Page 10 - MEOG Week 18

MEOG FInanCe & InVestment MEOG
Iranian sukuk to fund oil and gas projects
Iran
IRAN is planning to issue sukuk securities worth up to $217mn to fund oil and natural gas pro- jects, the country’s official energy news portal SHANA reported on May 2.
vice President Eshaq Jahangiri reportedly signed off on the decision to ahead with the issu- ance, authorised under the annual state budget. It will permit the oil, energy and industry min- istries to issue sukuk – Islamic sharia-compliant bonds – with a value of up to Iranian rial (IRR) 35 trillion ($217mn at the free market exchange rate). Foreign investors, including France’s Total, have withdrawn from Iran’s oil and gas industry since the US reimposed heavy sanctions on the Islamic Republic in May 2018.
Under those sanctions, the US initially issued waivers that allowed designated countries to import Iranian crude oil without fear of penalties being pursued by Washington, but in May 2019 it switched to a policy of attempting to drive all oil exports from Iran off world markets.
There have since been widely varying reports on how successful Iran has been at exporting oil through grey market channels.
sukuk woes
The issue of this sukuk comes amid predictions that the sukuk market will likely a see significant reduction in issuance volumes in 2020 as lower oil prices and the novel coronavirus hurt key sec- tors in core Islamic finance countries.
Ratings agency Stand & Poor’s were quoted last month as saying that most government issu- ers in core Islamic finance countries may turn to conventional bonds rather than sukuks, because sukuk issuance is more complex and there is increasing risk-aversion among investors.
The company expected 2020 sukuk issuance to total $100 billion at best, down almost 40%
from 2019, on the back of muted economic per- formance in the market’s core countries as they take measures to combat the spread of the coro- navirus. Several countries have taken measures to “unlock banking sector liquidity”, the ratings agency said, making potential issuers turn to banks rather than the sukuk market.
While the virus outbreak is taking a toll on important sectors in core Islamic finance coun- tries, including real estate, hospitality, and con- sumer-related businesses, the rating agency said government measures will result in lower issu- ance from both corporate entities and central banks.
Adding to the woes of sukuk market will be investors’ increasing risk aversion in the uncer- tain environment and widening spreads, which imply that financing conditions will be extremely tight for issuers with weak credit quality.
While some issuers are likely to wait for mar- ket conditions to improve and get the right win- dow for their sukuk issuances or they could turn to other instruments that are easier to bring to the market.
These could range from bilateral/multilateral lending agreements, syndicated loans, or issu- ance on conventional bonds.
Investors generally do not have access to the sukuk’s underlying assets in the event of a default, except when those assets were sold to the special purpose vehicle issuing the sukuk, which is an exception rather than the norm.
S&P said the crisis could even lead to devel- opments such as: “social sukuk or a new breed of instruments, for example, one on which the rate of return would decline if the issuer fulfils certain social objectives, such as supporting the health- care system or helping companies affected by COvID-19 so they don’t need to lay off staff.”™
PoLICy
Lebanese protest against rescue plan as government seeks IMF help
Lebanon
HUNDREDS of lebanese rallied on Friday out- side the central bank in Beirut and elsewhere in the country a day after the prime minister said he would seek a rescue plan from the International Monetary Fund (IMF) to deal with a spiralling economic and financial crisis.
The protesters criticised the government’s handling of the unprecedented crisis that saw the local currency crash, devastate their savings and send prices and inflation soaring. Scuffles broke
out outside a private bank and troops were seen beating and pulling away at least one protester.
The government “is not even providing the most basic needs”, said a protester in Beirut, Ahmad Demashqia. There were also rallies in northern and southern lebanon to commemo- rate May Day, the international labour Day.
lebanese Prime Minister Hassan Diab on Friday signed the official request for assistance from the IMF. He said the government had taken
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w w w . N E W S B A S E . c o m Week 18 06•May•2020