Economy, Business And Markets

Gov’t to Issue Bonds Worth $5b

Gov’t to Issue  Bonds Worth $5b Gov’t to Issue  Bonds Worth $5b

The Iranian government is raising 180 trillion rials ($5 billion at market exchange rate) by selling Ejareh Islamic bonds, says deputy economy minister and the country's treasurer, Seyyed Rahmatollah Akrami.

The Ministry of Economy and Financial Affairs is coordinating with the Securities and Exchange Organization for the bond offer, Boursepress reported.

Investment banks will get a lot of business and underwriting by marketing the bonds. The new bonds will also further spice up Iran Fara Bourse's bond market, which has been thriving due to the poor performance of equities this year.

Bond fund managers will also get a more diverse and deeper pool of investments.

Ejareh bonds, basically, exchange the future proceeds of the issuer's assets for a lump payment. They are the most widely used form of the 14 existing types of Islamic bonds. In Iran, they were first introduced in 2011.

--Necessity: Mother of Invention

The government's newfound liking to bonds stems from a crunch in oil income, which has also spurred actions to increase taxation base and efficiency.

Fiscal spending is getting squeezed by falling oil revenues, which made up the bulk of the government's income. The lost revenue forced the administration to halt many investment projects.

Crude oil prices halved from over $115 per barrel to just above $50 in late 2014. They have remained depressed ever since due to a supply glut from Saudi Arabia and US shale oil producers along with weak demand from China and other emerging economies.

"As a result of the slump in crude, Iran's oil income fell to $18 billion in 2015 due to western sanctions on the country over its nuclear program and low oil prices," Iran's First Vice President Es'haq Jahangiri said in October. According to Governor of the Central Bank of Iran Valiollah Seif, oil revenues dipped from $119 billion in the 2011-12 fiscal year to $55 billion in the 2014-15 fiscal year.

A shrinking wallet, along with over 1.46 quadrillion rials ($41.9 billion) debt to banks and an uncertain but large debt to contractors, has sped up the government's borrowing plans.

The government recently raised a menial sum of 345 billion rials ($9.6 million) through issuing its first-ever treasury Islamic bonds. It plans to turn the offering into a large government debt pool in the years to come.

-- Assets and Borrowing

Akrami  said the ministry asked all government departments to list assets that could be used to back Ejareh bonds by October 13, in preparation for the bond issue.

The acceptable assets for the Ejareh bonds include land, buildings, machinery and transport vehicles.

The majority of the borrowing will be for government companies. The government will raise 100 trillion rials ($2.79 billion) for state companies of various ministries, including oil, defense and energy.

Municipalities will get 70 trillion rials ($1.95 billion) from the bonds. "Half that money will be used to complete urban railroad projects," the deputy minister said.

The smallest share of the borrowing, 10 trillion rials ($280 million), will be for repaying part of the outstanding government debt to private creditors.

Known as sukuk al-ijara in the Arab-speaking countries, Ejareh sukuk are popular for their simplicity and favor with Sharia scholars. Some commentators have described Ejareh as the classical sukuk structure from which all other sukuk structures have developed.