Companies such as Tehran-based Iran Khodro Co., which makes Mercedes-Benz, Peugeot and Renault cars, are borrowing to expand factories, power plants and mobile-phone networks that provide goods and services to Iran's 69 million people. The country's economy may grow 6 percent next year, Fitch Ratings estimates. A quarter century after the Islamic Revolution, oil prices at more than $40 a barrel and government efforts to attract international investment are overshadowing U.S. charges that Iran sponsors terrorism and seeks to build nuclear weapons. ``Iran is a land of opportunity for banks,'' said Keba Keinde, 37, head of corporate finance for the Middle East and North Africa at BNP Paribas in Paris. ``Capital and expertise is needed, be it in telecommunications, electricity, transport or sports. The fact that you don't have Americans there makes life easier for European bankers.'' BNP, France's second-biggest bank, kept two workers at its office in Tehran after the revolution that brought Ayatollah Ruhollah Khomeini to power in 1979. The bank now has eight people working there. London-based HSBC Holdings Plc, which traces its roots in Iran to 1889, left the country after the revolution. It returned five years ago and has six employees in Tehran. Khodro Loan, Bonds Khodro, Islamic Republic of Iran Shipping Lines, National Iranian Oil Co., Almahdi Aluminum Corp. and other Iranian companies have received more than $3 billion of loans from international banks this year, according to data compiled by Bloomberg. On Dec. 13, Khodro, the largest company traded on the Tehran Stock Exchange, signed an agreement to borrow $100 million from a group of banks led by Johannesburg-based Standard Bank Group Ltd. to increase car production. The company is in talks with BNP Paribas and other banks to borrow an additional 500 million euros ($669 million) and may sell bonds, says Reza Raei, Khodro's chief financial officer. International banks are also reaping fees for advising on the sale of state assets ranging from cellular telephone licenses to the company that manages Tehran's airport. ``External managers are better equipped and we can learn from their expertise,'' Iran Central Bank Deputy Governor Mohammad Mojarrad said in an e-mail to Bloomberg News last month. Banks may also get the chance to manage Iran's $23.8 billion in currency reserves as the central bank seeks higher returns, Mojarrad said. `Good Opportunity' ``This is a very good opportunity for us,'' said Philipp Wuenschmann, who arranges shipping company loans for Frankfurt- based Commerzbank AG. State-owned Iran Shipping Lines, based in Tehran, needs more credit after taking a loan from Commerzbank in 2002, Wuenschmann said, without providing details. Iran Shipping plans to double the size of its fleet within 10 years, Chairman Ali Ashraf Afkhami said in a July interview posted on the company's Web site. The company has 115 vessels, with a capacity of 3.5 million dead-weight tons. The U.S. forbids its companies from investing in Iran or selling goods such as computers or aircraft there. Iran remains isolated because the government supports terrorist groups such as Hezbollah in Lebanon and seeks to develop nuclear weapons, U.S. Secretary of State Colin Powell said on Sept. 16. Iran rejects terrorism and is working to create peace and stability in the Middle East, Foreign Ministry spokesman Hamid- Reza Asefi said Dec. 12 in Tehran. Fines U.S. corporations can be fined as much as $500,000 for violating the sanctions. More than 30 companies have been penalized since January, including Bank of America's Fleet National Bank, which paid $58,944 for holding bank accounts and allowing money transfers for Iranian interests, according to the Treasury's Office of Foreign Assets Control. ``These things happen,'' said Shirley Norton, a spokeswoman for Charlotte, North Carolina-based Bank of America. ``There are inadvertent errors.'' Citigroup and JPMorgan, both based in New York, are among more than 600 companies in USA Engage, a Washington-based organization that lobbies the U.S. government to lift unilateral sanctions on countries such as Iran and Cuba. U.S. Banks `Anxious' ``The American financial services industry is anxious to get into Iran,'' said Haynes Roberts, the group's project manager. ``The longer we're out, the tougher it will be to get in.'' Liz Wood, a spokeswoman for Bank of America, declined to comment on the company's interest in Iran. Lindsey Deans of Citigroup and Sebastian Howell of JPMorgan also declined to comment. ``As an investor and a capitalist, the idea of sanctions is troubling,'' said Wayne Bopp, who manages $14 billion at Fifth Third Bancorp in Cincinnati. ``We want to encourage good behavior, but if the U.S. applies sanctions and Japan or other countries don't, what good is it? I would love for the banks we invest in to be in Iran, but it won't happen because of sanctions.'' Banks that are in Iran charge higher interest rates and fees to compensate for the risk of doing business there and say the opportunities outweigh the negatives. The loans Iranian companies are expected to take out over the next five years will generate about $940 million in fees and interest payments, said Hassan Alaghband, 47, managing director of Balli Group Plc, a London-based commodities trading company. Five-Year Plan Alaghband's estimate is based on the investment goals in Iran's five-year economic plan and the fees banks currently charge in Iran. Balli set up an investment bank last year to advise Iranian companies on financing. For loans not backed by government agencies, the interest spread is generally about 3 percentage points more than the London interbank