Trying to modernize Iran’s capital markets at breakneck speed to reduce the impact of US sanctions on the Islamic Republic’s economy, the Securities and Exchange Organization of Iran (SEO) has taken many measures including licensing credit rating agencies with the aim of achieving greater transparency and increasing Sukuk issuance. MARC ROUSSOT reports.
Time is running out. In less than three weeks, the second round of US sanctions targeting oil exports will hit the Islamic Republic and could severely damage its economy if Iran’s clients, particularly the EU, stop buying.
Trying to keep the nuclear deal alive, the EU recently established an SPV to circumvent US sanctions and continue trade with Iran. However, in Teheran, the authorities are still expecting to feel the pinch and the SEO has been in full swing over the past few months trying to modernize Iran’s financial system often described as opaque and inefficient.
To increase the level of transparency, the SEO has for the first time licensed five credit rating agencies, an initiative expected to boost the number of issuances by reducing the time to market and the cost of issuance as the regulator loosened its requirements authorizing rated issuers not to have a guarantor.
Besides improving investor confidence in the financial system, the measure also intends to further dry up the excess liquidity present in Iran by encouraging investors to tap the equity and Sukuk markets.
The first one
Operating since August, Borhan Credit Rating Agency has yet to give its first rating but it is currently negotiating with commercial banks, industrial and holding companies, brokerage companies and investment banks, to name a few, offering them its credit rating, ranking and consulting services.
Established by the Iranian Credit Bureau and Scoring Company which is Iran’s only scoring agency, Pakistan-based rating agency JCR-VIS, as well as eight Iranian financial specialists, Borhan is the only credit rating agency currently up and running in Iran.
It is unclear when the other four will be able to launch their operations as they have only obtained one out of the three required licenses from the regulator.
Borhan proposes to rate both companies and Sukuk, provide scores to a bank’s customers and rank funds, asset management companies as well as brokerage houses.
“Credit rating has a significant role to play in developing the Iranian financial markets. It can remedy the information asymmetry between investors and creditors, promote transparency and ultimately, increase fundraising and help in better allocation of capital,” shares Hamid Mirmoeini, a founder and member of the board of directors of Borhan.
However, with the reintroduction of US sanctions in August, obtaining a credit rating will not be a priority for most companies, admits Hamid who hopes to assign around 50 ratings and rankings in the next two years.
This article first appeared in IFN Volume 15 Issue 42 on the 17th of October 2018
MARC ROUSSOT 