World Business and Economic Analysis
World Business and Economic Analysis
Bond sells. Not just the renowned British secret service agent in action-packed movies, but the paper one that signifies a debt obligation of the bond issuer to the buyers.
In Iran, its Islamic version is getting a foothold in the portfolios of institutional and individual investors alike. With stocks pressured by poor macroeconomic conditions and lackluster company performance, Islamic bonds or sukuk have become the only alternative to putting your money in banks, if you are investing in rial-denominated assets.
If not, you would have to buy gold coins or foreign currencies from bureaux de change and put them in a mattress—something many Iranian households have traditionally done.
State officials estimate mattress investments to be worth billions. As you can tell, this is not an easy investment option to sleep through.
> Stocks Are Not Enough
While James Bond knows all the tricks of the trade to escape calamities, the Iranian stock's fall has been one steep slide after another.
These stocks are just a specter of what they once were. Stock indices on Iran's two securities exchanges, Tehran Stock Exchange and Iran Fara Bourse, are near two-year lows.
TSE's main index TEDPIX is now nearly 30% lower than its all-time high of 89,500.60 in January 2014.
According to TSE's chief executive, Hassan Qalibaf-Asl, corporate earnings in the first six month of the current Iranian year (started March 21) is just over two-thirds of those in the first half of last year.
So if you wish your investments to see light of day and be tradable on a securities exchange, they have to go the bond's way.
> A View to Investment
Bond may toss and tumble and hang by a hair, but will ultimately rise atop all woes. Not surprisingly, his namesake is also selling well.
They offer generous returns with very low risk. Current returns for corporate and government bonds range between 23-28% per annum, tax free, with three- to five-year maturities.
Banks, on the other hand, offer only one year deposits, and their interest is officially capped by the central bank at 20%.
In last week's offering of the newly debuted Estensa sukuk—one of the 14 forms of sukuk, three of which were previously used in Iran, namely Ijarah, Murabaha and Mosharekat—they sold like hot cakes. The bonds were gone "in less than 60 seconds," according to TSE's head of operations, Ali Sahrayi. The underwriter, Novin Investment Bank, and the regulator, the Securities and Exchange Organization, thought the sale would take three days.
Tose'e Melli Mining and Industries Company planned to raise 1.62 trillion rials ($45.8 million) through the first-ever sale of Estensa Islamic bonds on Nov. 23. Over nine trillion rials ($250 million) worth of buy orders were made for the Estensas, and even after incomplete orders were taken out of TSE's system, 2.25 trillion rials of buy orders remained.
That is a long queue of buyers for a newcomer. The lucky buyers were 51 individuals and 19 institutions, according to Sahrayi.
They will get 23% interest on the bonds paid every quarter.
However well that sale went, bonds remain a small part of Iran's financial arena. So far, bonds have remained on the sidelines due to "the unfamiliarity of chief financial officers and high-ranking company executives with this instrument and the time-consuming procedure for getting a bond issue permit," says Vali Nadi Qomi, the chief executive of Novin Investment Bank, which underwrote the bond offering.
> Bonds Are Forever
Just as Bond gets all the timely help he needs, sukuk also need to be backed by banks in the absence of credit rating agencies, tying financing through securities to the money market.
The company must be at least two years old, though regulations are being revised. Now, other financial institutions like investment banks, investment companies and holdings can also back sukuk offerings.
So it's not much of a prediction to say that the prospects for Islamic bonds are excellent. Islamic bonds are offering a quantum of solace in a market where all other options are not really options at all.
Moreover, interest does not come from Iranians only, bonds will be the first things foreign investors look at, once they hit Iran's shores after the lifting of sanctions.
Just like Bond movies, for Islamic bonds in Iran, tomorrow never dies.
Short Url : http://financialtribune.com/articles/31525/bond-estensa-bond
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Manufacturers of Czech Republic can offer German quality products to Iranians at more reasonable prices.
This was announced by Czech Republic’s Minister of Industry and Trade Jan Mladek, before he headed the 58-strong business delegation to Iran to pave the way for the Central European country’s companies to take advantage of pent-up demand in Iran, IRNA reported.
Two similar Czech missions visited Iran last year.
Mladek also told the official broadcasting station of the Czech Republic, Radio Prague, how the government-level cooperation is set to play out.
“At the ministerial level, there will be a mixed commission and also a subcommittee. It will deal with energy, as there is an interest in power plants of all types, and in transport, due to the interest in the modernization of the railroad. Furthermore, it will be possible to discuss a whole range of technical questions on an official basis so that companies can win public tenders.”
In fact, the delegation from the Czech Republic and the one from Slovakia were the first foreign missions to visit Iran after the removal of western sanctions over Iran’s nuclear program.
Interestingly, the concurrent visits were made by two neighboring countries once collectively known as Czechoslovakia before it was divided into Czech Republic and Slovakia in 1993.
Wide-Ranging Cooperation
In Tehran, Mladek met with Iran’s Minister of Roads and Urban Development Abbas Akhoundi in Tehran on Tuesday to discuss further cooperation in the transportation sector.
Akhoundi pointed to the strategic location of Iran in the region and said the country plays an essential role in expanding and connecting the East-West and North-South transport corridors to Europe and East Asia, and is looking forward to cooperate with Czech investors and firms to develop Iran’s transportation infrastructure.
Mladek said Czech firms are ready to form a joint transportation consortium with their Iranian counterparts with a 49% and 51% share respectively, for that matter.
