Iran to expand sale of Islamic treasury bills, spur debt markets

01/02/2016 06:23 AST

Iran's government plans to increase its issues of short-term Islamic bonds this year, aiming to rejuvenate the domestic debt market and help reduce local firms' reliance on loans from a debt-laden banking sector.

In the wake of the lifting of nuclear-related sanctions, authorities in Tehran are rolling out a series of initiatives to develop the country's capital markets, such as new rules covering mortgage-backed securities.

Partly because low oil prices and the economic scars of sanctions have made foreign investors wary of lending to Iranian companies, most will initially have to rely on domestic investors for their funding needs.

So the government has issued 10 trillion rials (Dh1.2 billion, $278 million at the free market exchange rate) of 5.5-month Islamic Treasury bills since September - the first time that it tapped Iran's over-the-counter securities market, known as Fara Bourse.

Tehran has announced plans to issue an additional 60 trillion rials via Islamic T-bills this year, which is spurring interest in fixed income securities, said Majid Zamani, chief executive of Iran's Kardan Investment Bank.

The issues of short-term debt are not primarily aimed at paying the government's bills; the administration of President Hassan Rouhani has been adopting a conservative fiscal policy to stabilise the rial exchange rate and curb inflation.

Instead, authorities hope government debt issuance will set a pricing benchmark for corporate bonds and support efforts by Iran's financial regulator, the Securities and Exchange Organisation (SEO), to expand the types of funding tools available to companies.

"We believe bonds will make a robust market this year with money transfer limitations being lifted," said Zamani, who was part of a 120-strong delegation that followed Iranian President Hassan Rouhani to Europe last week.

Foreign inflows
Foreign portfolio investors started to send money to Iran even before sanctions were formally lifted in January, and bigger inflows are expected in coming months. Some of the money may go into Iranian T-bills as it awaits investment in the stock market or local business ventures.

Kardan has $650 million in assets under management, up from $300 million a year ago, and the bulk of that additional money inflows went into its fixed income products, said Zamani.

Gulfnews