BNP Paribasand Commerzbankare joint lead arrangers on the debut Eurobond. The bond, the first since the 1979 Islamic revolution, will have a minimum size of Eur 300 million ($294 million) with maturity in the range of three-seven years. The paper will be open to international subscribers outside the US.

European bankers say they expect seven-eight banks to be appointed as co-arrangers for the bond issue.

The Eurobond will be priced over the equivalent rate of European swap transactions, but none of the lead arranging banks has commented on the pricing. Bankers close to the deal say Iran plans to price the issue at around 350-400 basis points (bp).

'It makes no sense to price it too low because no-one will want to buy it,' says a European banker based in Tehran. 'But if the pricing is attractive, the issue should be placed without problems.'

Says another Tehran-based banker: 'Despite Iran's positive economic development, the political risk is still very high and the country is rated below investment grade. I expect there will be long discussions about the pricing.'

Iran is rated B+ sub-investment-grade by London-based rating agency Fitch. The only other agency to rate the country, US-based Moody's Investors Service, withdrew its below-investment-grade B2 rating in May due to US government pressure (MEED 7:6:02).

In addition, existing market conditions are not necessarily favourable, adding further pressure on Iran to provide attractive pricing. 'There is a lot of insecurity among investors following the latest developments in Latin America and a rising number of corporate problems,' says a European banker.

Bankers say a final decision as to whether the bond will be launched in July will only be made following the conclusion of the roadshow through major European financial centres, including Frankfurt and Paris, on 5 July.