435 Trillion Rials in Bonds Proposed in 2019-20 Budget

EghtesadOnline: Provisions of Note 5 of next year’s budget give details about Islamic bonds the government intends to issue in the next fiscal year that begins in March 2019.

News ID: ۷۸۴۴۳۵

30 December 2018

As per the proposal, public sector companies will issue 45 trillion rials ($428 million) in Islamic bonds in rials for  projects that are technically, economically, financially, and environmentally viable.

The decision to fund such ventures must be approved by the government's Economic Council. The issuer must guarantee reimbursement of the principal amount plus interest.

While yields on treasury bills are variable for different maturities, currently their average yields are around 20%, Financial Tribune reported.

In addition, the government can issue Islamic bonds, both in rials and foreign currencies, and deposit the proceedings for completing unfinished national and provincial development projects plus help complete development projects in universities.

The bill stipulates that all creditors of the above projects could buy the unsold bonds in order to settle the payments pending to them by state and government bodies.

The note stipulates that municipalities and affiliated organizations can also issue Islamic bonds up to the ceiling of 55 trillion rials ($523 million). They are obliged to spend at least 50% of the total from bond sales for expanding urban transportation and railroad projects.

The guarantee for repayment of bonds for urban railroad and transportation projects will be the joint function of municipalities and the government (Plan and Budget Organization).

After approval by municipalities, the unsold bonds may be sold to creditors of municipal projects in settlement of their debts.

The bill also allows the government to issue Islamic treasury bills with three-year maturity and sell them up to the ceiling of 130 trillion rials   ($1.23 billion ) to creditors.

The treasury bills will be issued with the sole purpose of  reimbursing government debt to creditors.

The government is obliged to repay its debt to cooperatives and the public sector before the present fiscal year is out in March by issuing a particular type of treasury bills to swap government debt with the debt public and private companies owe to the government.

The ceiling of swapping debt in this manner is predicted in the new budget at 20 trillion rials ($ 190 million).

In order to maintain timely payments to the treasury, the government is allowed to issue Islamic bonds worth 100 trillion rials ($952 million) with one-year maturity.

The money from bond sales is to be allocated for projects okayed by the PBO with priority given to the provinces.

Also, the bill stipulates that the reimbursement of bills on the date of maturity has priority over other payments to  the treasury and postponing the maturity of bonds is not allowed.

The government may issue Islamic bonds worth 50 trillion rials to reimburse the principal sum plus interest of matured bonds in 2019-20.

The Ministry of Oil and Ministry of Industries, Mining and Trade can issue 35 trillion rials ($333 million) in Islamic bonds for their development projects.

Additionally, the Oil Ministry is allowed to issue Islamic bonds via affiliated public companies up to $3 billion in rials and foreign exchange. The earning is to be allocated to repay the principal amount plus interest of matured bonds, reimburse liabilities to banks and pay money owed to contractors.

$30 Billion in Foreign Funding

According to Note 3 of the budget bill, the ceiling of the foreign finance facilities is set at $30 billion.

Private sector projects, cooperatives, knowledge-based companies, and non-governmental institutions   can seek foreign funding albeit after supplying the required collateral to agent banks.

The bill also allows the government to use a maximum of $1 billion from the foreign finances to equip universities and research and technology institutions, laboratories and workshops.

Additionally, the government is permitted to allocate a minimum of $2 billion in foreign finance, sourced from the total foreign finances mentioned in the bill, for  urban railroad expansion and plans to mitigate air pollution on the condition that municipalities pay 15% of their share of the project and guarantee the repayment of loans.