SEO Expands Bond Markets

Business & Markets Desk
SEO Expands Bond Markets
SEO Expands Bond Markets

The Economy Ministry will issue $288 million worth of denominated Islamic Treasury Bills soon to repay part of its debt to government contractors.

This is the sixth batch of such bonds the treasury is issuing since their introduction last September, Bourse Press reported on Wednesday.

The bonds have had ample demand in a market where low risk securities are scarce. The recent weak performance of stocks has ramped up demand for debt securities.

Last week's decision by major banks to lower their rates to 16% per annum on one-year deposits, longest term deposit contract available, adds further demand for bonds whose yields mostly exceed 20% per year.

However, bond issuers are dropping as well. Demand in a recent bond offering by Isfahan Municipality went better than expected, although the bonds offered an 18% yield.

Investors are looking to safe havens after their hopes of a swift economic recovery on the back of foreign investment were squashed by caution exercised by European lenders. Major European banks are avoiding processing dollars for Iran for fear of prosecution by US authorities for breaking the remaining sanctions against Tehran.

The bonds, with a face value of 1 million rials ($28.86), will be sold at a discount. The Central Securities Depository of Iran will redeem the bonds through state-owned Bank Melli Iran on March 15, 2017. The bonds can be traded on the Iran Fara Bourse's new securities market, as previously issued bonds.

The government has yet to announce when the bonds will become open for trading. Currently, the second, third, fourth and fifth batches of these Islamic Treasury Bills are tradable on IFB, with maturity dates in September, October, November and December respectively.

> Expansion Plans

Market regulator, the Securities and Exchange Organization, and the IFB have worked closely on introducing new securities during the past three years. They have expanded both the bond types on offer and the bond market in general.

Last year, Estensa, Murabaha sukuks and Islamic Treasury Bills were added to Musharakah and Ijarah sukuk, which were already on offer on IFB.

Now, mortgage-backed securities will join the fold. Bank Maskan was given the green light to offer 3 trillion rials ($86.4 million at market exchange rate) of MBS, SEO announced on Friday.

MBS is a type of asset-backed security that is secured by a mortgage or collection of mortgages. The mortgages are sold to a group of individuals (a government agency or investment bank) that securitizes or packages the loans together into a security that investors can buy.

The securities will bear 18.5% interest. The coupons will be paid every three months and will have a two-year maturity period. Bank Maskan will issue, guarantee and handle their sales.

Bank Maskan is securitizing 49,000 loans. According to SEO, these loans carry 13 to 15% interest and mature in just under a decade. The average size of the loans being used for the MBS is 205 million rials ($5,900).