Iran braces for deepening economic crisis ahead of new US sanctions

A man withdraws Iranian Rial notes from an automated teller machine in the capital Tehran on July 31, 2018. Iran's currency traded at a fresh record-low of 119,000 to the dollar on today, a loss of nearly two-thirds of its value since the start of the year as US sanctions loom. / AFP / ATTA KENARE
Updated 05 August 2018
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Iran braces for deepening economic crisis ahead of new US sanctions

  • Iran announced on Sunday a plan to ease foreign exchange rules
  • Iranian central bank’s top foreign exchange official arrested

LONDON: Iran announced on Sunday a plan to ease foreign exchange rules, state television reported, as Tehran tries to counter the effects of a plunging currency and prepares to face new US sanctions.
The plan lifts a ban on the sale of hard currency at floating rates by exchange shops for purposes such as overseas travel, according to Reuters News Agency. Exporters would be allowed to sell hard currency to importers, and there would be no limit on bringing currency or gold into the country.
Hard currency will be made available at a subsidized rate for purchases of basic goods and medicine, state television quoted a government statement about the plan as saying.
The news came shortly after the Iranian central bank’s top foreign exchange official had been arrested, according to the judiciary, a day after he was sacked and as tensions rise ahead of reimposed US sanctions.
Agence France Presse reported that Ahmad Araghchi, who was a vice-governor at the bank in charge of forex, was arrested along with several other unnamed individuals including a government clerk and four currency brokers, said judiciary spokesman Gholam-Hossein Mohseni Ejeie in a statement, according to state broadcaster IRIB.
The arrests come amid heightened tensions in the run-up to the reimposition of US sanctions on Tuesday, following Washington’s withdrawal from the 2015 nuclear deal.
Journalists reported a heavy build-up of riot police on Sunday night, including at least one armored personnel carrier, in the town of Karaj, just west of Tehran, that has seen days of often-violent protests.
State media said protesters attacked and tried to burn down a seminary in the area on Friday night, and that at least one person was killed, allegedly by demonstrators.
There have been days of sporadic protests, including in key cities such as Isfahan, Mashhad and Shiraz — but severe reporting restrictions have made it impossible to verify social media footage and official accounts.
The embattled government of President Hassan Rouhani has also faced heavy criticism from conservative opponents, who have demanded action on corruption and renewed efforts to rescue the economy.
On Saturday, Grand Ayatollah Hossein Nouri-Hamedani, one of the country’s top religious figures, said “economic corruptors” must face justice.
“People are upset when they hear that someone has embezzled billions while other people are living in tough conditions,” he said in a speech, according to the conservative Tasnim news agency.
Araghchi, a nephew of deputy foreign minister Abbas Araghchi, was fired by the new governor of the central bank on Saturday, apparently over his handling of the currency crisis.
Iran’s rial has lost more than half its value since April, in part over fears of renewed sanctions, but also thanks to an ill-judged attempt to fix the value of the rial that month and make it illegal to trade at a higher rate.
That decision triggered widespread currency speculation on the black market, and accusations that individuals with political connections were abusing the system.
Rouhani sacked the governor of the central bank, Valiollah Seif, last week and replaced him with Abdolnasser Hemati, the former head of Central Insurance of Iran.
Hemati is due to unveil a new foreign exchange policy on Monday, a day after it was approved by the government.
IRIB reported that the new policy is expected to see imports of essential items, including medicines, remain at the official government exchange rate of 42,000 rials to the dollar.
The unofficial rate for the rial fell to a record 119,000 last week, before rallying in response to the government’s efforts to address the crisis, and stood at 98,500 on Sunday night.


Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

Updated 23 April 2019
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Saudi Real Estate Refinance Co. plans up to $1.07bn sukuk sale this year

  • The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios
  • SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year

RIYADH: Saudi Real Estate Refinance Co. (SRC), modelled on US mortgage finance firm Fannie Mae, aims to issue up to 4 billion riyals ($1.07 billion) of long-term sukuk this year, its chief executive said on Tuesday.

The plan by SRC, a subsidiary of Saudi Arabia’s sovereign Public Investment Fund, comes as it prepares to purchase more home loan portfolios from mortgage financing companies and banks to boost the Kingdom’s secondary mortgage market.

SRC, formed in 2017, is also keen to tap foreign institutional investors for its debt sale this year, Fabrice Susini told Reuters in an interview.

“Our strategy is clearly to tap the market twice this year,” he said. “We are really looking at probably issuing something between ... 2 and 4 billion riyal that we may be issuing in two tranches.

He said SRC was looking at sukuk in the 10 to 15-year range, to help minimize refinancing risks. “Generally speaking we are trying to issue as long as possible,” Susini said.

He said the company was assessing whether it could also issue bonds in currencies other than the local riyal.

In March, SRC completed a 750 million riyal sukuk issue with multiple tenors, under a program that allows it to issue up to 11 billion riyals of local currency denominated Islamic bonds.

“The rule of the game for us is, like many projects across the Kingdom, attract liquidity from foreign investors,” Susini said.

He said SRC had spent 1.2 billion riyals from its balance sheet buying mortgages from local mortgage financing companies and provided liquidity to these firms.

It has also signed initial accords with several commercial banks to acquire housing mortgage portfolios.

Saudi Arabia’s housing ministry is targeting the mortgage market to reach a total value of 502 billion riyals by 2020 from around 300 billion riyals now.

The government wants to increase activity in the real estate market as it moves to revitalize the economy and is taking steps to reform the sector as part of its 2030 reform plan.

It has been working with developers and local banks to counter a shortage of affordable housing — one of the country’s biggest social and economic problems. Saudi Arabia wants 60 percent of its nationals to own homes by 2020, up from 47 percent in 2016.

The size of real estate financing relative to its gross domestic product is 5 percent in Saudi Arabia compared to 69 percent in the United States, 74 percent in the United Kingdom and 43 pct in Canada, the housing ministry has said.

“The goal of SRC in this market was to make sure that we will be able to refinance at least around 10 percent of the market in 2020, and 20 percent of the market by 2028,” Susini told Reuters.