Corporate Bonds Plunge 18%

EghtesadOnline: Private companies issued sukuk worth 183 trillion rials ($653 million) in the first nine months (March 21-Dec. 21 2021) of current fiscal year.

News ID: ۷۸۷۶۹۴

29 January 2022

The sale was down 18% compared with 212 trillion rials ($757m) in the corresponding period last year, the Tehran Chamber of Commerce, Industries, Mines and Agriculture said quoting data released by the Securities and Exchange Organization.

A corporate bond is a debt instrument issued by a company in order to raise capital. An investor who buys a corporate bond is effectively lending money to the company in return for a series of interest payments, but these bonds may also actively trade on the secondary market.

As per regulations on the issuance of sukuk in Iran, sukuk issuers must guarantee the reimbursing of principal and interest. Apart from acquiring credibility approval from rating agencies, companies wanting to issue bonds must also present third person guarantee or stocks as collateral.

The bonds were issued by auto, petrochemical, mineral and investment companies. According to SEO data, private companies have issued sukuks worth 590 trillion rials ($2.1 billion) since 2018, 490 trillion rials ($1.75b) of which have not yet matured.

Of the total bonds issued in the first three quarters of current fiscal year, 56 trillion rials ($200m) were new securities called the Productive Credit Certificate, which is commonly known by its Persian acronym “Gam”.

Gam is a market oriented financial instrument traded in money and capital markets.  Through it banks help businesses by offering tradable credit certificates similar to LCs.

The certificates are 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.

Data also show a sharp decline in the value of standard salaf securities in the reviewed period. Salaf bonds valued 8.2 trillion rials ($30m) were issued over nine months this year, down 94% compared to the 145 trillion rials ($517m) last year.

Standard parallel salaf is an Islamic contract similar to futures with the difference being that the total price should be paid in advance.

In addition, Ijarah bonds worth 69 trillion rials ($246m) were sold. Ijarah are Islamic securities representing ownership of assets that are linked to a lease contract. They were introduced in 2011 in Iran.

Gov’t Dominance

Debt market data show in the Q1-Q3 period, the government sold 1,700 trillion rials ($6b) in binds.

It included 1,070 trillion rials in treasury bills and 516 trillion rials in Murabaha bonds sold at weekly auction to help fund the budget deficits, and 120 trillion rials in salaf securities.

Despite the expanding footprint of private companies in  financing debt, the market is dominated by the government, at times depriving the private sector of much-needed financial space and opportunity.

Iran's bond market has grown exponentially thanks to government moves to tap debt instruments to help cover the bulging budget deficits in the past two years.