Government Will Announce $877m Bond Sale

EghtesadOnline: The Ministry of Economy has plans to issue Manfa’at Sukuk worth 100 trillion rials ($877 million) to help augment government spending, according to the head of Capital Market Central Asset Management Company.

News ID: ۷۴۸۷۴۶

20 October 2019

The Sukuk bonds will be issued following a request by the Debt Management Office of the ministry, Gholamreza Abu Torabi said, Securities and Exchange News Agency reported.

The office compiles data on the government’s arrears and regulates government securities to clear arrears and finance budgetary shortfalls.

Manfa’at Sukuk is a type of Islamic financial instrument that states one’s ownership of a certain service or future profit of a lasting commodity transferred for a certain price. The security can help meet businesses’ immediate needs for liquidity with no access to an end-user to finance their operations, according to Financial Tribune.

Future government tax revenue is considered as backing the payment of bonds, the official said.  Bonds will mature in three years.

The yield for bonds is set at 17.9% that will be paid to the holders every six months by the Central Securities Depository of Iran, the capital market clearing house.

Settlement of all payments, including reimbursement of principal and interest of bonds, is guaranteed by the Plan and Budget Organization.

Iran Fara Bourse, the over-the-counter stock market, will be in charge of issuing bonds.

It is seen as part of the government plan to plug its budget deficit that is expected to widen further in current fiscal year that ends in March due to declining oil revenues emanating from new US economic sanctions.

The ministry announced last month plans to issue Islamic financial securities worth 380 trillion rials ($3.3 billion) to partly plug the budget deficit.

This year’s budget deficit is projected between  1,000 trillion and 1,500 trillion rials ($8.4b-$12.6b) and is to be partly fixed by cutting general expenses and with measures to generate new revenues.

The Supreme Council of Economic Coordination -- an ad hoc economic decision-making body comprising the three branches of power -- in July okayed four methods to generate 970 trillion rials in revenues, namely by divesting surplus property, withdrawals from forex reserves, borrowing from the National Development Fund of Iran - the sovereign wealth fund -  and selling Islamic financial securities.

Accordingly, the council allowed the government to withdraw 450 trillion rials ($3.9 billion) from the NDFI and 45 trillion rials from the forex reserves.

In addition, the government can issue 380 trillion rials in bonds -- above the amount mentioned in the annual budget.

On behalf of the government, the Ministry of Economy can  generate 100 trillion rials ($877 million) by divesting state-owned assets.