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 Insuring Iranian LC's - An Interview With Mr Bahram Salmanpour
BIBA Editorial |
An interview with Mr Bahram Salmanpour, Chairman of Kay International and Londongate Insurance Groups.
(BIBN) Why did you launch this product?
(BS) Mainly because we got a lot of enquiries from traders who had problems arranging finances as they were trading with Iran. There was a lack of response from the banks to provide finance because of the non-security. The majority of traders could not do business with Iran. Therefore when the LC's opened in Iran they needed finance and the European banks were not prepared to provide it if the traders were not backed by proper collateral or proper assets. But this product allows the trader to take the insurance policy to the first class European bank to arrange some finance, and therefore this allows more business to be done with Iran. The financing that is arranged by the bank is backed by the insurance policy.
(BIBN) Is this not just more cost for the trader?
(BS) No, because a bank will charge 7% or 8% (different charges for different banks), and would usually charge a commitment fee on top for issuing new LC's. But with an insurance policy the bank will not then charge the same fees, therefore making the overall cost for the trader less.
(BIBN) In your opinion, will this be considerably better than what is on offer at the moment?
(BS) Yes, and not only for the trader but also for the bank. Knowing that there is backing from an insurance policy will ease the commitment to traders on the bank's behalf. If a trader approaches the bank with an insurance policy, they will be more inclined to provide him with financing.
(BIBN) With the high risk involved, what incentive is there to offer these policies?
(BS) The main people that we approve have usually had many years of experience. Kay International has always been a very niche broker. We have created various complicated and sophisticated policies to bring into the market. So the underwriters usually take a long view of how we arrange things. We do a lot of homework, comparing the policies, preparing the documentation, assessing how a policy will work, we work on the wording and so on. So we do a lot of work preparing the policy before we actually approach the underwriters. We have created very sophisticated products, insuring things that have never been done before, in various parts of the world, including Russia, the Phillipines and the UK. We have pioneered new ideas for the market. So underwriters are aware of the products that we bring in. They take a lot of notice of what we do, and they work very closely with us in developing them. (BIBN) Do you think that there will be genuine interest in these schemes?
(BS) To those traders who have their own financial backing this policy would obviously not be a very attractive proposition, because they are already prepared. But in the case of a trader who has got an LC with Iran, and for some reason has to wait for the LC to mature and he needs to get financing in the market, then this product would suit him very well. Moreover, if a bank wants to arrange financing for a trader and it realises that there is an insurance policy backing this LC, then it would be more at ease. This is the first time that this has been done, so we are still on a learning curve. It is not something that we had a ready-made plan for, an off-the-shelf policy that we brought into the market. We had to develop and package it. We have been working on this for eight months and a lot of work has been done to make it acceptable to the traders and the banks.
( BIBN) Who would be your target audience?
(BS) All kinds of traders from various parts of the market. We have talked about multi-national companies who are going to be doing huge amounts of trading. We will also be available to small traders who are looking to do business with Iran and are looking for finance. This insurance policy will be their collateral.
(BIBN) Will you concentrate mainly on trade between Europe and Iran?
(BS) We are looking at a more global picture. I think that this will be welcomed by Iranian banks as well as the Iranian government, because it is something that increases the volume of business. Although Iranian banks would consider having insurance on LC's immaterial, indirectly they will welcome it because they know that by having this policy, it will increase the volume of trade with Iran.
(BIBN) What is your marketing strategy on this product?
(BS) At the moment we are very selective in terms of marketing. The underwriters and the various panel of reassurers will look to us to market it in a very selective way. Naturally we will be looking at marketing it through the media at some stage, just not at the moment. Kay International already has a huge client base anyway, maybe over 700 or 800 Iranian clients. So it is our own clients that we will be approaching first. We will also be approaching a various panel of banks that deal with us. Naturally the banks or traders that deal with Iran will hear about this product and hopefully we will be able to assist them.
(BIBN) Do you think that this is going to be a runaway product?
(BS) Any policy that we develop for the market is due to demand. We were originally asked by the government of the Phillipines to develop a product to insure a certain amount of risky area around an active volcano. They wanted to be insured against all risks. This was a challenge for us, and we had to develop it and place it in the market. However, it was so successful that the President of the Phillipines personally thanked the underwriters. Also, we developed unoccupied properties and pioneered a cover to insure all unoccupied properties in the UK, mainly for people who could not find anyone to insure them in London at that time (in 1989). Because we are a niche broker, we do spend time and we do have the expertise to do this. Another case was the misappropriation of gas from Russia to Europe in terms of non-payment, which has never been done before, Kay International spent maybe six or seven months developing this product, and to a degree it was so successful that the Financial Times quoted it in their paper, and the loss ratio, because of our policy, dropped from 150,000,000 to 2,000,000 for the clients. So each policy that we develop is a direct result of somebody approaching us and asking for a solution to a specific problem.
