The report, published on the CBI website, shows municipalities in Tehran, Mashhad, Isfahan, Ahvaz, Tabriz, Karaj and Shiraz had issued participatory bonds to the tune of 49 trillion rials ($433 million) during the period. Apparently only a quarter of the issued bonds had buyers.
Participatory bonds were issued mainly for financing urban rail networks, expanding pathways, rehabilitating urban structures and developing Bus Rapid Transit (BRT) networks.
The bonds mature in four years and have an annual interest rate of 18%, Financial Tribune reported.
Tabriz Municipality had the lion's share, issuing an aggregate 6.5 trillion rials ($57 million) worth of bonds. It sold almost all of the bonds (6.49 trillion rials) for completing Line 1 of its urban subway, as per provisions of the 2017-18 fiscal budget.
Rehab for Shrine Areas
Mashhad Municipality was the second and managed to sell 3.5 trillion rials worth of participatory bonds issued to restore and renovate areas surrounding the mausoleum of the eighth imam of Shia Muslims, Imam Reza (PBUH) in Mashhad, the provincial capital of Khorasan Razavi Province.
This is while the municipality could not find buyers for a much bigger portion its bonds (8.5 trillion rials) issued to fund urban railroad projects.
Karaj Municipality was the third in the list as it sold almost all of the participatory bonds worth 2.5 trillion rials to finance the first phase of Line 1 of the long-delayed urban railway network.
Isfahan Municipality was barely able to sell 11 billion rials of a total of 2 trillion rials worth of bonds. The municipality issued bonds to finance its BRT network.
There also were no buyers for another bond issuance by the same municipality to finance the second phase of Line 2 of its railroad project.
Likewise, participatory bonds offered by municipalities in Tehran, Shiraz and Ahvaz were not welcomed.
In the current year’s budget, lawmakers allowed municipality-affiliated organizations and companies to issue Islamic bonds worth up to 80 trillion rials ($700 million).
Strong Guarantees
The companies are obliged to spend at least 50% of the total earnings from bond sales to expand transportation and railroad projects. The law stipulates that the repayment of bonds sold for these projects is jointly guaranteed by the municipalities and the government-affiliated Plan and Budget Organization.
The CBI report covered the subject of bonds sold both by government and municipalities in big cities. However, the share of government-affiliated bodies is zero in this report.
According to a similar report covering the bond market performance by the end of last fiscal year (March 2019), the government had sold a total of 20 trillion rials ($176 million) in participatory bonds.
The bonds were issued by the Ministry of Economic Affairs and Finance as per the fiscal 2017-18 budget for financing government projects.
Of this amount, the ministry managed to sell 17.8 trillion rials to investors by March 19. Government bonds have a 15% annual interest rate and mature in four years.