Mixed reactions as Iran sells foreign bonds for first time since 1979 Bloomberg July 07 2002 at 07:44AM London - Iran's first foreign bond sale since the Islamic revolution of 1979 is attracting interest from banks that are not put off by its place in US President George W Bush's "axis of evil".
Money managers who met Iranian officials this week in Frankfurt and Paris said they might buy some of the e500 million (R5 billion) of securities underwritten by BNP Paribas and Commerzbank.
"Nobody in Germany or continental Europe agrees with Bush," said Holger Friedrich of Union Investment.
Many European money managers are ignoring Bush's January statement that Iran, along with Iraq and North Korea, supports terrorists like those who destroyed the World Trade Center on September 11 last year.
Instead they believe Iran's oil and its history of repaying debts makes it more trustworthy than emerging market alternatives such as Brazil, Turkey and Argentina.
For some US investors, European willingness to invest in countries accused of sponsoring terrorism is abhorrent, particularly after the attacks that struck New York's financial district.
"I lost friends on that day. I don't care how much money you can make, these are people that are trying to kill," said Stapley Mitchell of Fifth Third Investment Advisers in Michigan.
Frank Scheidig, who oversees investment services for Deutsche Asset Management's government clients, said there was no evidence that Iran supported the attacks.
After meeting Mohammad Mojarrad, the deputy governor of Iran's central bank, on Tuesday, Scheidig said he might recommend investors buy the bonds.
"If there was the smallest confirmation that they supported September 11, I would not ever invest there," he said.
Iran's relations with the US deteriorated after 52 people were held hostage in the US embassy in Tehran for 444 days, beginning in 1979. Washington blamed Iran for bomb attacks on US targets in Lebanon that killed more than 300 people in 1983.
More recently, Iran has attempted to improve relations. President Mohammad Khatami expressed his "deep sorrow and sympathy" within hours of the September 11 attacks. "Death to America" chants were dropped from Friday prayers for the first time in more than two decades.
Bush has maintained a hard line against Iran. In his January state of the union address, he said Iran was developing weapons of mass destruction and "exports terror".
Iran, the second-biggest producer in Opec, the oil producers' cartel, is attracting investment from international oil companies.
Royal Dutch/Shell Group, Italy's Eni, and France's TotalFinaElf, have invested $10.5 billion in the country since 1997, according to the Congressional Research Service, a US think-tank.
Iran had the lowest debt level relative to gross domestic product among more than 60 governments monitored, said rating company Fitch in a May report.
Unlike some emerging market peers, it had not defaulted on its debt and had a current account surplus in seven of the past eight years. Fitch rates Iran's foreign debt B+, on a par with Brazil, Uruguay and Romania and one level below Russia.
Moody's Investors Service last month withdrew its rating on Iran because of concern that updating its research might violate US sanctions.
In 1987 the US barred its citizens and companies from most trade with Iran because Washington determined that the country supported international terrorism.
Corporations can be fined as much as $500 000 for violating the Iranian Transactions Regulations.
Dominique Audin of Pictet Asset Management in the UK said Iran planned to sell the five-year bonds to yield between 3.75 percentage points and 4.25 percentage points more than the mid-swap rate, a benchmark for corporate borrowing.
The target would produce a yield between 8.46 percent and 8.96 percent.
That is less than half the 23 percent yield on Brazil's dollar bond due in 2007. Russia's 2007 dollar bond recently traded to yield 8.67 percent. Turkey's euro-denominated bond, due in 2007, yielded 14.7 percent at recent prices.
Some investors said Iran needed to pay higher returns because US sanctions made it a bigger risk.
"You can't argue that Iran has as good credit as Russia," Audin said. "Russia isn't being pointed at by the US president as a potential target."
Mark Mobius, the managing director of Templeton Asset Management, said fund managers should not stop investing in countries such as Iran. "In some ways, there is a moral obligation for us to get involved," Mobius said in an interview. - Bloomberg