Novin Investment Bank subscribed the first Istisna Sukuk in Iranian capital market on behalf of Tose'e Melli Mining and Industries Company for raising 1.62 trillion Rials ($45.8 million at market exchange rate) in Tehran Stock Exchange on Nov. 23. The Sukuk, which pays 23% interest annually with quarterly payments and mature in three years. ThisThis issue has been for completing two iron ore concentrate and pellet plants, with a 2.5 million-ton annual output. The plants are located in the city of Sangan, northeastern Khorasan Razavi Province. One is 60% complete while work on the second plant has progressed by only 25%.
Istisna or "production order securities" are an Islamic form of financing used to fund the manufacturing of goods. Based on the contract, the issuer finances the originator for a specified product that can later be given to him to operate via other Islamic contracts, such as Ijara and Murabaha.
In this issue that Novin Investment bank is acting as the advisor and underwriter and Novin's brokerage as broker and Tose'e Melli Investment Company is guaranteeing the principal, the total amount of 1.6 trillion Rials was fully subscribed with the total demand of 9 trillion Rials in queue.
Iran's capital markets are rapidly expanding. The two-year bear market that has reigned on equities has redoubled the conviction of the regulator Securities and Exchange Organization to expedite the process of introducing newer financial products. According to Tehran Chamber of Commerce, Industries, Mines and Agriculture, Capital markets raised 292 trillion Rials ($8.2 billion) in the 2013-14 fiscal year–7.6% of total financing–through capital increases, initial public offerings and the sale of Islamic corporate bonds (including Musharakah, Murabaha and Ijara),.
To gain market share from banks in Iran, the exchanges are offering financial instruments that provide versatility to investors and companies looking for funding or risk management tools.
Ijarah Sukuk beside Murabaha and Musharakah have been traded for a few years now. This year, stock futures were legalized, along with stock options, though they have not yet been put up for trading.
Iran Mercantile Exchange's chief executive said recently that they are setting up their exchange for offering foreign exchange futures. In the fixed income category, along with the more mainstream Musharakah Sukuk, Islamic Treasury Notes were offered for the first time this year to start building a sovereign debt market.