The Czech delegation also met with the head of Tabriz Chamber of Commerce, Industries, Mining and Agriculture, Samad Hassanzadeh, in East Azarbaijan Province.
The provincial Iranian official pointed to the 10-20-year tax exemptions offered to foreign firms investing in Tabriz and said the two sides can cooperate in the fields of auto manufacture, glass, crystal, copper and aluminum production and electronic industries.
Several memorandums of understanding were signed in East Azarbaijan Province, in addition to a contract for Brno-based tractor manufacturer Zetor to deliver 250 tractors to Iran.
Mladek also met with Iran’s Minister of Economy Ali Tayyebnia, First Vice President Es’haq Jahangiri, Oil Minister Bijan Namdar Zanganeh, Minister of Industries, Mining and Trade Mohammad Reza Nematzadeh and the head of Tehran Chamber of Commerce, Industries, Mining and Agriculture, Masoud Khansari, on Monday.
According to Jan Kavan, chairman of the Czech-Iranian Chamber of Commerce, the current annual bilateral trade of around $35 million is significantly low considering Tehran-Prague’s 90 years of economic exchanges.
“We seek to raise this figure tenfold,” he said.
The Czech Statistical Office data show the European country’s economy grew by 4.7% in Q3 year-on-year, against a 4.5% expansion in the previous estimate of the end of November, and its growth reached 0.7% quarter-on-quarter, compared with 0.5% predicted for November end.
Slovaks Sign Contracts Worth €100m
The other delegation was headed by Slovak Finance Minister and Deputy Prime Minister Peter Kazimir.
Contracts worth €100 million in total were negotiated during the official visit from January 17 to 20.
“We signed international agreements on the mutual protection of investments and prevention of double taxation,” said Kazimir upon his return from Iran, as quoted by the Slovak news agency TASR.
While in Iran, Kazimir said Slovakia is determined to raise bilateral commercial trade from the current €14 million to €50 million in the next couple of years.
On Tuesday, he met with Iran’s Minister of Economic Affairs and Finance Ali Tayyebnia and the two sides signed several agreements, including one to avoid double taxation and another to establish a working group to promote investment in the two countries.
They also discussed cooperation in energy and automobile manufacturing.
Kazimir also held a meeting with Central Bank of Iran Governor Valiollah Seif where the two sides discussed ways of broadening banking ties in the post-sanctions era by, for instance, establishing a joint account between Iran and Slovakia’s central banks. Seif also suggested that Slovaks can buy up to 40% of Iranian banks’ shares.
On Monday, Slovak and Iranian economic traders held a joint forum in Mashahad–the capital city of the northeastern Khorasan Razavi Province–to promote economic, social and cultural relations.
More than 200 provincial companies as well as 39 entrepreneurial entities from Slovakia from power engineering, water management, financing, banking and infrastructure sectors took part in the forum.
“Bratislava is willing to cooperate with Khorasan Razavi in the automotive industry, as the Iranian province plays an instrumental role in the Iranian automotive industry,” he said.
Noting that Slovakia is totally dependent on foreign resources, Russia in particular, to meet its energy needs, Kazimir noted that Iran can become a major oil and gas exporter to the European country.
Short Url : http://financialtribune.com/articles/domestic-economy/34747/czechoslovakia-reconvened
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The World Bank has forecast a major growth rate of 5.8 percent for the Iranian economy in 2016 as the country starts to benefit from the economic gains that the removal of multiple year sanctions is expected to bring about.
The WB says Iran’s economic growth will be specifically encouraged by an expected rapid rise in its oil production after the removal of sanctions that have so far banned big oil companies to take their technology as well as their funds to develop the Iranian oil fields. The Bank says it expects Iran’s oil production to increase by an estimated 0.5–0.7 million barrels per day (mbd) in 2016 up from the 2015 level of 2.8 mbd.
Iran reached a historic nuclear deal with the P5+1 group of countries – the permanent members of the Security Council plus Germany – in July 2015. Based on the deal, Iran would restrict certain aspects of its nuclear energy activities in return for the removal of the nuclear-related economic sanctions.
US Secretary of State John Kerry said on Thursday that the implementation of the Iran nuclear deal may be only 'days away,' stressing that Iran has met all commitments toward the deal.
The WB in its report titled “Global Economic Prospects: Spillovers and Weak Growth” says the potential increase in capital inflows in the post-sanctions environment will also boost the Iranian natural gas production. That, together with the much-anticipated release of Iran’s frozen assets will give a further push to the progress of the Iranian economy.
“A rebounding Iranian economy will affect neighboring countries within the Middle East and North Africa to varying degrees,” it further added. “A rapid rise in Iranian oil production would dampen growth prospects in oil-exporting countries and improve them in oil-importing countries.”
The World Bank elsewhere emphasized that Lebanon and Turkey will particularly benefit from the openings created in Iran business environment in a post-sanctions era.
“Lebanese banks have already indicated that they are interested in operating in the Islamic Republic of Iran,” it said adding that Turkey remains an important trading partner for Iran.
The report has further emphasized that Iran’s economy will also grow to 6.7 percent in 2017 before shrinking to 6.0 percent in 2018. All forecast growth rates will be the highest in the Middle East and North Africa and among the highest in the world.
The world’s highest growth rate for 2016 will be for India at 7.8 percent followed by Bangladesh (6.7 percent) and China (6.7 percent).
The growth rate for the world in 2016 will be 2.9 percent and for the developing countries will be 4.8 percent. (Press TV)
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