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
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 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
Tel: 020 7481 4807
Fax: 020 7481 2423
Kay International plc
Tel: 020 7323 2021
Fax: 020 7323 0304
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
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.