Data released by the Central Bank of Iran indicate that bonds worth a total of 1,021.5 trillion rials ($3.8 billion) were sold during the first six months of current fiscal year.
Bond sale grew more than 310% during the period on an annualized basis. Most of the bonds were offered by the government with the non-governmental bodies having a paltry share.
The government sold Islamic bonds worth 888.4 trillion rials ($3.2b) in H1 accounting for more than 86% of the total bonds sold. Sales also recorded a staggering growth in the period rising 466.8% compared to the corresponding period last fiscal year.
As per CBI data the government sold treasury bills worth 170 trillion rials ($620 million) in the period, indicating 33.1% rise year-on-year. Murabaha sukuk was also sold.
Regarding the share of non-government companies, they sold corporate bonds worth 84 trillion rials ($310 million) during the first six months of the current fiscal year – up 315.4% annually.
A corporate bond is a type of debt security that is issued by a firm and sold to investors. The company gets the capital it needs and in return the investor is paid a pre-established number of interest payments at either a fixed or variable interest rate.
Likewise, municipalities in big cities in the country sold participatory bonds worth 49.1 trillion rials ($181m) in H1, which unlike the government and corporate bonds, was down 31.7% in H1 compared with the same period last year.
The bonds were issued by municipalities in Tehran, Mashhad, Isfahan, Ahvaz, Tabriz, Karaj and Shiraz to fund urban development projects, namely financing rail networks, expanding pathways, rehabilitating urban structure and developing Bus Rapid Transit (BRT) networks.
Budget Deficit
The government’s effort to raise funds for the deepening budget deficits through the debt market is the main reason behind the surge in bond offers.
It generated funds mainly through Murabaha bonds, sold largely during weekly bond auctions held by the CBI. The auctions are Tuesdays since May where the CBI, on behalf of the government, sold bonds to banks, investment funds and retail investors in the bourse.
Under Pressure
Chronic budget deficits due to the United States sanctions, which hit the economy hard, particularly oil export, are a major concern for the Rouhani administration. With US penalties taking a toll on the key oil sector, the government is under pressure to find ways to compensate revenue from diminishing oil exports.
There is no accurate data on the budget deficit. However, Masoud Khansari, head of the Tehran Chamber of Commerce, Industries, Mines and Agriculture earlier estimated that the government is in the red to the tune of 1,800-2,000 trillion rials ($6.6-7.4 billion). He concurred that the deficits have so far been partly compensated by the bond market.
The government has said it will continue to sell debt throughout the fiscal year. According to Mehdi Banani, head of the Debt Management Department of the Economy Ministry, there are plans to sell at least another 620 trillion rials ($2.2b) before the current fiscal year is out in March.
It is reported that the Rouhani administration has the go-ahead from the High Council of Economic Coordination to sell the huge volume of bonds. The policy council comprises heads of the three branches of government to address macroeconomic issues.
While the government is in dire need to raise funds, its bond auctions have failed to attract buyers in the past several weeks.
Save for the last auction on Tuesday when the government sold bonds worth 11.97 trillion rials ($44m) to four banks, lenders refused to buy bonds during five consecutive sessions prior to that.
The CBI announced that it would hold the 25th auction next Tuesday with bonds worth 51 trillion rials.
