Fuelled by expectations of the imminent opening of the hitherto closed doors of the ISX to non Iraqi investors, the market continued its upward surge for the eleventh trade session this month

ISX, Pepsi Bottler drags market down, September 25 2007

Once regarded a leader in the manufacturing sector, Northern Soft Beverages which is the biggest bottler of Pepsi Cola in the north of Iraq pushed the whole ISX into retreat. After an absence from the trade hall for nearly twenty months the company with factories in Mosul and Kirkuk finally made it into the ISX again. It is now trading at ID0.85 a share down from ID2.75.

Trade was suspended in the shares of the company early 2006 when the company sought to beef up its paid capital through the offer of some 14 billion shares at a price of ID1 to the share. The shares were initially offered to existing shareholders and the left over was offered to the public at large. The new capital injection was to be used for the purchase of new plants and to upgrade the company’s production lines.

The paid up capital of the company has multiplied several times in recent years, from ID6,750 million in 2004 to the current level of ID 25,000. This capital is issued in 25 billion shares each at a par value of ID1. Unlike its bigger sister, Baghdad Beverage, Pepsi North is wholly owned by the private sector. Before 2003 it was widely rumored that this company and other bottlers such as National Food Industries and Easter Beer, suffered from corruption from protégées of the old regime. The company bottles Pepsi Soda and has an extensive distribution network in the Northern provinces. There is ambiguity as to who holds and who does not hold license agreements with the mother company Pepsi Cola.

At today’s close price the Northern Pepsi is worth $17 million compared with $57 million for the sister company Baghdad Beverages. The latter’s share has been trading around ID1.25. With a population of 27 million and the high temperatures for good part of the year, Iraq has one of the biggest markets for refreshment drinks. Pepsi Cola brand name has an almost exclusive control of the market. This profitable and very old industry in Iraq has, like all manufacturing, suffered from hostile business developments after 2003.

Most of these companies had to cope with production bottlenecks, lack of security and rising real wages. Many of them have been subjected to sever competition from abroad with the dismantling of old high custom tariffs in 2003. The squeeze increased in 2007 with the gradual appreciation of the local currency against the US dollar reducing the price of imported substitute goods even more.

The harsh conditions facing Iraqi manufacturing today is clearly reflected on the performance of the thirty industrial companies listed in the Iraq Stock Exchange. Before 2003 the same listed companies used to make up 80% of total market value. Today the have been left with a modest 11%. Reflecting change in omens the lion percentage, 74%, is taken up by the fast growing banking sector. Despite the successive new issues, total capitalization value of the manufacturing amounts today to a mere $186 million compared with $1,166 million in banking. The plummet in prices reflecting poor performance of these companies explains the reduction in net worth of these companies. Also on average trade in manufacturing stock accounts for no more then 10% in volume both in terms of traded number of shares and their value.

DISCLAIMER: This document has been compiled and issued by Kubba Consultants, which has obtained the information from sources it believes to be reliable, but Kubba Consultants makes no guarantee as to either its accuracy or completeness and has not carried out an independent verification. Kubba Consultants accepts no responsibility or liability for losses or damages incurred as a result of opinions formed and decisions made based on information presented in this report. This document is not an offer to sell or solicitation to buy any securities. The opinions and estimates expressed herein are those of the issuer.