(BIBN) Once you develop a product, what kind of a lead do you enjoy before a similar product is launched?
(BS) I am sure that there will be similar products in the future, but up until now nobody has thought about this. So we will take the credit of pioneering this product now and worry about the competition when it comes.
(BIBN) What have you learnt over 20 odd years as a niche broker in the UK?
(BS) We have over 5000 clients, and I would think that 20% of them are Iranian. So we know the market, and therefore we get a lot of our feedback from the community who trade with Iran. We have offices all over the world, in Azerbaijan, in Georgia, Kazakhestan, Bulgaria, Romania, Africa, and so on, and we get a lot of feedback from them. In Azerbaijan they had problems with import duty, as it was not being paid on goods going in. In order to assist the government of Azerbaijan, we developed a policy to protect the import duty of the country. It is our job to create new policies.
Mr Bahram Salmanpour
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 ALAGHBAND BROTHERS: COMPANIES & MARKETS: Balli buys Klockner from Eon in Euros 1.1bn deal LONDON-BAS
By MATTHEW JONES, Financial Times |
Aug 9, 2001
Balli, a private London-based commodities trader, yesterday became one of the world's largest independent steel distributors with the Euros 1.1bn (Pounds 670m) acquisition of Klockner & Co from Eon of Germany.
The transaction, which is subject to approval by Eon's supervisory board and competition authorities, includes Euros 800m in debt and pension provisions. Eon will book a gain of about Euros 150m from the disposal. Balli had been the favourite to buy Klockner since April when it emerged that exploratory talks with a number of other potential bidders, including Arbed of Luxembourg and Thyssen-Krupp of Germany, had been abandoned.
The UK group had already acquired Klockner's steel trading business in December in a DM750m (Dollars 336m) share and assets deal.
Eon plans to shed all of its non-core assets, including its Degussa speciality chemicals business and real estate interests, as a condition of its agreed Pounds 9.6bn (Dollars 12.76bn) bid for Powergen, the UK electricity generator and retailer.
Powergen's US interests mean the deal is subject to rules that owners of US utilities must generate more than 80 per cent of their sales from energy activities.
Balli was founded by the three Alaghband brothers, who are from a family of Iranian industrialists but fled the country at the time of the revolution in the late 1970s.
As well as steel, the group trades raw materials, petrochemicals, non-ferrous metals, agricultural goods and petroleum products. It had sales last year of Euros 2.5bn and employs about 6,000 people.
Klockner, which is one of Germany's oldest companies and had sales of about Dollars 40bn at its peak in the 1980s, has more than 11,000 employees in Europe and North America. It had sales last year of DM10.5bn and made an operating profit of DM196m.
The combined group will have a new Swiss-registered parent company called Balli Klockner Holdings chaired by Vahid Alaghband, the oldest of the brothers. David Spriddell, Balli group finance director, said there were no plans for any job losses in the immediate future.
Balli's financial advisers in the transaction were Goldman Sachs, Deloitte & Touche and Booz Allen & Hamilton. In early trading in Frankfurt, Eon shares dipped Euros 0.1 following the news to Euros 61.30
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 Letter of Credit Insurance - A Look At A Unique Insurance Policy
BIBA Editorial Team |
This unique policy covers the non-performance / non-honouring of Iranian Letters of Credit.
This insurance differs from the traditional policy in so far as the Assured initially only pays a commitment fee (approx between 1.00% to 1.50%) at the time of opening the Letter of Credit. The decision on whether to avail oneself of the full insurance cover is then deferred until the Bank has failed to meet the payment obligations within the letter of Credit. Consequently, if the Bank meets its payment obligations then the Assured does not have to pay an insurance premium. Also, if after having paid the insurance premium (approx between 1% to 2%), the Bank settles its obligations within 90 days of the original payment date, Underwriters will refund to the Assured 50% of the insurance premium paid.
Mr Bahram Salmanpour
The Concept
The relaxation of previous embargoes has resulted in a considerable increase in trade with Iran. International Trading Houses are however required to conduct this trade on either Letters of Credit or on a "Barter/Tolling Basis".
