Bond! Estensa Bond!

Business & Markets Desk
Bond! Estensa Bond!
Bond! Estensa Bond!

Bond sells. Not just the renowned British secret service agent in action-packed movies, but the paper one that signifies a debt obligation of the bond issuer to the buyers.

In Iran, its Islamic version is getting a foothold in the portfolios of institutional and individual investors alike. With stocks pressured by poor macroeconomic conditions and lackluster company performance, Islamic bonds or sukuk have become the only alternative to putting your money in banks, if you are investing in rial-denominated assets.

If not, you would have to buy gold coins or foreign currencies from bureaux de change and put them in a mattress—something many Iranian households have traditionally done.

State officials estimate mattress investments to be worth billions. As you can tell, this is not an easy investment option to sleep through.

> Stocks Are Not Enough

While James Bond knows all the tricks of the trade to escape calamities, the Iranian stock's fall has been one steep slide after another.

These stocks are just a specter of what they once were. Stock indices on Iran's two securities exchanges, Tehran Stock Exchange and Iran Fara Bourse, are near two-year lows.

TSE's main index TEDPIX is now nearly 30% lower than its all-time high of 89,500.60 in January 2014.

According to TSE's chief executive, Hassan Qalibaf-Asl, corporate earnings in the first six month of the current Iranian year (started March 21) is just over two-thirds of those in the first half of last year.

So if you wish your investments to see light of day and be tradable on a securities exchange, they have to go the bond's way.

> A View to Investment

Bond may toss and tumble and hang by a hair, but will ultimately rise atop all woes. Not surprisingly, his namesake is also selling well.

They offer generous returns with very low risk. Current returns for corporate and government bonds range between 23-28% per annum, tax free, with three- to five-year maturities.

Banks, on the other hand, offer only one year deposits, and their interest is officially capped by the central bank at 20%.

In last week's offering of the newly debuted Estensa sukuk—one of the 14 forms of sukuk, three of which were previously used in Iran, namely Ijarah, Murabaha and Mosharekat—they sold like hot cakes. The bonds were gone "in less than 60 seconds," according to TSE's head of operations, Ali Sahrayi. The underwriter, Novin Investment Bank, and the regulator, the Securities and Exchange Organization, thought the sale would take three days.

Tose'e Melli Mining and Industries Company planned to raise 1.62 trillion rials ($45.8 million) through the first-ever sale of Estensa Islamic bonds on Nov. 23. Over nine trillion rials ($250 million) worth of buy orders were made for the Estensas, and even after incomplete orders were taken out of TSE's system,  2.25 trillion rials of buy orders remained.

That is a long queue of buyers for a newcomer. The lucky buyers were 51 individuals and 19 institutions, according to Sahrayi.

They will get 23% interest on the bonds paid every quarter.

However well that sale went, bonds remain a small part of Iran's financial arena. So far, bonds have remained on the sidelines due to "the unfamiliarity of chief financial officers and high-ranking company executives with this instrument and the time-consuming procedure for getting a bond issue permit," says Vali Nadi Qomi, the chief executive of Novin Investment Bank, which underwrote the bond offering.

> Bonds Are Forever

Just as Bond gets all the timely help he needs, sukuk also need to be backed by banks in the absence of credit rating agencies, tying financing through securities to the money market.

The company must be at least two years old, though regulations are being revised. Now, other financial institutions like investment banks, investment companies and holdings can also back sukuk offerings.

So it's not much of a prediction to say that the prospects for Islamic bonds are excellent. Islamic bonds are offering a quantum of solace in a market where all other options are not really options at all.

Moreover, interest does not come from Iranians only, bonds will be the first things foreign investors look at, once they hit Iran's shores after the lifting of sanctions.

Just like Bond movies, for Islamic bonds in Iran, tomorrow never dies.