Iran Gov’t Sells $400m in Bonds

EghtesadOnline: The government sold 53 trillion rials ($400 million) worth of Manfa’at Sukuk bonds on Wednesday via Iran Fara Bourse, over-the-counter market for trading securities, to meet budgetary needs.

News ID: ۷۴۹۳۴۱

05 January 2020

Bonds were part of a bigger 100-trillion-rial ($780 million) scheme undertaken on the request of the Ministry of Economy, according to IFB’s website.

Manfa’at bonds mature in 42 months with the yield set at 18% to be paid every six months,Financial Tribune reported.

The bonds are backed by the government’s projected tax earnings as outlined in the budget and the treasury is responsible for settlement of the principal and interest thereof.

Manfa’at Sukuk is a type of Islamic financial instrument that states 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, especially those lacking access to end-users.

Budgets have been under heavy strain as the government faces serious financial challenges due to the new US sanctions on Iran’s oil and banking sectors.

Having often declared that he intends to destabilize  Iran’s economy, US President Donald Trump ditched the nuclear deal Iran had signed with the six world powers in 2015 and announced tougher sanctions against Tehran.

Facing serious budget deficits, the government had procured 140 trillion rials ($1 billion) in the past three rounds of Manfa’at bond sales. Wednesday’s offer was the fourth of its kind.

The government expects to generate 1,090 trillion rials (8.3 billion) by selling securities in the next fiscal year (March 2020-21) as per the budget bill President Hassan Rouhani presented to the Majlis in December 2019.

This figure is up 70% compared to the 640 trillion rials envisaged in the budget for the current fiscal year.

This year’s budget deficit is projected between 1,000 trillion and 1,500 trillion rials ($8 billion -$12 billion) and is expected to be addressed partly by cutting general expenses and improving ways to generate new revenues.

Issuing bonds is one of the government ‘s options to finance the budget deficits.  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 new revenues, namely divesting unused properties, withdrawal from forex reserves, borrowing from the National Development Fund of Iran - the sovereign wealth fund -  and selling Islamic financial securities.