Page 37 - IRANRptNov18

Iran to issue Sukuk bonds to raise capital for ATR planes
essence, that move boosts the power of the regulator to repatriate money from government entities, including capital from big petrochemical exporters which have, according to local reports, in recent weeks been holding millions of dollars and playing the forex market to the detriment of the currency.
Iran is, meanwhile, developing a range of new financial products, from Islamic bonds to warrants and insurance-linked securities, in an effort to give local firms more funding options as sanctions put pressure on the economy, Reuters reported on October 2.
But Iran’s financial system has been able to ride out past periods of sanctions, and officials told the news agency that they are working on new products to stimulate capital markets activity. All the products are structured to obey Islamic principles, such as a ban on interest payments.
The capital market regulator, the Securities and Exchange Organisation (SEO), reportedly said it had started work on a new structure for Islamic bonds. The sukuk will use an agency format known as wakala, which is widely used in Asia and the Middle East but not yet offered in Iran, said Majid Pireh, senior Islamic finance expert in the SEO’s research, development and Islamic studies department.
“This will be a new financing instrument for companies,” Pireh was cited as saying, adding that regulations could be ready in six to nine months.
Wakala sukuk pay a variable rate, giving them equity-like features compared with other sukuk in Iran, which pay fixed rates.
The SEO also plans to introduce warrants—contracts giving the option to buy underlying shares at a later date—following the earlier introduction of put and call options. The SEO’s religious board is reviewing a proposal for warrants, which must be structured to obey Islam’s ban on pure monetary speculation. “The derivatives market has a lot of room to grow. Options were introduced in 2013, but the first trades were done in 2016,” Payam Afzali, managing partner and head of investment banking at Tehran-based Kian Capital Management, was quoted as saying.
Warrants may not attract major investment in the short term but could be used to make bonds and equities more appealing to investors, he added. Meanwhile, the SEO is considering whether to introduce insurance-linked securities so that domestic insurers can offload some portfolio risk in the capital markets, Pireh said.
LS are typically tied to natural catastrophes such as earthquakes and offer high yields; investors can lose their principal if a catastrophe loss is triggered. They could serve as an alternative to reinsurance cover, which is scarce as sanctions mean Iran is shut out of global reinsurance markets such as Lloyd’s of London.
The Iranian government’s Economic Commission has approved a proposal to issue IRR10tn ($66mn) worth of Islamic Sukuk bonds to raise capital to be used in the purchase of ATR turboprop planes, Iran Labour News Agency on September 24.
French-Italian short haul plane maker ATR managed to construct and deliver 13 of an IranAir order for 20 aircraft in advance of the snapback of US sanctions in early August. The remainder of the initial request for planes and a
37 IRAN Country Report November 2018 www.intellinews.com