Iran’s sovereign wealth fund announced new lending rates on Saturday.
Banks will have to pay the National Development Fund of Iran 5.2%, when borrowing from it to finance projects, the fund’s board announced in a meeting with the head of the Management and Planning Organization. The central bank is responsible for issuing directives to banks.
The Iranian Parliament has mandated the fund to invest half of its money domestically and the rest abroad. The domestic portion is lent to private, cooperative and non-governmental sectors, while the other half is used to promote foreign investment or is invested in capital markets abroad.
Foreign Exchange Loans
The fund will charge 8% for lending to petroleum–oil, gas and petrochemical–projects.
For investments in other sectors, the fund will charge six-month Libor rates plus a 5.3 percentage point interest. The fund may use euro Libor or dollar Libor. Six-month dollar Libor is 0.44%, currently, while six-month euro Libor is much lower at 0.05%. The board may charge a 4% fixed interest on foreign exchange loans, if its criteria are met.
The board set lending in foreign exchange as a priority. Thus, oil, gas and petrochemical projects and activities along with railroad projects, among others, can repay their loans in foreign exchange from their export proceeds, provided they borrow in foreign exchange. They will have priority in receiving money from the fund.
Rial Credit
As for credit in rial, the fund set a 14% rate for water, agriculture, natural resources, environment and tourism sectors. Furthermore, it will charge 16% on loans to industry and mining sectors. For impoverished provinces, the loans will be given at a 4 percentage point discount.
For rial loans, priority will be given to the industrial and mining sectors, tourism and water, agriculture, environment and natural resources.
Loans to the industrial and mining sectors should be used for provision of working capital for development projects. Also, tourism sector loans should be used for building and equipping hotels, lodging centers, recreational centers and inns. As for loans to water, agriculture, environment and natural resources sectors, they should be used for provision of working capital, export of agricultural products, building greenhouses, growing greenhouse crops, fishery and irrigation projects.
Comparatively Small
The National Development Fund of Iran was created as a sovereign wealth fund in 2011 to supplement Iran’s Oil Stabilization Fund and invest petroleum revenues for future generations. Initially, it was set to receive 20% of Iran’s annual oil income. This income was to increase by 3% annually for five years.
Currently, the fund’s holdings are estimated to be over $60 billion, making it comparatively small as a sovereign wealth fund. Iran’s rival oil exporters Saudi Arabia and the UAE have funds in excess of $700 billion. The Abu Dhabi Investment Authority holds $773 billion and SAMA Foreign Holdings $737.6 billion in assets, while the largest sovereign wealth fund belongs to Norway, whose Government Pension Fund controls $878 billion of investments.
