European Banks To Help Iran Tap Markets
Despite U.S. viewing Tehran as most active state sponsor of terror

May 26, 2002

Two European banks have signed up to help Iran tap international capital markets for up to €500m (£316m), despite the US viewing it as the world's most active state sponsor of terrorism and a member of the axis of evil.

On Monday, Iran is set to announce it is going ahead with its first eurobond issue since the 1979 Islamic revolution. BNP Paribas and Commerzbank have been appointed to handle the issue.

Officials at Bank Markazi, the country's central bank, suggested Iran could raise €300m-€500m from a eurobond with a three- to five-year term. Foreign bankers said they expected the issue to go ahead in the next few months.

President George W. Bush has accused Iran of being part of an "axis of evil" along with North Korea and Iraq.

In addition, last week the US State Department said Iran had supplied Lebanese and Palestinian groups with arms, training and finance to attack Israel. It said Tehran's security and intelligence officials had encouraged anti-Israeli groups to co-ordinate attacks.

It is not known whether the two banks will attempt to market the deal to US investors. BNP Paribas declined to comment. Commerzbank could not be reached for comment.

The appointment of BNP Paribas and Commerzbank as joint bookrunners marks the end of a struggle in Iran over rejoining global capital markets. Internal debate over the eurobond has dragged on for years. Critics had argued that payment of interest on the loan would conflict with the Islamic prohibition of usury. But the central bank, with the backing of senior religious figures, overrode these concerns.

The country has been undergoing a political struggle between reformers, led by Mohammad Khatami, the moderate president, and hardline conservatives, who look to supreme leader Ayatollah Ali Khamenei. Moves toward increased dialogue with the west, being promoted by reformers, have provoked a crackdown by the judiciary on journalists, parliamentarians and businesses.

The eurobond is designed to encourage international investors to put money into Iran by establishing a benchmark for returns. The issue could be followed by others by state-owned industries, such as oil and petrochemicals.

Fitch, the UK credit rating agency, assigned a B+ long-term rating for Iran. BNP and Commerzbank were chosen out of 10 banks that submitted proposals this year.

Mohammad-Jafar Mojarrad, vice-governor of the central bank, told the Financial Times that Iran was confident the eurobond issue would be well received, given the strong state of its external finances.

He said he expected other banks to join as co-lead managers. Iran posted a current account surplus of $5.26bn in the year ending March 20. The rial has been trading at around 7,930 to the US dollar.

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