Eurobond on track with sovereign ratings to come

14 December 2001

The government's return to the international debt markets in 2002 is expected to be boosted by the planned assignment of a sovereign credit rating by London-based rating agency Fitch. Tehran bankers say they are looking forward to the issue of the rating early in the new year.

The discussions about a credit rating come as Bank Markazi (central bank) is gearing up to issue the country's first foreign currency-denominated sovereign bond since the Islamic revolution in 1979 (MEED 16:11:01).

'Iran is interested in the rating because of the planned Eurobond issue,' says a Fitch analyst. 'The rating is needed as guidance for international investors. However, the rating process is still in its preliminary stages and no formal commitment to proceed has been made from our side.'

The only agency that currently rates the local economy is US-based Moody's Investors Service, which is assessing the possibility of upgrading its sub-investment-grade B2 rating. The outlook on the rating is positive due to Iran's strong macroeconomic performance. However, its remains to be seen whether an investment-grade rating is considered appropriate by either Moody's or Fitch.

'It is very likely that the uncertainty surrounding the oil market and the domestic political situation will prevent the assignment of an investment-grade rating,' says an official at Iran's Bank Melli. 'So far, the central bank has discussed with Fitch the possibility of obtaining a rating close to investment grade.'

A third sovereign rating is in the pipeline from US credit rating agency Standard & Poor's. The company was due to visit Tehran for talks in December but is understood to have deferred the trip.

It is expected that the central bank will draw up a shortlist of five international banks for the Eurobond mandate as soon as at least one more sovereign rating has been issued. 'It is usual for a country to have at least two ratings before tapping international markets,' says the Fitch analyst.

If Fitch agrees to rate the country before the end of the year, Iran's first Eurobond issue could be launched as early as in the first quarter of 2002. 'The whole process of assigning a rating can be done within eight weeks,' says the analyst.

The Eurobond will have a minimum size of Eur 300 million ($267 million), with maturity of five-seven years. It will be open to international subscribers outside the US. Ten international banks responded to the central bank's request for proposals to manage the issue by 31 August.

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