With the capital market dominated by a prolonged bearish trend and incessant capital outflow, its role has been diminishing in the national economy.
Overall contribution of the capital market declined 43% in the first two months of the calendar year (March 21-May 20) to reach 404 trillion rials ($1.07 billion), down from 713 trillion rials ($3.3b) in the similar period last year.
To raise capital for businesses, companies have two options, namely equity financing and debt financing.
Citing data released by the Securities and Exchange Organization (SEO), the Tehran Chamber of Commerce, Mines, Industries and Agriculture (TCCIM) said the setback was mainly due to decline in equity financing while debt financing rose.
Accordingly, equity financing fell from 631 trillion rials ($2.6b) in the first two months of the last fiscal year to 284 trillion rials ($1.2b) in the corresponding period this year, indicating a 55% decline.
Debt financing increased more than 31% to reach 120 trillion rials ($510m), rising from 82 trillion rials ($348m) in the first two months of the previous fiscal year.
Equity financing is the method of raising capital by selling company stocks while debt financing occurs when a firm raises money by selling debt instruments to individuals and institutional investors.
Equity financing has no repayment obligation and provides extra working capital that can be used to grow a business. Debt financing on the other hand does not require giving up a portion of…
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