Financial Adventure Time...and Now for Iran Bonds

Isfahan, one of the potential beneficiaries of international bond issuance.

First Kurdistan bonds, now Iran bonds! What's the world coming to? With yields so low for developed (especially reserve currency-issuing) countries' official debt, bond investors are looking at some fairly exotic places for higher returns. With normalization of Iranian relations with the rest of the world on the cards, relaxation of sanctions will mean its banks will again be able to conduct SWIFT transfers. More exciting though is the prospect of Iran offering bonds to global investors, which is not as far off as you think should relations indeed normalize:

As Iranian officials were in Vienna hammering out terms of the nuclear accord, [Hans] Humes, a New York-based hedge fund manager, traveled to Tehran to do scouting work of his own. During a 10-day trip, he liked much of what he saw -- a well-educated population, low homelessness, signs of a modernized economy -- and said he’d be a buyer when the nation starts selling debt to finance projects that weren’t viable under the sanctions.

“The bond market appetite for everything Iranian will be pretty high,” Humes, founder of hedge fund Greylock Capital Management, said in a telephone interview from New York. He estimated it may take government officials a while before they’re ready, perhaps a year or so, “but they’re going to start tapping international markets.”

Before Iran can access overseas markets, the U.S. and European Union will need to lift a complex web of sanctions, which mainly include a ban on its lenders from dealing with Iran and Iranian banks’ access to the leading global financial-messaging system known as Swift.

Actually, currently low oil prices aside, Iran's macroeconomic fundamentals don't look all that bad. Being locked out of global capital markets for decades and decades, for instance, means that it's national debt is 11% [!] of GDP:

The bulk of Iran’s outstanding debt -- about $6.5 billion - - is from bilateral loans it received from Asian countries, according to Dina Ennab, an analyst at Capital Intelligence. The country also borrows domestically and has never defaulted on a commercial obligation, she said.

Zada, who used to trade Iranian debt while working in Exotix’s London office, said he expects there’d be investor demand “from all over the world” when the country decides to sell bonds. “Fiscally, Iran is very prudent and in good stead,” said Zada, the son of an Iranian mother. “They currently have no external debt. I’m sure once sanctions are lifted, there would be substantial demand for their hard currency debt.”

Iran’s total government debt was just 11.4 percent of gross domestic product last year, according to estimates from the CIA’s World Factbook. That’s lower than 91 percent of the countries tracked by the CIA.

It's remarkable how the Bloomberg story excerpted above fails to mention Iran's funding activities elsewhere in the region, but hey, on a purely financial basis, it doesn't look as long a shot as you would immediately be led to believe.