IME Warms Up to Automobile Trading

EghtesadOnline: Iran Khodro Group, Iran’s biggest automaker, plans to offer 6,500 of its Dena model on Iran Mercantile Exchange this fiscal year (March 2017-18), chairman of the company, Hashem Yekezare, has announced.

News ID: ۷۴۲۷۰۳

12 July 2017

The number of cars to be offered on the exchange will be 25% of IKCO’s annual production of the model.

“Kickstarting this offering on IME is a test-run for us. If successful, IKCO’s other products will also be listed on IME,” Yekezare was quoted as saying by Bourse Press.

IKCO currently offers the locally designed Dena at about 432 million rials ($11,500). More than 7,300 of this model were manufactured by IKCO in the first three months of the current fiscal year (March 2017-18), registering a 59% rise. The company currently exports the model to several foreign markets, including Algeria. It is also one of IKCO’s models produced overseas, Financial Tribune reported.

According to Yekezare, listing Dena on IME would prevent the government from enforcing a price for the product, based on Article 18 of the “Development of New Financial Instruments and Organizations”. This, in turn, will lead to pricing transparency.

Other benefits of this initiative for IKCO include enjoying a 10% tax cut on its revenues from IME sales and using salaf and standard parallel contracts for financing its operations.

Salaf is an Islamic contract similar to futures contracts and is used to forward sell an underlying commodity with a predetermined interest for the period. In order to trade the contracts before their maturity, standard parallel salaf is used.

Dena will be the second automobile to be traded on IME. IKCO’s archrival, SAIPA, offered 50 Kia Ceratos on the mercantile exchange in early June. Lotus Investment Bank acted as the financial advisor for SAIPA’s entry into IME. It will serve the same role for IKCO.

Over the past few years, IME has hosted the trading of various commodities traditionally dominated by state-enforced pricings, such as cement. This has raised hopes for market players that supply and demand dynamics will become the deciding factor in pricing and balance the market. For the auto market, such a development is nothing short of a major shakeup.

Most of the cars Iranian automakers produce in collaboration with their foreign partners are priced around $4,000 higher than their price tag in international markets. This is while the government-run Competition Council is in charge of setting the prices for locally-produced vehicles. The council’s oversight so far has only resulted in unrealistic pricing and does little to benefit the consumers.

On the other hand, imported cars in Iran have always been far more expensive than the domestic models due to punitive import tariffs that reach up to 100%.

Experts believe IME’s participation in auto trading is a step in the right direction and could bring about a major overhaul in the local market’s longstanding dynamics.

IME is a commodities exchange located in Tehran, Iran. Founded in 2006, IME trades in agricultural, industrial and petrochemical products in the spot and futures markets.

The mercantile exchange has recently added various commodities to its portfolio, such as gold, pistachio, saffron and automobiles.

Iran Mercantile Exchange’s trade value stood at 817 trillion rials ($21.78 billion) during the previous fiscal year (March 2016-17), accounting for 6.5% of Iran’s gross domestic product, according to its chief executive, Hamed Soltaninejad.

Soltaninejad said IME outperformed Tehran Stock Exchange in terms of annual trade value by more than 182 trillion rials ($4.85 billion) last year, Securities and Exchange News Agency reported.