This is an extract from the 2017 FRS Middle East Report. To receive a full copy email email@example.com
Last year we wrote about how investors were keenly waiting to see whether the lifting of sanctions on Iran would open the country up to the global market. Banks were seen as being cautious about doing business in Iran, and there was great confusion over remaining sanctions, leaving it unclear if the potential rewards in entering the market outweighed the risks. In the past year we have seen some big deals being made, but not without difficulty, and it appears that those who stand to gain must be the most persistent, best informed and most patient of investors.
In a round table discussion held by Legal Business and Herbert Smith Freehills, following the recent re-election of the President of Iran, Hassan Rouhani, it was made clear that there is interest in Iran but there is difficulty in turning that interest into something solid, partly because of a lack of support from the finance sector. The US is also a continuing source of concern, and rhetoric threatening further sanctions is unhelpful, as companies fear that their US businesses could be at risk if they were do business in Iran, but the main pushback still seems to be coming from the banks.
“There are very few deals from the banks’ point of view worth risking billions of dollars in fines.” Dan Hundson, Herbert Smith Freehills (Legal Business, Jul 2017).
Several big deals have been deemed to be worth the risk. Boeing Company signed a second deal with another Iranian airline following last year’s deal with Iran Air to provide 109 aircraft. The latter was faced with protests from US Republicans, and yet the second deal was signed during the current administration, despite President Trump vocally criticizing the nuclear deal, most recently at the United Nations General Assembly.
Renault recently signed what is reportedly the largest foreign auto deal in Iran’s history, worth around US$780 million for the production of up to 150,000 cars a year (New York Times, Aug 2017) and French energy company Total has agreed to an initial investment of US$1 billion into South Pars gas field, part of a much larger deal which could be threatened should major sanctions return. “It is worth taking the risk at $1 billion because it opens a huge market. We are perfectly conscious of some risks. We have taken into account (sanctions) snap-backs, we have to take into account regulation changes,” CEO Patrick Pouyanne (Reuters, Jul 2017).
To successfully do business in Iran, quality legal advice is crucial, and certainly any law firm hoping to assist clients in this area will have a dedicated “Iran desk” set up. Going a step further CMS and Gide have both opened offices in Tehran, while Dentons (significantly, only the European arm) has opted for forming an alliance with local firm Arman Pirouzan Parvine (APP) Legal Institute.