Gov’t Tweaking Divestiture Rules

EghtesadOnline: The government plans to resume offering its remaining shares in state-owned companies after making some changes governing divestiture of state properties to private firms, the economy minister said.

News ID: ۷۴۸۶۱۷

05 October 2019

Farhad Dejpasand on Wednesday said the plan to offer the government’s residue stake in six refineries will start in two weeks.

According to Dejpasand, three new offers will be made based on an “adjusted framework” after the government failed to find buyers for shares in the stock market, IRNA reported.

In previous offers, largely involving refineries and insurance companies, the government had offered shares in blocks of millions of dollars each and required investors to buy in blocks. The scheme apparently flopped as buyers couldn’t afford it, according to Financial Tribune.

In the new system, Dejpasand said shares of the six refineries will be offered in smaller and affordable bocks.

“This will also allow people with small savings to buy shares,” he said on the sideline of a Cabinet meeting.

Referring to the government’s inability to find buyers of its remaining shares, deputy economy minister, Muhammad Ali Dehqan, spoke about plans to offer government shares via exchange-traded funds.

“The government is also looking at other options. Divestiture in the current framework was not attractive to private companies,” he said, pointing to the function of ETFs as a  viable solution to the issue.

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.

Role of PBO

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

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

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 buyers are nowhere around.

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

Assets on sale include 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 the National Investment Company of Iran.

The divestiture will be handled by the 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 of the Constitution, state-owned firms 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 all 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.

Big Listings

The minister also announced a plan to list two new companies in the stock market in the coming weeks. He did not elaborate.

Companies are planned to offer shares worth 400 trillion rials during two initial public offerings.  The official expressed the hope that the IPOs could attract the unusually large amounts of liquidity and redirect it into manufactures.

IPOs have always been welcomed by investors looking for safe and assured returns with minimum risk.

Since the beginning of the current fiscal year (March), the stock market has hosted 12 IPOs attracting hundreds of thousands investors.