Stock Market Expands Role in Funding Oil Sector

EghtesadOnline: Iran’s capital market is capable of financing half of the domestic oil projects, the CEO of Securities and Exchange Organizations said.

News ID: ۷۴۹۶۶۷

16 February 2020

The oil industry needs $30 billion in funding, Shapour Mohammadi said, citing earlier statements by Oil Minister Bijan Namdar Zanganeh, Financial Tribune reported.

“The capital market is capable of meeting at least half the funding needs of oil projects,” he told the Petro Financial System Development Conference in Tehran on Saturday, SENA news agency reported.

He pointed to the potential of the Iran Energy Exchange in financing oil ventures, saying the value of trade in the domestic energy market increased dramatically in the current fiscal year (March 2019-20).

A total of 450 trillion rials ($3.5 billion) worth of petroleum products was traded via IRENEX in the year, the official said, recalling that deals barely worth 20-30 trillion rials were undertaken in the past years.

Mohammadi referred to the increasing number of petrochemical and refinery companies listed on the Tehran Stock Exchange and Iran Fara Bourse as a key indication of the stock market’s expanding role in funding the costly oil sector.

“Controlling shareholders [who own majority shares] finance projects by selling shares of such companies”.

the oil sector has met most of its financial needs by selling bonds, according to the CEO.

As per the budget law for current fiscal year, the Oil Ministry is can issue bonds up to $3 billion (in rials and foreign currency) to pay for oil projects.

Earnings from bond sales will help repay the principal amount plus interest of matured bonds, reimburse liabilities to banks and pay contractors.

According to a report by Tehran Chamber of Commerce, Industries, Mines and Agriculture, Iran’s stock market made funds available for businesses to the tune of 1,290 trillion rials ($9.9 billion) in the first nine months (March 20- Dec 21) of the current fiscal.

This shows 196% growth compared to the corresponding period last fiscal year when businesses generated 556 trillion rials through the capital market, signifying a bigger contribution of the bourse to recapitalize businesses.

Setback for Oil Sales

Mohammadi pointed to failure of an initiative to sell crude oil via IRENEX, blaming methods and procedures.

The government started offering crude oil on the energy bourse in autumn 2018 to in bid to find alternative venues for oil export after United Stated imposed new oil sanctions.

The move sought to involve the private sector and international companies in the oil industry that has long been under government control.

Save for a few initial transactions in the early offerings, most of the subsequent oil offers fell flat with no buyers.  According to IRENEX data, the NIOC hardly managed to sell 1.1 million barrels of crude on the market after the program started in October 2018.

Unlike the move to export crude oil through IRENEX, the government’s initiative to offer gasoline on the energy market has proved to be successful. A report on the value of trade via IRENEX covering the beginning of the current fiscal year (March 21) till last October indicates that trading in different energy carriers generated $519 million.

The majority income was from diesel and gasoline sales, representing 43% and 30% of the contracts, respectively.