Iran's troubled bond market
Even if sanctions are lifted, Iran's debt market faces several obstacles to realizing its full potential.
TEHRAN, Iran — Plagued by the woes of Iran’s troubled banking system, many Iranian firms are considering raising capital by issuing dollar-denominated bonds once sanctions are lifted. However, the road to this end won’t be easy — and the lifting of sanctions alone won’t solve everything.
Iran’s exclusion from the Society for Worldwide Interbank Financial Telecommunication has meant that many Iranian companies have not been able to embark on capital raising through borrowing from overseas lenders, Ali Sanginian, CEO of Amin Investment Bank, told Al-Monitor.
While home to the world’s biggest Islamic banking sector — with assets estimated at $482 billion, larger than that of Saudi Arabia — Iran’s banks are in bad shape. Government-sponsored lenders, which are in charge of providing loans for companies, engaged in bad lending practices under the previous administration of Mahmoud Ahmadinejad, draining cash. Moreover, predatory lending practices that hit companies scrambling to survive have been accompanied by insolvencies. In an interview with Al-Monitor, Hossein Khazli Kharrazi, head of Keshavarzi Bank Brokerage, pointed to this perfect storm, saying lack of liquidity — which is hanging over the economy due to high interest rates and the recession — has pushed many companies to default.
There are numerous obstacles in the path of the development of the Iranian debt market. In order to make it robust, rating companies are essential to accredit firms. At present, the banks are in effect filling this role, as they function as guarantors. In this vein, the credit crunch and nonperforming loans are tough challenges for already troubled banks. Iranian Vice President Eshaq Jahangiri announced in April that overdue debts had reached an unprecedented amount of $30 billion, calling it a major obstacle to proper banking practices.
