Ten international banks submitted initial proposals to Bank Markazi (central bank) by the 31 August deadline. The central bank is expected to shortlist five banks later this year or in early 2002, before inviting the shortlisted contenders to make individual presentations in Tehran. The award of the mandate to manage the issue will follow the presentations. Iran's first sovereign bond since the Islamic revolution in 1979 will have a minimum size of Eur 300 million ($268 million), with maturity of five-seven years. The issue will be open to all subscribers outside the US.

It is expected that the central bank will draw up the shortlist before the end of this year, as soon as US credit rating agency Standard & Poor's (S&P)has issued its first sovereign credit rating on Iran. The only agency that currently rates Iran is Moody's Investors Service, also US based, which is now assessing the possibility of upgrading the existing sub-investment-grade B2 rating. The outlook on the rating is positive. Adel Satel, Moody's lead analyst for Iran, said in late October that the Islamic republic has been up for review since 1999.

Bankers say the Eurobond will set a benchmark for Iran, allowing the country to raise finance on international capital markets in the future. 'Now it is less difficult for Iran. It can use the positive macroeconomic figures to convince investors and set a benchmark,' said Gilles Franck, head of debt capital markets for Central and Eastern Europe and the Middle East and North Africa at BNP Paribas. 'Iran would work in any dedicated emerging-market portfolio as diversification.'

Saied Niazi, adviser to the governor of the central bank, said the Eurobond issue will pave the way for further Iranian capital market activity. 'We need a sovereign issue before corporate issues can follow because it will establish a benchmark,' he said.

Banks that have responded to the request for proposals are understood to include BNP Paribas, Societe Generale, Barclays Capital, Dresdner Kleinwort Wasserstein, UBS Warburg, Commerzbank, Deutsche Bank, ING Bankand ABN AMRO.