According to a Central Bank of Iran report, municipalities unloaded 95% of the bonds and raised 46.95 trillion rials ($340 million) during the three fiscal quarters, Financial Tribune reported.
The report covers both issued and traded bonds by municipalities and government-affiliated companies. However, data show that the government neither sold nor issued bonds during the period.
Participatory bonds were issued by municipalities in Tehran, Mashhad, Isfahan, Ahvaz, Tabriz, Karaj and Shiraz to fund urban development projects, namely financing urban rail networks, expanding pathways, rehabilitating urban structure and developing Bus Rapid Transit (BRT) networks.
The bonds mature in four years at 18%.
Tehran Municipality had the lion's share of participatory bonds, issuing two tranches in March 2019. The bonds, worth 13 trillion rials ($94 million), were issued to raise funds for subway expansion programs. TM sold all the bonds for completing Line 6 and Line 7 of the subway in the capital that is home to almost ten million people.
Isfahan Municipality issued a total of 7 trillion rials in bonds in two rounds. In the first it sold bonds worth 5 trillion rials in March 2019 to fund the second phase of Line 2 of its urban railroad. The bonds were well-received and fetched 49.9 trillion rials—1% shy of the total.
In the second round in late June, the municipality in Iran’s most famous tourist city, sold all of the 2 trillion rials worth of bonds to fund its Bus Rapid Transit network.
Developing Shrine City
Mashhad Municipality issued a total of 5 trillion rials in bonds to expand pathways around the shrine city and restore and renovate areas surrounding the mausoleum of the Eighth Imam of Shia Muslims, Imam Reza (PBUH). The bonds were well-received by investors.
The municipality issued another 7 trillion rials in bonds in March 2019, to fund the third phase of Line 3 of its subway.
Tabriz Municipality raised 6.5 trillion rials to complete Line 1 of its urban railroad. Likewise, municipalities in Karaj and Shiraz secured 2.5 trillion rials and 6 trillion rials, respectively, to fund railroad projects.
Two trillion in bonds issued by Ahvaz Municipality to finance the oil city’s subway project had no buyers.
The participatory bonds were issued as per recommendations in the budget law for the last fiscal year (March 2018-19). According to the CBI, the bonds were the residue of bonds that were issued as per the last year’s budget.
The national budget for the current fiscal year that ends in March, allows municipality-affiliated organizations to issue Islamic bonds worth up to 80 trillion rials ($630 million). The figure is higher than the initial 55 trillion rials proposed by the government.
The companies are obliged to spend at least 50% of the total earnings from bond sales to expand urban transportation and railroads. Law stipulates that the repayment of bonds sold for such projects is guaranteed jointly by the municipalities and the government’s Plan and Budget Organization.