One of the problems that this creates is the reduction in lines of credit from Western International Banks against Iranian Bank Letters of Credit. This in turn imposes a financial strain on cash flow and limits the amount of business that can be undertaken as a percentage of every transaction has to be self-funded.
In order to overcome this problem and obtain credit for the full value of the Iranian Letters of Credit from their Western Bankers, Londongate (Underwriting) Agencies Ltd through, Kay International plc who are the insurance and reinsurance brokers and are tribunalised at Lloyd’s, placed a facility with the Underwriters to insure the non-performance of the Iranian Letters of Credit.
Under this facility, the Underwriters will pay claims only after a sufficient period has elapsed (as defined in the policy) during which time, the Underwriters would have the opportunity to instigate legal proceedings against the defaulting bank.
With the payment of the additional premium the Insured will assign their rights to Underwriters to enable Underwriters to pursue legal action against the defaulting Bank. Within 90 days of the conclusion of all legal actions (i.e. 9 months after the original payment date) Underwriters will effect settlement of the Insureds claim.
The assignment by the Insured of their rights to Underwriters to enable them to pursue legal action is necessary as the major trading houses would not be able to pursue legal action in their own name. Any legal action taken by the trading house would result in their being "black listed" which would then preclude them from further trade with Iran.
If desirable, please contact :
Londongate (Underwriting) Agencies
Email:londongatehq@aol.com
Tel: 020 7481 4807
Fax: 020 7481 2423
Kay International plc
Email:admin@kayint.co.uk
Tel: 020 7323 2021
Fax: 020 7323 0304
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 Can Iran Borrow in the International Bond Market? - Can Iran Borrow....?
By Kamran Hashemi |
Moody’s, the major US credit rating agency has recently assigned a B2 foreign currency ceiling for bonds and notes of the Islamic Republic of Iran and a B3 ceiling for foreign currency bank deposits. According to Moody’s, "the ceiling reflects a weak economic structure that is prone to balance of payments crisis when oil prices collapse. Iran has rescheduled its bilateral debt twice in the last decade because of a decline in oil prices and the lack of external financing alternatives."
The rating did acknowledge Iran’s willingness to regularise its payments and the strong economic measures that had been taken by the government to repay external obligations. In addition, in their review Moody’s recognise the steps taken by Khatami’s government to bring about the structural transformation of the economy, alongside political reforms. What does this rating mean?
Moody’s long-term ratings for bond issuers range are "Aaa", "Aa", "A", "Baa", Ba", "B", "Caa","Ca" and "C", with "Aaa" the highest rating and "C" the lowest rating. Ratings between "Aaa" to "Baa" are referred to as "investment grade". Moody’s definition for its "B" rating (the rating given to Iran rating) is "bonds, which generally lack characterists of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small". Iran’s B2 rating is in the middle of this category of bonds (the B ratings are B1, B2 & B3).
So where do we stand compared to the rest of the worlds? Well it all depends on how you feel about the other countries that have the same rating as Iran! Venezuela, Republic of Brazil and Bulgaria are all rated B2, while Russian Federation is rated B3, a notch below Iran’s rating and Turkey is only one notch above Iran, with a B1 rating.
With the same rating as Brazil, does it mean that Iran can raise money in the international capital market? Unfortunately, it is not that simple. There are a number of reasons why Iran has not been able to raise funds through the international market, which are all rather obvious to the Iranian readers and those familiar with the Iranian politics and economy. However, in the near future, the conditions might be just right for the first bond issue by the Islamic Republic of Iran.
A changing political and economic climate in Iran, and the positive response of the major European governments to Khatami’s efforts to bring about fundamental changes to the nature of the " civil society" in Iran, alongside his attempts to implement a structural transformation of the economy, might have set the scene for such an issue. The major European oil companies have shown their willingness to invest in Iran by participating in the Iranian government’s "buy-back" oil and gas projects, with the full backing of their governments.
The struggle between Khatami and the "reformist" faction against the traditionalists and the "hardliners" (of course the issues are far more complex than are being suggested by these rather simplistic labels) is likely to reach its climax at the next parliamentary election in February, 2000. A victory for Khatami’s supporters will be a significant boost for Iran’s image abroad and her creditworthiness. Then it might be just the right time to consider tapping the Euro market with a bond issue, linked to funding of one of many of Iran’s oil or gas projects. The liquidity of such an issue will be somewhat reduced by the absence of the US houses in trading of such an issue (under the US legislation, American banks and investment houses are not allowed to purchase any Iranian assets). However, the size of such an issue will be relatively small and easily handled by the European houses (part of such an issue can also be structured as a "deep discounted" form, in order to appeal to the Islamic banking market, thus widening the investor base).
