Shasta Mulls Selling 16% Stake in Oil, Petrochemical Subsidiary

EghtesadOnline: Iran’s largest holding, Social Security Investment Company has announced plans for privatizing its subsidiaries.

News ID: ۷۴۵۷۸۳

04 August 2018

SSIC, also known by its Persian acronym Shasta, says it will sell a 16% stake in Tamin Petroleum and Petrochemical Investment Company on August 15.

The Tehran Stock Exchange-listed TAPPICO is the exchange’s largest company with a nominal capital tag of 81.5 trillion rials ($1.82 billion), Bourse Press reported.

The sale will include 13.4 billion shares with a base price of 2,600 rials each. Shasta is asking for the entire amount in cash and is being advised on the sale by Saba Brokerage, according to Financial Tribune.

Paying the whole amount in cash while the stake will only offer the buyer one controlling seat on the board could put off investors from coming forward. Yet there is a lot of money circulating in the market these days and certain firms could band together and secure the cash.

The block could be even more interesting, considering the recent currency shock Iran has gone through. Starting from last December, rial rapidly lost its value against the US dollar up until mid-April, when the government pinned rates at 42,000 rials, despite the open market prices being close to double that. Petrochemical companies, as one of Iran’s largest exporters, can be very lucrative assets.

The investment arm of Social Security Organization first mulled the idea of selling stakes in its subsidiaries back in September 2017. The idea generated a lot of excitement in the market, as Shasta controls nine holdings operating in a wide range of sectors, including petroleum, petrochemical, pharmaceutical, cement, transportation and finance. These holdings have about 1,000 board members managing 350 trillion rials (about $8 billion) of assets through 200 subsidiaries.

“Shasta acquired more than 90% of its assets as a result of the government’s debt settlement and 70% of them are either running at losses or underperforming. The only returns we get are from the 30% we have established on our own,” says Morteza Lotfi, Shasta’s managing director.

SSIC’s gargantuan size is in fact the result of the previous administration’s policies that gave the holding stakes in state-owned companies in lieu of its debts. The companies, already poorly run, were forced on SSIC at arbitrary prices.

Latest statistics put the government’s debt to SSO at 1.2 quadrillion rials ($27.2 billion), MP Rasoul Khezri told ICANA.

With the government still dilly-dallying in paying its dues, Shasta has turned to selling its assets, floating shares on the capital market and shrinking its giant holdings to get the company back on track.

“We have asked [Securities and Exchange Organization] to analyze and pave the way for the three holdings to go public. We initially plan to offer less than 5% of their shares for price discovery and then follow up with offering 30%. This way Shasta will keep a 64% stake in them,” Shasta’s former manager, Reza Norouz-Zadeh, told Bourse Press in 2017.

So far, only TAPPICO and Tamin Pharmaceutical Investment Company have been listed on the equity market.

SSIC’s portfolio is quite vast, as the numbers indicate. The cement holding, for instance, manages 13 cement companies, three mining factories and three engineering plants, most of which are the largest in the industry and account for 40% of national output of the material.

What makes things more convoluted is that the industries SSIC is engaged in are also going through a rough patch. The cement industry, for instance, is suffering from a 44% production overcapacity in the face of continuously diminishing demand in the construction sector.

And exports, the only way out of a domestic demand deadlock, stand at a fraction of production due to the loss of traditional neighboring markets and the high cost of shipping to other continents.

Shasta knows that the toxic assets need to go and it announced plans last year to sell at least 130 of its total subsidiaries “to better manage and invest workers’ assets”, Lotfi said.

As it limits the scope of its investments, its nine holdings are also set to shrink to five.