By Zijing Wu on November 15, 2012 It was exceptionally cold in Sulaymaniyah, a city in northern Iraq’s Kurdish region, on the morning of Dec. 22. Shwan Taha was sitting in the airport lounge with a bag of gifts, waiting to get back to his wife and children at home in Istanbul. Just before boarding, he got a call on his mobile phone from Rabee Securities, the Baghdad-based brokerage he owns, Bloomberg Markets magazine reports in its December issue. The manager was on the line to report that a car bomb had exploded next door at the government anti-corruption agency. Taha hung up. Fortunately, the last trading day of the year had been two days earlier, so none of Rabee’s 16 employees were in the office. He tapped out an e-mail to Rabee’s clients that said in part: “All client information is safe in multiple locations inside and outside Iraq. Praying for a peaceful New Year.” Recalling his firm’s brush with danger six months later, Taha says such incidents are a hazard of doing business -- and making money -- in one of the world’s most dangerous frontier markets. “I’ve always told people the major risk of running Rabee is, one day it may blow up, not Lehman style but physically,” Taha says, spreading both arms to suggest an explosion. “What can you do?” Biggest Brokerage Taha, who’s 6 foot 2 inches (1.88 meters) tall and has dark curly hair, is sitting in his office in Istanbul, where he spends a third of his time. The 43-year-old smiles and points to his iPhone case emblazoned with a morale-boosting exhortation made famous by a World War II-era poster in the U.K.: “Keep calm and carry on.” That’s what Taha has had to do for years as chairman and sole owner of the biggest stock brokerage tailored to foreign investors in postwar Iraq. Born in Baghdad to Kurdish parents and raised in the city, he bought Rabee for a small, undisclosed sum in 1998 to handle his personal trades in Iraqi stocks. It now handles about 80 percent of all share transactions by foreigners on the Iraq Stock Exchange (ISX), says Taha, whose selling point to his clients is that he’s an Iraqi with a decade of experience working at different times for investors Mark Mobius and George Soros. Other Baghdad brokers deal mostly with Iraqi clients. ‘Smart Money’ “Rabee stands out from all Iraqi brokers because Shwan understands how things work with Western investors,” says Geoffrey Batt, a partner at New York-based Euphrates Advisors LLC, an Iraq-focused hedge fund with about $27 million under management. Taha estimates Rabee has funneled about $200 million in investments through the ISX since 2008, when the brokerage began attracting non-Iraqi investors. A broker in Baghdad would typically earn a 2 percent commission on a two-way trade. “It was not easy to start with,” Taha says. “People got scared just hearing the word Iraq. Now, we see more and more smart money coming.” Taha is on the verge of his biggest deal ever. Along with HSBC Holdings Plc (HSBA) and Morgan Stanley (MS), Rabee is managing the initial public offering of Asiacell Communications PJSC, Iraq’s first mobile phone service provider and one of its largest companies. Asiacell had about 10 million customers and $1.8 billion in revenue in 2011. According to two people with direct knowledge of the IPO, the share launch of up to $1 billion could happen as early as the end of this year and would value Asiacell at about $4 billion, doubling the Baghdad exchange’s total market capitalization, which was $4 billion as of June 30. Economic Potential “Asiacell’s IPO will be a milestone for Iraq and its believers,” says Henrik Kahm, investment analyst at Stockholm- based Fund Management Group, which operates an Iraq fund of about $20 million. Taha became a believer earlier than most. From 1997 to 2008, he worked as a money manager in the Middle East, first for Mobius’s Templeton (TEM) Emerging Markets Group and then for Soros’s Quantum hedge fund. He says he was particularly struck by Iraq’s economic potential just ahead of the global credit crunch in 2008, when he noticed that Iraqi shares were mostly trading at about half their book value while stock markets across the region were booming. Taha figured Iraq had nowhere to go but up after the devastation wrought over two decades by the Iran-Iraq war, the Gulf War and the Iraq war. Hitting Bottom He timed his entry well. Since hitting bottom at $13.6 billion in 2003, the year U.S.