In this, the Government Trading Corporation of Iran has been tasked by the Cabinet to issue 70 trillion rials (over $1.9 billion at market exchange rate) of Islamic Treasury Bills or other Islamic securities with up to five years maturity, ILNA reported.
The ministry’s assets will be used as collateral for the securities and the Planning and Budget Organization, in charge of overseeing government expenditures and drafting the budget, is to account for repayment of the principal and interest of the bonds issued in the budget.
GTC is a government-owned company specializing in purchase, import and distribution of essential foodstuff. It is the lever for enforcing market controls. The company is also in charge of maintaining a supply of wheat, rice, cooking oil and meat as the country’s strategic reserve of essential goods.
The company has already struck a partnership with Agricultural Bank Brokerage, through which 36.6 trillion rials (nearly $1 billion) were raised to buy wheat from farmers in the current fiscal year (started March 20), IRNA reported.
The sum was raised from Salaf contracts for wheat offered on Iran Mercantile Exchange and Murabaha bonds sold on Iran Fara Bourse.
Traditionally, the government financed wheat purchases from its revenues or committed commercial lenders. But today, with government expenses outstripping oil sales and tax revenues, and banks struggling with overdue debt, the administration is turning to money markets for funding.
The effort started with an offering of Salaf contracts for wheat on the Iran Mercantile Exchange in September. GTC sold 32 million wheat Salaf contracts, raising 26.5 trillion rials ($745.2 million) from the sale. Salaf is an Islamic contract designed to resemble futures contracts and used to forward sell an underlying commodity with a predetermined interest for the period. The wheat Salaf contracts with six months maturity are sold below face value and estimated to yield 20% interest per annum.
Later in November, GTC followed up by selling 10 trillion rials ($278.8 million) of Murabaha contracts for wheat on the IFB over-the-counter market. Murabaha is another Islamic financing structure in which an intermediary buys a property with free and clear title, according to Financial Tribune.
Similar in structure to a rent-to-own arrangement, the intermediary retains ownership of the property until the loan is paid in full. The two-year bonds bear 20% interest per year.
According to the chief executive of Agricultural Bank Brokerage, Hossein Khezli, the government needs 150 trillion rials ($4.1 billion) to cover its purchase of wheat this year, which is 42% more than last year, according to the Ministry of Agriculture, so more bond offerings are on their way.
The wheat planting season began in mid September. From the 5.75 million hectares of land designated this year to wheat farming, so far 2.64 million hectares have gone under cultivation of the staple crop, a ministry official said earlier this month.
“This means close to 46% of this year’s wheat planting have been completed. Farmers will continue to plant the grain until mid December,” Esmaeil Esfandiarpour was also quoted by IRNA as saying.
A record high of 14 million tons of wheat was domestically produced this year, more than 11.76 million tons of which (worth over $4 billion) were purchased by the government from local farmers at a guaranteed price.