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EghtesadOnline: Municipalities of seven major cities issued 89.3 trillion rials ($330 million) in bonds in the first nine months of present fiscal year to Dec. 21.

Compared to same time last year, the bond sale was 70% higher, the Central Bank of Iran reported Saturday.

Municipal bonds (aka known as participatory bonds) are debt securities to help fund development and infrastructure projects.

The bonds were issued by municipalities in Tehran, Mashhad, Isfahan, Ahvaz, Tabriz, Karaj and Shiraz to largely pay for urban rail networks, expand pathways, rehabilitate urban structures and develop Bus Rapid Transit (BRT) networks. 

The bonds were issued as per provisions of fiscal 2021-22 budget. According to Masoud Nosrati, a deputy at the Iranian Municipalities and Rural Management Organization, municipalities can issue 50 trillion rials ($188m) in bonds for completing railroad projects.

“In addition, 20 trillion rials bonds is allowed to expand urban transportation and develop BRT networks,” he was quoted as saying by the IMRMO website. 

Law stipulates that the repayment of bonds is guaranteed jointly by the municipalities and the government’s Plan and Budget Organization. 

The CBI report included data on bonds issued by the government, state-run companies plus corporate bonds issued by private companies. 

Debt market data show in the Q1-Q3 period, the government sold debt to the tune of 1,696.3 trillion rials ($6.4 billion). It included 1,065 trillion rials ($4 billion) in treasury bills and 516 trillion rials ($1.9b) in Murabaha bonds to help fund the budget deficits, and 115 trillion rials ($433m) in salaf securities.

Standard parallel salaf is an Islamic contract similar to futures with the difference being that the total price should be paid in advance.

Private companies issued sukuk worth 183 trillion rials ($690m) from March 21-Dec. 21 2021). This was down 18% compared to the 212 trillion rials ($800m) in the corresponding period last year. 

A corporate bond is a debt instrument issued by a company to raise capital. An investor who buys a corporate bond is effectively lending money to the company in return for a series of interest payments, but these bonds are also traded on the secondary market.

As per regulations on the issuance of corporate bonds in Iran, issuing companies must guarantee the reimbursing of principal and interest. Apart from acquiring credibility approval from rating agencies, companies wanting to issue bonds must present third person guarantee or stocks as collateral.

Despite the expanding footprint of private companies, the market is dominated by the government, at times depriving the private sector of much-needed financial space and opportunity. 

Observers say the widespread presence of the government has resulted in a crowding out effect on the economy. The trend suggests that rising public sector spending drives down private sector spending. 

One of the common forms of crowding out takes place when the government increases borrowing and sets in motion a chain of events that results in the curtailing of the private sector’s access to funds.  


CBI Bonds