Iran strengthening Chinese ties with Sukuk as US sanctions loom large

Long-time allies Iran and China are working on strengthening their financial ties through the possible issuance or listing of Iranian sovereign Sukuk in China and the transfer of Iran’s experience in Islamic finance. MARC ROUSSOT has the details of this nascent project.

Counting its allies following the US withdrawal from the nuclear deal, the Islamic Republic has found in China an unfailing partner keen to develop its bilateral financial relationship with Iran.

The Securities and Exchange Organization (SEO) of Iran and the China Securities Regulatory Commission expressed in a MoU signed in June their intention to look at the possible issuance of Iran’s sovereign securities in China.

“Both the issuance of Sukuk in China, potentially by private placement, and their listing are possible. It has not been decided, but probably our Chinese partners would prefer the listing of Sukuk,” shares Dr Bahador Bijani, the vice-chairman of the SEO of Iran in charge of international and foreign investment affairs.

It is yet to be decided if Iran’s sovereign Sukuk could be issued in renminbi and which Chinese stock exchange would welcome Iran’s Shariah securities as the details of the MoU are to be discussed during a meeting expected to be held in August. However, it is clear that the size and the depth of the Chinese capital market is appealing to Iranian authorities, which are looking at diversifying their investor base.

“China is one of the biggest capital markets in the world and if we want to issue Sukuk we are looking at raising tens of billions, not millions. With a small market, we would not be able to do that. So the size is very important here and on top of that, China is playing an ever-increasing role economically and politically,” says Dr Bahador, skimming over the political message sent by the signing of this MoU.

While the SEO does not refute such a political signal, the Iranian regulator highlights that discussions with its Chinese counterpart started in April 2016, proving that the agreement is not primarily motivated by the return of US sanctions on the 6th August.

Moreover, the MoU is not one-sided. In the agreement, the Chinese regulator expressed its intention to tap Iran’s experience in Islamic finance. Iran could help China in the development of Islamic financial instruments, for instance.

“Because there is a sizeable Muslim population and because the Chinese capital market is expending, our Chinese partners are interested in looking more closely at what we are doing in the realm of the Islamic capital market and innovation,” states Dr Bahador.

In total, Iran and China are having discussions on about 10 projects. A scheme called Qualified Domestic Institutional Investors meant to allow Chinese investors to invest overseas is one of them. “We are definitely going to look at this scheme,” affirms Dr Bahador. “Hopefully, some of these projects are going to be realized in less than a year’s time,” he adds.

This article first appeared in IFN Volume 15 Issue 29 on the 17th of July 2018

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