Iran: Securitization comes to Iran

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By:
Dominic O’Neill
Published on:

Bankers are in the final stages of preparing Iran’s first ever securitization, according the head of a Tehran investment bank.

The Iranian Securities and Exchange Organization has issued a licence for three banks to issue a combined total of about $1.7 billion in mortgage-backed securities, the banker says.

Hossain Abdoh Tabrizi of Bank Eghtesad Novin says that about $500 million in residential mortgage-backed securities will be offered to Iranian investors, probably by the end of September – or at the latest by the end of November. Tabrizi runs the investment banking arm of Bank Eghtesad Novin, one of the country’s biggest private-sector banks. He says the remaining $1.3 billion will be offered by the end of the Iranian year in March 2009.

The mortgages are on the books of three banks: the country’s biggest bank, Bank Melli ($500 million); Bank Eghtesad Novin ($200 million); and Bank Maskan, the national housing bank ($1 billion). They are for houses and apartments and, according to Tabrizi, who was formerly secretary-general of the Tehran Stock Exchange, most are for less than one-third of the value of the collateral.Restricted investor base

It will be a true-sale Islamic securitization. But the impossibility of obtaining a rating from the US-based agencies, among other hindrances, will mean the investor base will essentially be restricted to Iran. Retail investors accessed through the three banks’ branch networks will buy most of the debt. EN Investment Bank and other investment companies will help design, place and underwrite the securitization.

"This is not a one-off deal. Everyone is waiting for the first securitization so that they can copy it. There will be many more," says Tabrizi.

Tabrizi says the central bank has permitted a coupon of 18% on the securitization’s first stage. This is some 2% below the rate of inflation but higher than the standard, instalment-style interest rates set for commercial lenders. Tabrizi says agents of the securitization are asking for a higher, more market-driven rate.

The initial issuance of $500 million will be offered in three tranches. The first will have a maturity of three years (about $200 million). The second will have a maturity of four years (also about $200 million). The third, remaining tranche will have a longer maturity, and will be sold through a private placement, mostly to pension funds and insurance companies.

Tabrizi has been keen for securitization to be introduced in Iran for more than a decade. He says the path to securitization was cleared by a change in the securities law two years ago. But he says legal difficulties, for example in tax law, might still hinder progress unless reforms can be pushed through the legislature.