European companies are flocking to Iran apparently without their favored lenders at their side. This has added a complicating factor for manufacturers from Airbus Group SE to PSA Group, the maker of Peugeot cars, as they seek to capitalize on the new growth potential in Iran. The funding issue has become a financial diplomacy hotspot.
In France, the government, worried that companies may lose exports, has started talks with the US Treasury’s Office of Foreign Assets Control to get a commitment that European banks can do business without incurring the previous legal and financial costs, two people with knowledge of the matter told Bloomberg.
Given the size of the fines that the US has imposed in recent years, large banks with dollar operations prefer not to re-enter the Iranian market as long as the identity of the next US president is unclear and given that Republican candidates threaten to revise the nuclear accord, said Tanguy Coatmellec, a Dubai-based partner at Ernst & Young’s financial-services advisory group.
“It’s going to be hard to finance big massive projects, while small ones could possibly find funding,’’ he said.
Clarifying ‘Confusion’
The US will work to clarify the existing “confusion” among some foreign banks, Secretary of State John Kerry said April 22, before a meeting with his Iranian counterpart Mohammad Javad Zarif. He stopped short of saying the Treasury will issue guidance elaborating on permitted transactions, encouraging banks instead to reach out with questions. “When in doubt, ask,” he said.
US officials have been holding meetings around the globe this year with government representatives and bank executives in more than a dozen countries to discuss concerns linked to sanctions relief, according to a Treasury spokesperson. The Treasury and State Department have reached out to French government officials and executives, according to the spokesperson, who didn’t comment on possible assurances made.
“Iran has kept its end of the deal, and we have upheld ours and are committed to continuing to do so,” Elizabeth Bourassa, a Treasury Department spokeswoman, said by e-mail.
Executives from large European lenders have been mostly absent from recent business delegations to Tehran. In a rare trip by a banking executive, Mediobanca SpA CEO Alberto Nagel visited Tehran in April as part of an Italian group led by Prime Minister Matteo Renzi. The country’s biggest publicly-traded investment bank was also among a group of Italy-based lenders, which included Credit Suisse Group AG’s Italian unit, which sent a delegation to Iran in November.
Progress Underway
Smaller institutions, however, are picking up some of the slack. KBC, the Belgian lender, recently decided to support “well-established customers” from its home European markets “in their genuine trade with Iran, respecting all US and EU regulation,” the bank said by e-mail. Bank Muscat SAOG, an Omani lender, said April 5 that it received all regulatory approvals to open a representative office in Iran later this year.
Oil and aviation deals usually get financing in dollars with large banks syndicating, or sharing, risks. This means the ban on dollar transactions remains a hurdle for many recent deals like Iran’s January agreement to buy 118 Airbus planes worth $27 billion.
“We are making good progress,” Airbus Chief Financial Officer Harald Wilhelm said on a call Thursday. “Given the strong US dollar content in our aircraft, we have to apply for OFAC license and so we are working on that” and the plane-maker is also working on how to “ensure financing,” he said.
Ali Abedzadeh, director of Iran’s Civil Aviation Organization, said in an April 18 interview that some European and Asian institutions “are ready to work with us’’ on financing the Airbus deal. “We want to try and do this via the private sector. We’re not very keen on using government trade finance routes,’’ he said.