-U.K. coalition forces invaded Iraq, gross domestic product has soared. It grew about 10 percent, to $108.4 billion, last year and is expected to expand even faster in the three years through 2014, according to data compiled by the International Monetary Fund and the Washington- based Brookings Institution. One reason for optimism is the relative decline in sectarian violence, which fell to four civilian deaths a day last year compared with 95 a day in 2006, according to the Brookings Institution. Oil production, Iraq’s main industry, reached 2.6 million barrels a day in 2011, making Iraq the world’s ninth-largest producer, according to the International Energy Agency. In 2003, it had collapsed to 1.3 million barrels a day, less than half of its peak production of 2.9 million barrels per day in 1989, according to the U.S. Energy Information Administration. Understandable Caution On the strength of rising production, Prime Minister Nouri al-Maliki plans to double the government’s $100.5 billion 2012 budget by the end of 2016 and spend $9.8 billion on roads, bridges and housing, according to Construction and Housing Minister Mohammad Saheb al-Darraji. While Taha’s small corner of the economy has also grown -- trading by foreign investors in Iraqi equities tripled to $147 million in 2011 from a year earlier, according to the ISX -- many big investors remain wary. New York-based BlackRock Inc. (BLK), the world’s largest asset manager, invested just 3.4 percent of its Frontier Investment Trust, or about $4 million, in Iraq, according to a Feb. 29 fact sheet. Such caution is understandable. The Baghdad exchange is 1/16 the size of the market capitalization of Istanbul’s benchmark ISE National 100 Index. The economy of the United Arab Emirates, with a population of 5.1 million compared with Iraq’s 33 million, is three times larger than Iraq’s. What’s more, Iraq sits in the middle of a region wracked by instability. Beyond Bombs To the east, Iran is pursuing a nuclear development program that Israel, among other countries, says could lead to outside intervention, if not war. To the west, a civil war flares in Syria, home to more than 750,000 Iraqi refugees, according to the United Nations High Commissioner for Refugees. Iraq is further hobbled by an underdeveloped legal system and overdependence on oil, says Emma Sky, a visiting professor in the War Studies Department at King’s College London and a former adviser to the U.S. military in Iraq. Taha says he’s been able to see beyond the image of a bloodied and bombed Iraq. The carefree Baghdad of his childhood as the son of a prominent doctor bears little resemblance to the shellshocked capital of today. Skyrocketing oil prices in the 1970s made many Iraqis rich, and he didn’t feel the sting of war until the mid-1980s, when he was a teenager and the conflict with Iran was escalating. Wrong Turn One day he took a wrong turn into an unfamiliar neighborhood and wound up driving down a street eerily decorated in black banners signifying mourning. “There was one house with four banners,” Taha says. He recalls turning down the blaring car radio out of respect. “These things you don’t recover from,” he says. “War forces you to grow up. You are not surprised by things any more, death or whatever. It happens.” After high school, Taha went to Case Western Reserve University in Cleveland in 1986 to study biomedical engineering. As graduation approached in 1990, he was getting ready to go home when Saddam Hussein invaded Kuwait. The United Nations slapped sanctions on Iraq. The economy started to shatter. Taha got a call from his father telling him to stay in the U.S. It wasn’t easy. To earn a living, he worked as a waiter at La Dolce Vita Bistro in Cleveland. Gradually, Taha’s fortunes took a turn for the better in the early 1990s. With money borrowed from family friends, he enrolled in a master’s program in business administration at George Washington University. Lacking Pretense He also turned to the Internet, which many people hadn’t even heard of then. He created pmena.com, a now-defunct website that gathered information about privatization in the Middle East and North Africa. The potential he saw led him into finance. His own career began with a distinct lack of pretense. The office he opened for Templeton in Dubai in 1997 was in an apartment above a children’s store called Mummy & Me. “Some brokers, after seeing my address, called up Templeton to see if I was for real,” he says. In 2006, he went to work for Soros, co-managing a hedge fund out of Istanbul. While he was on vacation the following year, a small jet he was traveling in made an emergency landing and had to be rescued by the Greek coast guard. “I felt my life could go away any minute,” Taha says. “If I want to do something,” he remembers thinking, “I better start now.” Going Home He resigned and returned to Baghdad to transform Rabee from a personal investment vehicle into what it is today. Someday, Taha says, he may move his Turkish wife, Ipek Cem Taha, a businesswoman and former TV journalist; their two daughters, 9 and 10; and a 4-year-old son back to the city of his childhood. Not now. “It’s not because of the bombs that I wouldn’t want my kids to live there; it’s the mentality,” he says. “There’s one thing that takes a long time and real effort to repair: the hate brought by the war, between Shiite and Sunni, Kurds and others, rich and poor, you name it.” In the meantime, he will do what he’s always done: keep calm and carry on.
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