With the rate of return on the "buy-back" contracts reportedly around 20%, the Iranian government can comfortably compensate the investors for the additional risk associated with such an issue and still make significant savings. To give an example, with the current yield of Turkish government’s US$ bonds at around 5%, the maximum interest would be in the region of 12%. It is unlikely in the right climate, the investors would be demanding as much as 8.0% to compensate for the Iran’s sovereign risk.
To many the idea of an Iranian Euro-bond issue might seem rather far-fetched. But everyday, millions of dollars of securities issues by countries far less creditworthy than Iran are being traded and although their lack of creditworthiness is reflected in the return of such issues, it does offer their governments another source of funding. If the positive developments in Iran as outlined above materialise, it would set the scene for Iran to launch her first Euro-bond issue in year 2000.
Map Of Iran
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 Should Iran Join The World Trade Organisation? - Iran And The WTO
By Kamran Hashemi |
Iran has announced it is ready to join the World Trade Organisation ("WTO"), a move that could have far reaching implications and may be the first step towards normalising relations with the United States. Deputy Trade Minister Mohammad Nahavandian, who was quoted in Tehran press reports, said Iran must negotiate with the WTO "to obtain a fare share of international trade". Nahavandian said Iran had been trying to join WTO for three years, but its membership had been blocked by "certain countries", a thinly veiled reference to the United States. What makes this move so significant is that Iran would have to rebuild its ties with the US in order to join the organisation.
What is WTO and what is its role in international trade? What are the benefits that Iran can gain from joining WTO? Is it the right time for Iran to join WTO and how does it fit within the overall reform programme of Khatami’s government?
The Structure & Role of the WTO:
According to the World Trade Organisation, it is the only international agency overseeing the rules of international trade. Its purpose is "to help trade flow smoothly, in a system based on rules, to settle trade disputes between governments that are members of WTO, and to organise trade negotiations". The WTO is an inter-governmental organisation, with its entire membership forming the councils and committees, which are the main decision-making bodies. The WTO was set up in 1995. The international organisation that preceded it was the General Agreement on Tariffs and Trade (GATT), although GATT agreement is now WTO’s principal rule-book for trade in goods, including agriculture and textiles, and with specific issues such as state ownership of industries and trading, product standards, subsidies and actions taken against dumping. The General Agreement on Trade in Services (GATS) deals with trade in services, and the Agreement on Trade-Related Aspects of Intellectual property (TRIPS) deals with such issues as copyright, trademarks, patents, industrial designs and trade secrets.
The WTO rules or "the agreements" are the result of negotiations between members. The current rules are the outcome of the 1986-1994 Uruguay Round negotiations, which included a major revision of the original GATT.
The 135 members of the WTO, account for over 90% of world trade. Over 30 other countries are negotiating membership. About three-quarters of the WTO members are developing countries, as defined by the WTO, representing the full political spectrum of governments across the world, from Angola, China, India and Vietnam to El Salvador, Russia, Saudi Arabia and Sudan (naturally, the membership includes all the industrialised countries).
Under the WTO Agreements, countries cannot normally discriminate between their trading partners, grant someone a special favour (such as a lower customs duty rate for one of their products) and you have to do the same for all other WTO members. This principle is known as "most-favoured-nation (MFN) treatment. However, as always some exceptions are allowed.
What Happened in Seattle?
We cannot refer to the WTO without making some reference to its last meeting in Seattle, which was nothing short of a disaster and not because of the demonstrators, who opposed globalisation, capitalism, global pollution etc. In fact, the demonstrations provided a convenient smoke screen for the failure of the WTO to reach an agreement. What led to the collapse of talks at Seattle was the successful attempt by the major trading powers to derail the talks.
Clinton’s demand that the WTO develop labour standards and back them with trade sanctions was met with anger of the developing countries and helped with the breakdown of the talks. This was widely seen as a ploy to secure the support of protectionist labour unions for Al Gore and other Democratic candidates at this year’s elections. The same is true for the EU and Japan, each with their own agenda and little or no interest in seeing any results at the Seattle talks. Japan’s overriding aim was to shore up rural support for its ruling Liberal Democratic party by resisting liberalism of farm trade, while the EU as always continued to resist pressure to open its farm market.
