Tose'e Melli Mining and Industries Company is raising 1.62 trillion rials ($45.8 million at market exchange rate) through the first-ever sale of Estensa Islamic bonds in Tehran Stock Exchange on Nov. 23.
The bonds, which pay 23% interest annually and mature in three years, will raise funding for completing two iron ore concentrate and pellet plants, with a 2.5 million-ton annual output, according to SENA.
The plants are located in the city of Sangan, northeastern Khorasan Razavi Province. One is 60% complete while work on the second plant has progressed by only 25%. The bonds will pay interest quarterly.
Tose'e Melli has chosen a novel way for funding its venture.
Estensa or "production order securities" are an Islamic form of financing used to fund the manufacturing of goods, like aircraft, locomotives and buildings.
Based on the contract, the buyer finances the issuer for a specified product that can later be given to the issuer to operate via other Islamic contracts, such as Ejare and Morabeheh.
"As bonds have been well-received and have sold well in the market, they went ahead with the Estensa offer," says Novin Investment Bank's head of financing, Mohaddeseh Razzaqi.
Her company is acting as advisor and underwriter for the bonds, and will market them. Novin's brokerage will act as broker for the bond sale.
Tose'e Melli Investment Company, Tose'e Melli's parent holding, is guaranteeing the bonds.
Tose'e Melli Mining and Industries Company is importing the machinery and equipment for the two projects from Europe using three-year foreign exchange financing from China. The plants are expected to be complete by early 2017.
> Likely Follow-up
"Between the next six and 12 months, similar bonds will be sold to finance the Nik Qeshm oil project, worth 40 trillion rials ($1.1 billion)," according to its Tose'e Melli Group's chief executive, Farhad Hanifi.
Nik Qeshm Refinery is being built on Qeshm Island in the Persian Gulf to process 120,000 barrels of oil per day to produce 14,000 tons of petroleum products daily. It will be fed via pipeline and tanker ships from South Pars Gas Field–the largest natural gas field in the world.
As the refinery will have immediate access to high seas, most of its produce will be exported. It is planned to produce light and heavy naphtha, liquefied natural gas, jet fuel and diesel fuel.
Tose'e Melli Group owns a 40% stake in the oil project. The rest is owned by Social Security Organization and Qeshm Free-Zone Organization.
> Expanding Trend
Iran's capital markets are rapidly expanding. The two-year bear market that has reigned on equities has redoubled the conviction of the regulator Securities and Exchange Organization to expedite the process of introducing newer financial products.
Capital markets raised a menial 292 trillion rials ($8.2 billion) in the 2013-14 fiscal year–7.6% of total financing–through capital increases, initial public offerings and the sale of Islamic corporate bonds (including Mosharekat, Morabehe and Ejare), according to Tehran Chamber of Commerce, Industries, Mines and Agriculture.
To gain market share from banks in Iran, the exchanges are offering financial instruments that provide versatility to investors and companies looking for funding or risk management tools.
Gold futures, Moshrekat bonds, Ejareh bonds and Morabehe bonds have been traded for a few years now. This year, stock futures were legalized, along with stock options, though they have not yet been put up for trading.
Iran Mercantile Exchange's chief executive said recently that they are setting up their exchange for offering foreign exchange futures.
In the fixed income category, along with the more mainstream Mosharekat bonds, Islamic Treasury Bills were offered for the first time this year to start building a sovereign debt market.
