World Business and Economic Analysis
World Business and Economic Analysis
Thanks to high human capital, high population (80 million ) natural resources, high technology of some companies in Iran and many other factors become Iran as hub for many businesses.
Now many companies like Nestle, Carrefour(which is known hyperstar ),Jancbo(Turkish brand )and many other international companies who invest in Iran ,enjoy this market.
After removal of sanctions many big missions enter to Iran just assess the situation.
If you want to do business in Iran, there is some red tape but you will enjoy this market.
You are considering investing in a large country with 80 million people and a relatively prosperous GDP per capita of almost $20,000.
It had democratic elections this year where the reformists won again on a mandate to increase trade with the rest of the world in contrast to the populism seen in many developed countries. Its capital city is full of history yet cosmopolitan, and tourism has picked up recently.
Yet foreign investment, particularly from the western world, is much lower than what you would expect in a country with such a large domestic market.
That country is Iran. Is it time for contrarians to get in? An article published by Frontera News seeks to answer the question. It delivers business news, investment research and political risk analysis on the world’s frontier and emerging markets.
High Chances of Success
One of the main reasons investors take interest in frontier markets is to get in at the beginning of the economic cycle in the hopes of making outsized returns, as the economy enters a rapid growth phase.
Iran is an interesting case where its GDP per capita is relatively high, but where there are a lot of severely underdeveloped industries due to almost 40 years of sanctions. Tourism is a very low hanging fruit, as is any trade with western companies.
Bolstering chances of success are a large population (18th in the world) that is highly educated with a literacy rate above 95%. The population is also relatively young, with about half the population under the age of 30. Both these factors have contributed to a burgeoning startup and tech scene in Iran.
When you compare the potential of Iran to other countries that have been held back due to sanctions–Cuba, the DRC, North Korea, or Sudan–the contrast is extreme in terms of how well Iran has done relatively.
The case of Myanmar, a country that is booming now with the removal of sanctions and embrace of the western world, is a hopeful case for Iran, and Iran is way ahead of where Myanmar was when sanctions ended.
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Paiton's successful debut shows one way to finance Asia's massive infrastructural needs, as bank lending becomes costlier
DBS Bank's Clifford Lee says Asian investors are active in USD-denominated issues, making up nearly half the investors in the Paiton issue.
Singapore
THE Asean bond market is developing nicely, buoyed by the increasing sophistication of Asian investors and growing demand from global investors.
Early this month, global investors gave a strong reception to a project finance bond sold by an independent power producer in Indonesia; and since April, two Singapore corporates have issued the nation's first green bonds.
Indonesia's second largest independent power producer, PT Paiton Energy, took in US$9 billion in orders for its US$2 billion two-tranche issue.
The bonds comprised US$1.2 billion 13-year notes and US$800 million 20-year notes.
The deal was notable for being the first investment-grade bond, and the largest rated amortising international bond for an infrastructure project in Asia since 2000.
The amortising feature means that some of the principal is paid along with the coupon, unlike for a conventional bond, where the principal is repaid only at maturity.
Ray Tay, Moody's vice-president and senior credit officer, said the amortising feature is seen more in developed markets such as the US; the long term tenor project bond has thus far been absent in Asia.
"It's a deeply positive development, not just for the financial markets, but key for this region and the asset class," he said, describing the Paiton deal as a "beachhead".
HSBC and Barclays were the joint global coordinators for the transaction.
A HSBC spokesman said: "The depth of demand for the deal was exceptional, given that this is the first public project bond transaction to be sold in the markets since before 2000, and proves investors will buy long-dated amortising structures, which is a significant step forward for the Asian capital markets."
Paiton's successful debut augurs well for the region's massive infrastructural projects, which will require diversified sources of funding.
The Asian Development Bank has estimated that Asia will need to invest about US$1.7 trillion a year in infrastructure between 2016 and 2030, representing 5.9 per cent of the region's projected gross domestic product.
Terry Fanous, Moody's managing director for project and infrastructure finance in the Asia-Pacific, said: "This debt issuance marks the return of Asian project bonds raised in the offshore debt capital markets after many years of absence.
"So far, project finance in Asia has been predominantly provided by banks, which will continue to play a key role in this sector over the foreseeable future, but a broader approach will help raise private sector-debt capacity."
Clifford Lee, DBS Bank's head of fixed income, agreed, saying that there will be more such long-term project bonds as bank lending - still the dominant funding source in Asia - becomes more costly.
"There will be a convergence of loans to bonds as banks face capital cost pressures."
Asian investors are more active in USD-denominated issues, he added, but noted that they accounted for almost half the investors in the Paiton issue.
"Asian investors are stepping up and getting more sophisticated," he said.
Vedanta, an Indian commodity company, allocated to Asian investors 30 per cent of its latest US$1 billion seven-year deal, up from the 22 per cent in a January sale - also for a US$1 billion deal - which had a shorter five-year tenor.
Vedanta has been marketing mainly in the US and Europe, but DBS convinced it to do more in Asia, said Mr Lee.
In the year to date, Asia, excluding Japan G3 issuances, has hit US$202 billion, which nearly equals the US$205 billion done for the whole of last year. (G3 refers to bonds issued in USD, euro and yen.)
The green bonds issued by Singapore corporates are a rarity in Asean; China and India have led green bond activity in Asia.
In April, CDL Properties kick¬started the development of a green bond market in Singapore, raising S$100 million from the first domestic deal.
Last month, DBS became the first Singapore corporate to tap the international markets for its US$500 million five-year green bond.
Mr Lee said that this bond, which attracted US$2 billion in orders, was in USD because the bank wanted to appeal to green-fund investors, who are more internationally based.
"It gave us the broadest reach in terms of investors, and we wanted also to draw in new green investors," he said.
Green bonds are not going to be an easy sell, he said. The question potential issuers have asked is: "Is it going to be cheaper?"
A green bond will neither be more expensive nor more onerous in terms of compliance - not when the issue is some US$500 million, but the point of issuing it is to protect the environment and to be socially responsible, he said.
"The environment affects all of us," he said; he added that such bonds are not a one-off occurrence, and that more are likely to follow.
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