Participatory Bonds Worth $310m Sold Last Year

EghtesadOnline: The latest data on the participatory bonds market in the last fiscal year (ended March 20, 2019) indicate that government and municipalities sold about half of the bonds issued during the yearlong period.

News ID: ۷۴۷۸۳۱

10 July 2019

According to a report released by Central Bank of Iran on its website, last year government and municipalities of major cities managed to sell 39.8 trillion rials ($310 million) of a total of 88.5 trillion rials ($691 million) worth of participatory bonds issued in the period.

A total of 20 trillion rials ($156 million) in participatory bonds were issued by the Ministry of Economic Affairs and Finance as per the annual budget of the fiscal 2017-18 to be used for financing government projects.

Of this amount, the ministry managed to sell 17.8 trillion rials to investors by March 20. The government bonds bear a 15% interest rate annually and mature in four years, Financial Tribune reported.

Apart from government bonds, municipalities in Tehran, Mashhad, Isfahan, Ahvaz, Qom, Tabriz, Karaj and Shiraz issued participatory bonds to the tune of 68.5 trillion rials, 22 trillion rials of which were bought by investors.

The bonds were issued mainly for financing urban railroad projects. These bonds mature in four years and bear an annual interest rate ranging from 18-20%.

Tehran Municipality had the lion's share, issuing an aggregate 20 trillion rials worth of bonds for completing its subway lines. TM successfully sold all the issued bonds worth 7 trillion rials ($69.3 million) for completing Line 7 of its urban subway, as per the provisions of the 2017-18 budget.

However, TM sold only a meager 200 million rials worth of bonds to investors, out of a total 14 trillion rials issued for completing lines 6 and 7 of the TM subway. This is probably due to the fact that these bonds were issued on March 19, 2019, and the report was compiled using the trading figure for this day alone.

Isfahan Municipality issued bonds worth 5 trillion rials in late March 2018 to finance the first phase of its Line 2 urban railroad. According to reports, the bonds were well received and fetched 49.9 trillion rials—1% shy of the total.

However, the municipality had issued an additional set of bonds worth 5 trillion rials at the turn of last year to finance the second phase of Line 2, selling barely 1 billion rials.

Mashhad Municipality issued a total of 7 trillion rials worth of bonds as per the budget for 2017-18 to complete two phases of its urban railroad in the shrine city that attracts millions of domestic and foreign pilgrims every year. These bonds also met with an enthusiastic response and investors bought all the issued bonds.

The municipality issued another 8.5 trillion rials worth of bonds in March 2019, as recommended by last year’s budget to fund the third phase of Line 3 of its subway, managing to sell 10 billion rials by the time this report was concluded.

Qom Municipality issued bonds worth 3 trillion rials to finance the first phase of its subway’s Line 1 and sold 2.9 trillion rials by the end of October.

Out of 6.5 trillion rials worth of bonds issued by Tabriz Municipality last year, only 6 billion rials were bought.

Bonds issued by Ahvaz Municipality to finance the southern oil city’s subway project as per the budget for the fiscal did not have any buyer.

In the current year’s budget, lawmakers allowed municipality-affiliated organizations to issue Islamic bonds worth up to 80 trillion rials ($630 million). The figure is higher than the initial 55 trillion rials proposed by the government.

The companies are obliged to spend at least 50% of the total earnings from bond sales to expand urban transportation and railroad projects. The law stipulates that the repayment of bonds sold for these projects will be jointly guaranteed by the municipalities and the government’s Plan and Budget Organization.