Municipalities in the big cities sold “participatory bonds” worth 100 trillion rials ($333 million) in the first four months of current fiscal year that started in March.
The sale was up 49.6% on the same period last year. Almost 80% of the bonds were sold in the fourth calendar month, the Central Bank of Iran said.
Municipal bonds are debt issued by municipalities to fund urban expansion projects. This time the debt was issued by municipalities in Tehran, Mashhad, Isfahan, Ahvaz, Tabriz, Karaj and Shiraz to fund development programs, namely urban rail systems, pathways, infrastructure and Bus Rapid Transit (BRT) networks.
The securities are usually issued as per provisions in the fiscal budget law. Law stipulates that repayment of bonds is guaranteed jointly by the municipalities and the government’s Plan and Budget Organization.
Recently municipalities are increasingly approaching the capital market for funds. Earlier in July, Majid Eshqi, managing director of the Securities and Exchange Organization (SEO), said the regulator is looking to diversify methods of fund municipalities short on cash.
“Up until now funding municipalities has been via participatory bonds. Now it appears that this venue is not adequate,” Eshqi concurred.
He recalled the lack of liquidity in municipalities, saying that at times they have no option but to sell their assets to pay for the projects.
Based on a MoU recently signed between the SEO and Tehran Municipality, municipalities can use assorted methods of finance like bonds and setting up Real Estate Investment Trusts (REITs).
Eshqi said launching REITs for municipalities is on the SEO agenda billing it as a “suitable way to fund” urban expansion projects.
REITs own, operate or finance income-generating real estate. Modeled after mutual funds, REITs pool the capital of numerous investors. This makes it possible for individual investors to make a profit from real estate investment -- without having to buy, manage, or finance the properties themselves.
REITs are often publicly traded on securities exchanges and investors can buy and sell them like stocks. REITs typically trade under substantial volume and are considered highly liquid instruments.
Properties in a REIT portfolios may include apartments, trade centers, healthcare facilities, hotels, infrastructure, office buildings and retail outlets.
