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High Foreign Interest in Iranian Bonds
Economy, Business And Markets

High Foreign Interest in Iranian Bonds

Foreign investors are showing interest in Iranian bonds, says the head of Iran Fara Bourse—the country’s largest bond market.
Amir Hamouni added that foreign investors have already chipped in the IFB’s bond market.
“Islamic Treasury Bills are the only financial instrument backed by the government and the Economy Ministry. This is attractive in the eyes of foreigners,” said the over-the-counter market’s chief executive.
The lifting of sanctions opened the way for foreign money to exploit growth opportunities in one of the world’s last untapped growth markets.
Currently, most of the investors are from neighboring countries, including the Persian Gulf littoral states, and Europe. Asia and the Americas are still out of the picture.
After the removal of sanctions against Iran over its nuclear program on Jan. 16, as part of the historic deal signed last July, foreign investors started to buy into Iran’s securities markets. Their activity has increased tenfold in Tehran Stock Exchange as of mid-January, which is partly due to the upward momentum enjoyed by Iranian equities ever since.
TEDPIX, TSE’s benchmark index, climbed 16% since the lifting of sanctions, while IFX, IFB’s main index, has surged 11.3% since the nuclear deal took effect.
International investors’ trading increased to 500 billion rials ($16.6 million) in the 10 days through Jan. 26, according to Hassan Qalibaf-Asl, the chief executive officer of TSE. That compares with about 50 billion rials in the 10 days prior to the nuclear deal’s implementation on Jan. 16, according to Bloomberg.
Bonds are making a comeback in Iran.
After the 1979 Islamic Revolution, debt securities and even deposit accounts were considered usurious. So the existing corporate bond market was closed down and banking regulations were overhauled. Subsequently, banks and most companies, especially heavy industries were nationalized.
With the turnaround in policy during the last decade, private ownership and equity markets were given a place in the economy. After Islamic law’s compliance for debt securities was hashed out in the late 2000s, Iranian bonds started being traded on exchanges.
This year, the government issued debt securities named Islamic Treasury Bills via the Economy Ministry to pay off debt it owes to contractors of the Energy Ministry.
For now, the bonds are only transferable to other contractors and issued in the name of the contractor. The bonds can be redeemed at Bank Melli Iran. They do not have any coupons and are given at a discount to their face value.
While the government has been funding its project by selling Mushareka bonds, this new form of Islamic debt has more appeal. It marks the start of a government debt market for Iran.
Traditionally, due to being banned, but more importantly, because the government has had the cash cow of crude oil, Iranian governments did not bother with their debt. This has gone as far as not knowing the exact amount of money the government owes. No definitive sum has been mentioned so far, let alone how much of that debt is overdue.
The ongoing gridlock government debt created in the economy in the recent past—forcing many companies to default on their own debt, increasing bad bank assets and curbing lending—has forced the government to change its views. By how much, remain to be seen.
For starters, though, the Economy Ministry has set up an office to calculate the amount of government debt and data about it.

 

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