Iranian Debt Sales Set to Surge as Government Stokes Borrowing

  • 30 new issues expected following South Pars, West Karoun sales
  • 15 IPOs also lined up with a combined value of $3 billion

Iranian bond sales will double this year as the Islamic Republic encourages more companies to issue debt to deepen its capital markets, according to a senior official at the Tehran Stock Exchange.

Thirty new offerings with a combined value of $10 billion are expected by March 2017, Rouhollah Hosseini Moghaddam, the vice president for issues and members at the exchange, said in an interview. Eight sales took place during the last Iranian year, worth a total $5 billion.

“Our debt market is going to expand significantly this year,” the executive said from his Tehran office. The government will sell bonds to fund its infrastructure projects, and “once the new budget is ratified another oil ministry bond issue can be finalized,” he said.

Last year’s nuclear deal between Iran and six countries brought an end to a decade-long sanctions regime that had isolated the country’s financial markets. President Hassan Rouhani has made supporting the private sector and capital markets a top priority of his economic reform agenda as he seeks foreign investment for tens of billions of dollars worth of infrastructure projects.

The bourse is also expecting 15 initial public offerings with paid-up capital of about $3 billion in the coming year, according to Hosseini Moghaddam.

Gas Field Bonds

The jump in bond sales follows two issues by the National Iranian Oil Company for the South Pars gas field and the West Karoun oil field. The offerings, which had a combined value of $1.5 billion, received $5 billion of orders last month.

“If it wasn’t unprecedented, it was certainly rare,” said Mona Hajialiasghar, the chief operating officer of Tehran-based Kardan Investment Bank. “The NIOC issues have taken the debt market into a new phase on the way to making the market mature, much bigger, more transparent and more competitive.”

Around 60 percent of the new debt sales will come from the private sector and the remaining will be from government, including another $1.5 billion bond for the NIOC, Hosseini Moghaddam said.

Remaining Sanctions

The exchange has asked Iran’s market regulator, the Securities and Exchange Organization, to approve plans to sell domestic Iranian bonds in foreign currencies in order to encourage outside investors into the market, he said.

Since sanctions removal dozens of accords have been struck between Iranian and European companies, however European banks are “still not cooperating very much,” he said. They are wary of the remaining U.S. sanctions that target a number of Iranian entities.

“We’re at a stage where we need to continue trust-building, improve transparency and provide clear information to assure foreigners,” Kardan’s Hajialiasghar said. “There is still work to do.”

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