Recapitalization of Industries Tops List of Borrowers

EghtesadOnline: Loans to raise working capital of industrial units had a 72% share of the total loans given to mining and industrial companies in the first seven months of the current calendar year to Oct. 22.

News ID: ۷۴۹۱۸۶

15 December 2019

Industrial units received 1,370 trillion rials ($10.5 billion) in loans, out of which 990 trillion rials ($7.6 billion) were to help meet businesses’ need for working capital, IRNA reported, citing data from the Ministry of Industries.

Loans extended to “develop and expand businesses” amounted to 170.6 trillion rials or 12.8% of all loans to industrial units in this period.

In addition, loans for “establishing new businesses” amounted to 140.63 trillion rials that were 10.6% of all loans, Financial Tribune reported.

About 2.5% of the total financial facilities were paid for “purchasing equipment”. This accounted for 35 trillion rials of all loans.

Lenders gave industrial and mineral companies 6 trillion rials for “repairs and renovation”. It was 0.4% of the total loans.

Financial needs of struggling enterprises and manufactures have gained traction in recent months as the government tries to improve domestic manufacturing capacity given the detrimental effects of the unilateral US economic sanctions.

The Central Bank of Iran has assigned banks to lend 1,000 trillion rials ($7.6 billion) to productive businesses in the agriculture, housing and construction, industries and mining, petroleum and tourism sectors.

This apparently is other than loans granted by administrative bodies, namely the National Development Fund of Iran, the country’s sovereign wealth fund.

As per a press release published on the CBI website, nearly half of the amount is to be paid to companies in the industrial and mining sectors.

Businesses in agriculture are set to receive 200 trillion rials ($1.6 billion). The same amount will go for housing and construction projects.

In line with the government’s attempt to keep industries afloat, the CBI unveiled a plan in November to streamline policies and procedures for financing manufacturing units, and allow the regulator to optimize management of liquidity injected into distressed manufactures.

The scheme, known as productive credit certificate (known by its Persian acronym Gam) received the go-ahead from the Money and Credit Council - a top body in charge of monetary and banking decisionmaking.

Gam is a market oriented financial instrument that can be traded in money and capital markets.  As per the plan, lenders will help credible businesses by offering a tradable credit certificate similar to LCs.  The certificate should be submitted to suppliers of raw material, machinery and equipment.

Like bonds, certificates have maturity dates. The supplier can cash the certificate by selling it in the stock market.

In a meeting with representatives from the Iran Chamber of Commerce, Industries, Mines and Agriculture in October, CBI governor Abdolnasser Hemmati said the mechanism would help banks meet the financial needs of manufactures without creating “non-productive liquidity”.

Hemmati said that the main purpose behind the scheme is to avoid inflation emanating from new liquidity.

“By doing so, we are trying to fund manufactures without raising liquidity and in ways other than pumping new money,” he said.

“Any plan undertaken for recapitalization should, in the first place, ensure that the loans meet the working capital needs of businesses. Second, it should be utilized only for production purposes. Should this not happen, the result would be more inflation and more price shocks”, Hemmati wrote in an Instagram post.

Liquidity is Iran surpassed 19,790 trillion rials ($152 billion) by the end of third month of the current calendar year to June 21, according to a CBI report. This indicates 25.1% growth compared to the corresponding month last year.