Iran Gov’t Will Sell Stakes in Banks

EghtesadOnline: The government will launch one of its biggest schemes to divest banks’ non-financial assets in the coming week, a deputy minister of economy said.

News ID: ۷۵۰۰۲۴

13 May 2020

The divestiture is related to non-financial assets of state-owned Bank Sepah, according to Abbas Memarnejad, the deputy economy minister for banking, insurance, and state-owned companies' affairs.

Bank Sepah plans to offer its remaining stakes in the Omid Investment Group, the bank’s investment arm in the stock market. “The divesture will be in several phases,” Memardnejad was quoted as saying by ISNA.

He refused to elaborate but noted that the company’s estimated value is 700 trillion rials ($4 billion) and Sepah plans to cede 18% of its stake in the first phase.

Bank Sepah CEO Mohammad Kazem Choqazardi said earlier that the bank plans to divest 51% of its shares in the investment company.

Sepah earlier tried to offer its shares in lump sum but couldn’t find buyers. The company has invested in some major projects including petrochemicals, cement, steel, power plants and stock brokerages.

Apart from Omid Group, the government also intends to divest its shares in another bank-affiliated investment company.

Memardnejad said Bank Melli Iran plans to divest shares worth 230 trillion rials ($1.3 billion) in its investment firm, the National Development Investment Group.

Banks and credit institutions are estimated to own 1,000 trillion rials ($6 billion) in non-financial assets, which have piled up over the years mainly due to impaired loans, bad debts, settlement of government debts to banks, branch closures and failed investments.

Non-banking activities of lenders have long been condemned by economic experts and senior government figures on the grounds that such activities are a major hindrance to healthy and transparent banking.

Earlier Economy Minister Farhad Dejpasand spoke about a one-year program based on which government-owned banks are required to relinquish their non-financial assets – mostly real estate – and increase their cash reserves.

The Central Bank of Iran monitors and oversees the divestiture process and those who fail to comply will be prosecuted, Memarnejad said.

CBI’s Call

CBI Governor Abdolnasser Hemmati urged lenders last week to tap into the stock market to divest shares, get rid of non-financial assets and focus only on banking -- a tall order in the current economic climate.

In a directive to CEO of banks and credit institutions, Hemmati told them to use the opportunity created by the growing public tendency to invest in stocks.

$6 Billion Target

Provisions in the current fiscal budget stipulate that the government needs to generate approximately 988 trillion rials ($6 billion) from divesting its properties. Who can or is able to buy such real estate remain to be seen.

Memarnejad said the government is determined to realize this target, noting that an innovative divestiture plan has started.

He was referring to ongoing scheme that enables government to sell its remaining stakes in 18 companies via three exchange-traded funds.

The official said the government plans to make 500 trillion rials ($3 billion) by selling its shares via ETFs.

The first phase of the divesture plan commenced May 3 with government stakes in three banks and two insurance companies being offered in the first ETF of this kind, namely the “First Financial Intermediary”.  The ETF is said to approximately worth 165 trillion rials ($1 billion).

Prospective investors have been called upon to subscribe for the units of the ETF by May 20.

There are two other ETFs including shares in automotive, refineries, mining and metal companies.

The government has considered incentives for investment in state-controlled ETFs to encourage more people to get involved.

Incentives include up to 20% discount on prices. Prices will be based on average final price of shares displayed on the stock market bulletin boards during the calendar month to the day prior to the subscription date. Those interested can buy maximum 20 million rials ($125) worth of ETFs.