Iran Gov’t May Use ETFs in Divestment

EghtesadOnline: After several failed attempts to divest its remaining stake in state-affiliated companies to the private sector, the government is rewriting the rules and devising new methods to facilitate the divestiture process.

News ID: ۷۴۸۲۹۲

28 August 2019

It is offering shares in blocks in the stock market and wants potential buyers to purchase the whole block.  But buyers apparently cannot afford it.

“The government is looking at other options. The divestiture in the current framework was not welcome by private companies,” Financial Tribune quoted the Deputy of Economy Minister Muhammad Ali Dehqan as saying.

As one viable solution, he pointed to the likelihood of offering the government’s remaining shares in the form of exchange-traded funds, Fars News Agency reported.

An ETF can own hundreds or thousands of stocks across various industries, or can be isolated to one particular industry or sector.

ETFs own underlying assets (shares, stocks, bonds, oil futures, gold bullion and foreign currency) rather than only one, like a stock.

The plan was earlier backed by the Plan and Budget Organization as part of broader package to plug holes in the annual budget.

PBO hailed the role of ETFs as it lets the government undertake management of ETF portfolios, and in turn, maintain control on the holdings.

List of Companies

The government has a plan to divest its remaining shares in 18 companies.

The assets on sale include a 20% stake in state-owned oil refineries in Tehran, Tabriz, Bandar Abbas, Esfahan,  Lavan, Shiraz, 17% in Tejarat Bank and Bank Mellat each, 18.3% in Bank Saderat Iran, 17.34% Alborz Insurance Company, 11.44% in Amin Reinsurance Company, 18.96% in Persian Gulf Petrochemical Industries Company, 12.05% in National Iranian Copper Industry Company, 17.2% in Mobarakeh Steel Company,14.04% in Iran Khodro (IKCO), 23% in SAIPA, 40% in Pars National Agro-Industry and Animal Husbandry Company, and 13.02% in National Investment Company of Iran.

So far, the government has offered its remaining shares in Shiraz Oil Refining Company, Lavan Oil Refining Company, Tehran Oil Refinery Company, Isfahan Oil Refinery and Alborz Insurance Company. But there have been no buyers.

The divestiture will be handled by Iranian Privatization Organization and is in line with Article 44 of the constitution that offers opportunities to private enterprise, promotes downsizing and curbs the bloated bureaucracy.

According to privatization laws and as per Article 44, state-owned enterprises fall into three main groups.

The government is barred from ownership, investment and managerial posts in Group One. Likewise, it is obliged to transfer 80% of the total firms in Group Two to private, cooperative, public and nongovernmental organizations. Ownership, investment and managerial positions in Group Three are exclusive premise of the government.

Of the 18 companies on the divestiture list, three are in  the first group. The remaining 15, including refineries and petrochemical companies, are in the second group.