What does Iran have to do to qualify for Membership of the WTO and what are the benefits for her?
In principle, for a country like Iran, with an economy dominated by the State and state-owned industries, the government has to introduce fundamental changes to its economy, over a long period, in order to qualify for membership of the WTO and the most favoured nation status. The basis for these changes have to be a shift from state-controlled economy to a more liberalised one, dismantling over time subsidies to state-owned companies, lowering tariffs, allowing greater foreign competition, opening the market to the other member countries of the WTO.
This is a very simplistic overview of changes anticipated over a long period. In addition, a quick review of the list of the members of the WTO, makes it clear that for some of the members, like Egypt or India, state ownership and state participation in the economy, continues to play an important role in these countries.
The benefits of the membership of the WTO are not immediately obvious, but as part of a fundamental reform of the economy and its infrastructure, it can be seen to be crucial step in government’s plans. In return for a series of negotiated steps taken to liberalise the economy, Iran will be able to enjoy reciprocity, providing her greater access to international markets for her state-owned petrochemical industry products and other goods, as well as convincing the investors that her economy is now part of the global economy.
The negotiations are likely to take years, as was the case with China or is currently the case for Saudi Arabia, almost four years after its application. However, the application for membership of the WTO, will be a clear declaration of the Khatami government’s long-term vision and determination to transform and liberalise the economy, as an important part of its reform plans. This might also be the most convenient way for the government to start "legitimate" negotiations with the US representatives.
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 International Trade Consultancy Associations - A Look At ITCA's
BIBA Editorial Team |
In recent years, a new kind of company has emerged and not only staked its place, but has added so much to world trade that the international market cannot afford not to have them. We are, of course, speaking of Trade Consultants. Here we put the spotlight on two Iranian companies in the USA, one on the East coast and one on the West coast.
East Coast: American Iranian Council (AIC) -
The American Iranian Council, based in Princeton, was founded in 1997 as a nonprofit and tax-exempt educational organisation. Part of its aims is to promote dialogue and improved relations between the peoples and governments of the US and Iran, and to encourage the participation of the Iranian-American community in formulation of US policy towards Iran.
The AIC has brought together on its Board of Directors and Advisory Council a distinguished group of American, Iranian and Iranian-American individuals from the academic, business and policy communities. Directors include Hon.Cyrus Vance, former US Secretary of State, who is the Honourary Chairman, and Hooshang Amirahmadi, professor at Rutgers University, who is the President. The Council aims to challenge decision makers in the US and Iran to lower the volume of rhetoric and raise the level of debate on the future of relations between the two countries.
AIC continues to sponsor public forums on relations between the two countries including a recently launched Distinguished Speaker Series. The first speaker, Cyrus Vance, called for an immediate resumption of diplomatic relations between Iran and the US before the Asia Society in New York in January 1999.
Moreover, the AIC has initiated two long-term projects. One is a Narcotics Traffic Control Project. Both the US and Iran recognise the importance of interdiction of drugs, and Iran has in fact reduced traffic from Afghanistan to the West through its territory. The Council believes that together the two countries can address this serious problem. The other project is the Second Generation Iranians Project. The AIC believes that a bridge of understanding should be built between young people in the US, who have little or no knowledge of happenings in Iran, and young people in Iran who have little or no exposure to the outside world.
West Coast: Iranian Trade Association (ITA) -
Shahriar Afshar is the President and Founder of ITA. Based in San Diego, the Iranian Trade Association is a non-profit, non-partisan US Corporation that provides its global membership with Networking and Trade Information, Iranian-American Advocacy, and Conference promotion services. ITA members include dozens of trade associations, Iranian Americans, consultants and major multinational companies such as Conoco and ARCO.
ITA leads an Advocacy campaign to lift the US unilateral trade sanctions on Iran through congressional letter writing and frequent meetings with legislators on Capitol Hill. It provides an international networking and business information forum for multi-national companies interested in Iranian trade and commerce. The ITA also organises, represents and promotes its membership in Iranian conferences worldwide, several major Iranian oil and business conferences from New York to London and organises quarterly business and advocacy forums in Washington DC. Moreover, it provides a full range of media informational services as seen in US Newspapers, the Associated Press, Dow Jones Newswires, Management Review and so on. ITA collaborates with international business journals on special Iran oil, economic and business reports.
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