Two years ago, the number and value of fixed-income instruments in Iran’s capital market were so low that market makers could easily memorize the names and all they had to do was to manually insert their bid and ask prices.
But as of November 8, the total number of outstanding sukuk stands at 90 valued at $9.3 billion (at market exchange rate). Right now, 58% of the sukuk have designated market makers.
Measures taken by the Securities and Exchanges Organization of Iran to ease the process for issuers and approve more types of Islamic securities to diversify the market have been instrumental in increasing the popularity of sukuk.
Banks have also showed willingness to list their fixed-income securities to provide a secondary market. This makes the instruments more liquid and enhances transparency.
The latest cooperation between SEO and the Central bank of Iran led to the issuance of the first mortgage-backed security by Maskan Bank worth $85 million. This was a bold move to refinance the banks facing shortage of funds.
Over a year ago, the government initiated the issuance of Treasury Bills to settle its overdue debt to contractors.
Day by day, the value of fixed-income market is booming to the extent that some have criticized SEO for being overly focused on sukuk market.
“The sukuk market is not jeopardizing the equity market and each [form of sukuk] has its own application and demand,” SEO Chairman Shapour Mohammadi said in reaction to the criticism.
As demonstrated in Graph 1, the total amount of outstanding sukuk so far in the current Iranian year (started March 20) stands at $4.6 billion, which is almost equal to the total outstanding figure from the fiscal March 2011-12 up to March 2016.
There are different types of fixed-income instruments, all of which are thoroughly in compliance with Sharia (Islamic law). The composition of fixed-income market is depicted in Chart 1.
Musharakah with 34% has the lion’s share and is currently the best-known sukuk in the Muslim world. Treasury sukuk are the second most popular. Both are issued by the government.
The very first question many foreign investors ask about the sukuk is who is their issuer. All sukuk issuers in Iran are prominent parties, including for corporate sukuk.
Steel, iron ore and petrochemical producers are the top issuers of corporate sukuk. Ministries and their affiliates have the biggest piece of the pie and account for 58%.
The first instance of mortgage-backed security marked a debut share for the banking system in the fixed-income market.
Tehran Municipality also took part for the first time and issued three consecutive rounds in April amounting to $300 million.
The high yield to maturity ratio of these instruments is the impressive feature attracting foreign investment. The highest rate belongs to treasuries with 23% and the lowest is about 17%.
Add new comment
Read our comment policy before posting your viewpoints