Private companies in increasingly numbers are approaching the debt market for funds, managing director of the Capital Market Asset Management Company.
Mohammad Hossein Sadraee said the pace is evident in the number of applications sent for corporate sukuks.
Corporate sukuks are Islamic bonds normally issued to help non-government companies raise funds for current needs, new ventures or business expansion.
“The number of agreements in principles issued has grown 70% over six months,” Sadraee was quoted as saying by the Securities and Exchange News Agency.
Meanwhile, the Securities and Exchange Organization has given the go-ahead to 39 companies to raise funds worth 296.4 trillion rials ($1 billion) via the debt market.
About 70% of the companies have applied for debt financing for the first time, he noted, adding that part of trend is because the SEO has eased procedures for funding private enterprise.
The Securities and Exchange Organization has given the go-ahead to 39 companies to raise funds worth 296.4 trillion rials ($1 billion) via the debt market
For years, cumbersome rules impeded listed companies access to the debt market. Companies now use a variety of ways to guarantee reimbursement of the bonds, namely putting up company shares as collateral, earning good credit scores plus third-party guarantors.
As per sukuk regulations in Iran, issuers must guarantee the repayment plus interest. Apart from acquiring credibility from rating agencies, companies wanting to issue bonds must also present third person guarantee or shares as collateral.
The SEO for the first time in early 2021 allowed private companies to sell bonds based on their credit rating determined by local credit rating agencies.
Islamic sukuk issued by private companies are backed by their products, in particular auto spares, home appliances and machinery.
Despite the expanding footprint of private companies in debt financing, the market remains dominated by the government, depriving the private sector of much-needed financial space and opportunity.
Iran's bond market has grown exponentially thanks to government(s) moves to tap debt instruments to help cover its mounting budget deficits to offset crude export income hurt by the US economic sanctions.
Governments have generated income for budgetary needs through Murabaha bonds, sold in the weekly auctions held by the Central Bank of Iran.
Observers say the widespread presence of the government has resulted in a crowding out effect on the economy suggesting that rising public sector spending drives down private sector spending.
One of the common forms of crowding out takes place when the government increases its borrowing and unleashes a chain of events that leads to restricting private sector spending.
