The National Development Fund of Iran, the sovereign wealth fund, plans to deposit 25 trillion rials ($100 million) with the Capital Market Stabilization Fund to be invested in the stock market.
NDFI head Morteza Shahidzadeh said the amount will be deposited before the current fiscal year is out in March, IRIB news website reported.
Earlier in November, the NDFI deposited 10 trillion rials ($40 million) with the CMSF to shore up the struggling share market.
The CMSF was created in 2017 to help resolve the credit crunch in the bourse. It has a mandate to supporting the market and safeguard the interest of investors. The fund was launched with an initial 3 trillion rials ($13 million) capital borrowed from the NDFI.
Following historic gains in the first few months of the current fiscal year (started in March), Tehran’s share market went into a tailspin from mid-August.
The benchmark of Tehran Stock Exchange, TEDPIX, grew about 300% before diving deep into the red and paring close to 40% of the gains.
The government has made concerted efforts to prop up the market by requiring institutional buyers and investment funds to boost demand. The efforts have been made to no avail.
In September the High Council of Securities and Exchange, the share market policymaker, approved a decision based on which 1% of NDFI's annual revenue would be transferred to the CMSF.
Shahidzadeh said the decision is included in the articles of association of the fund and backed by the Supreme National Security Council.
According to Mohammad Aqa Babaee, managing director of the CMSF, the NDFI is supposed to inject money in several phases, the first of which was in November. "This should help lift the capital market and improve liquidity of shares," he said.
The money is reportedly a loan at 12% to be repaid in five years but the maturity date can be extended. The CMSF is responsible for paying the principal amount plus interest.
Observers, monetary policymakers and think thinks, including the Majlis Research Center and the Central Bank of Iran have expressed concern over borrowing from the sovereign wealth fund at a time when its assets remain blocked overseas due to the US economic siege.
NDFI foreign currency reserves are managed by the CBI and the bank says it has to print money to pay the rial equivalent of the NDFI loans.
As per procedures, the CBI receives forex from the NDFI and in lieu lends the rial equivalent of the foreign currency. However, because Iran’s currency reserves remain locked in several countries, the CBI says it has no choice but to keep its printing machines running. This policy has obviously hurt the central bank's clout and expanded the monetary base.
Independent of the government, the NDFI was founded to save a portion of forex earnings from oil and gas for future generations. Like all wealth funds, it lends to both public and private firms in need when national revenues are down, namely during low oil prices.
