The processes involved in gaining SEO approval of local guarantors has proven to be a time-consuming process. Habib Reza Hadadi, CEO of Omid Investment Bank, in an interview with the leading economic daily Donya-e-Eqtesad on Nov. 17 noted that the red tape related to the underwriting of carmaker Saipa’s Murabaha sukuk took more than nine months.
Saipa is the second largest automaker in Iran. Hadadi suggested that the only viable solution to this problem is the establishment of local credit rating agencies, stressing that such firms would negate the need for bond issuers to introduce guarantors to the SEO.
Indeed, being able to borrow and secure bond issue permits from the SEO has never been an easy undertaking. In the absence of ratings agencies, the SEO requires a bank or syndicate of banks to sponsor debt repayment by the bond issuer. Naturally, banks charge fees to offer this service and consequently this obligation escalates the cost of issuing for corporate bonds and hampers interest in entering this market for nongovernmental enterprises.
Equally important is the issue of future economic prospects in Iran. With the crisis over the credit crunch still ongoing in the banking system, coupled with uncertainty over the future state of international trade and poor domestic growth prospects for industry — at least in the medium-run — companies are not able to convince authorities responsible for issuing debt sale licenses of the feasibility of their expansion plans.
Nonetheless, the SEO’s decision to set up the first credit ratings agencies with the cooperation of renowned foreign firms might smooth the route to easier financing via debt market for nonstate enterprises. Indeed, instructions to create such agencies were ratified by the SEO’s board members in April 2016. As such, despite the many challenges faced by private firms in accessing financing on debt markets, the outlook for the latter seems set to improve.