offered rate, a benchmark for borrowing, Alaghband said. Loans guaranteed by export credit agencies, about 85 percent of the total, have an average spread of 0.5 percentage point. By comparison, Citigroup and JPMorgan are charging a 0.375 percentage point spread on an unsecured five-year, $600 million loan to Riyadh, Saudi Arabia-based Samba Financial Group. Tehran-based National Iran Oil Co. in March agreed to a $1.2 billion loan from state-owned Japan Bank for International Cooperation and lenders including Bank of Tokyo-Mitsubishi Ltd. Both banks are based in Tokyo. `Commercial Decision' ``Lending is very much a commercial decision,'' said Francesco Carobbi, deputy general manager of European investment banking at Bank of Tokyo-Mitsubishi in London. ``Iran is a huge market. People are pragmatic. America can't be unilateral.'' Fitch, a unit of Paris-based Fimalac SA, on Dec. 14 raised its rating on Iran's government one level to BB-. The rating is three levels below investment grade and the same as the company assigns to Brazil. New York-based Fitch is the only one of the three international rating companies that covers Iran. ``Returns for lenders in Iran have to be better than in other emerging markets,'' said James McCormack, an analyst at Fitch in London. ``There are regional security issues, there is domestic political risk and there's the nuclear issue.'' Supporters of Ayatollah Ali Khamenei, Iran's supreme religious leader, won two-thirds of the 290 seats in parliament during February elections, overturning the majority held by groups backing President Mohammad Khatami and his program to increase democracy. Nuclear Program Iran negotiated with diplomats from France, Germany and the U.K. for more than a year before reaching a Nov. 29 agreement to stop uranium conversion, which it says is part of a program to build nuclear power plants. Eight days earlier at a meeting of Pacific Rim nations in Santiago, U.S. President George W. Bush said he was concerned Iran was accelerating efforts to construct nuclear weapons. Relations with the U.S. deteriorated after revolutionaries held 52 people hostage at the American embassy in Tehran for 444 days beginning in 1979. The U.S. also blames Iran for the 1983 bombing of the Marine barracks in Beirut, Lebanon, that killed 241 American military personnel. ``We have long made clear our serious concern about Iran's international behavior and our grave concerns regarding its support for terrorism, pursuit of weapons of mass destruction, and appalling human rights record,'' said Rhonda Shore, a spokeswoman for the State Department's Bureau of Near Eastern Affairs in Washington. Attracting Investors Iran has a growing economy and the world's second-largest oil reserves. The government is reinvesting oil profits in industries such as steelmaking, aluminum and petrochemicals to help shield the economy from fluctuations in the price of oil, which accounts for 80 percent of exports. To lure international investment, the Islamist-led government last year approved legislation to reduce bureaucracy and ensure companies can ship profits home. The chance to sell everything from cigarettes to mining equipment attracted about 250 bankers and businessmen to an investment conference Nov. 17 in London, said Monique Quant, a director at IBC Global Conferences, which organized the event for the U.K.'s Department of Trade and Investment. ``Khodro's loans prove that banks are willing to lend to Iranian companies,'' said Adrian Walker, the London-based head of syndicated loans at Standard Bank. Banks charged Khodro 3 percentage points more than benchmark rates for the three-year unsecured loan, said Walker. They also got as much as 0.95 percentage point in fees, about three times the annualized rate paid by Samba, the Saudi bank. Sanctions `Neutral' Lenders stand to earn $332,000 in combined interest and fees for every $10 million they lend to Khodro. In contrast, the annualized yield on Samba's five-year loan is $47,500. Societe Generale SA of Paris and Munich-based HVB Group helped arrange the Khodro loan, which attracted eight other lenders from Austria to India. ``The sanctions are neutral to us,'' Khodro's Raei said. ``We receive enough offers from European financial institutions. There is enough competition in this market.'' Commercial banks cooperate with trade-financing agencies in Europe and Asia on most of the financings in Iran. Tehran-based National Iranian Gas Export Co. hired HSBC in October to advise on financing a $2.7 billion project to export gas to Europe and Asia from 2008. In August, the bank joined Amsterdam-based ING Groep NV and Japan's export credit bank in lending $154 million to Iran's National Petrochemical Co. Export Credits Frankfurt-based Deutsche Bank AG arranged a $1.75 billion loan to National Iranian Oil to develop the South Pars gas field, the world's largest gas reservoir. Seventeen banks, including BNP Paribas and ING, participated. Export credit agencies in Germany, Italy, Korea, the Netherlands and the U.K. guaranteed about 70 percent of the debt. Rome-based MCC SpA, a unit of Capitalia SpA, in June arranged a 290 million-euro loan for Almahdi Aluminum, which the Tehran-based company will use to buy Italian equipment to build a new smelter. Sace SpA, Italy's Rome-based export-credit agency, is guaranteeing 85 percent of the loan. ``The political environment means it isn't the easiest country to do business with,'' said Josh Mandel, Middle East analyst at Control Risks Group, a London-based adviser on investment hazards. ``But it's a market with a lot of potential that a lot of investors do take seriously and want to get into.'' PIN/BLOOMBERG