Investors Pour $695m in Exchange-Traded Funds

EghtesadOnline: The government earned 160 trillion rials ($695 million) by selling its shares in state companies via the stock market -- a figure far beyond initial projection in the fiscal budget (March 2020-21).

News ID: ۷۵۰۶۴۲

09 August 2020

Head of the Plan and Budget Organization, Mohammad Baqer Nobakht, said this Friday in a virtual press conference with reporters on the occasion marking National Journalists' Day.

Pointing to projections in the annual budget, Nobakht said “the government expected to earn 119 trillion rials ($517 million) by ceding its stakes in several companies in this fiscal year. However, 160 trillion rials were generated in share sales just in the first four months [March 21-July 20]”.

The senior official said the extra income helped the government partially compensate some of the unrealized crude oil export revenue.

“Oil exports have declined due to the [US] sanctions. Our oil revenue has shrunk further this year due to the recession arising from the coronavirus pandemic. Barely 6% of the forecast oil revenue has been realized so far,” he was quoted as saying by the PBO website.

The government in April announced a plan of action to cede its shares in 18 major companies via exchange-traded funds with the declared aim to downsize, plug budget holes and reduce its footprint in the economy.

Nobakht said the divestment is in line with Article 44 of the Islamic Republic Constitution, which explicitly states that the “government role should modify from manager and owner of companies to policymaker and supervisor”.

Among other things, the article says the government should reduce its role in the economy, create a bigger space for private enterprise and curb the bloated bureaucracy.

Obligations of Companies

As per the budget law, administrative bodies are obliged to name subsidiaries in which the government share is below 50% to be able to sell its stake in the bourse. The divestiture is planned in the form of offering shares via ETFs.

The government offered its shares in three banks and two insurance companies via an ETF in May. The shares were 17% in Tejarat Bank and Bank Mellat each, 18.3% in Bank Saderat Iran, 17.34% in Alborz Insurance Company and 11.44% in Amin Reinsurance Company.

There are plans to offer shares in four refineries in the second ETF in the coming days. The government has 20% stakes in Tehran Oil Refining Company, Isfahan Oil Refinery, Tabriz Oil Refinery Company and Bandar Abbas Oil Refining Company.

The divestment list also includes 18.96% share in the 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.

Apart from selling shares, the government has also raised funds by directly selling shares to retail investors in the stock market. Drawing on the opportunity created by the booming stock market and demand outweighing supply, the government has obliged giant listed companies, in most of which the government has stakes, to increase floating stocks by at least 25%.

Floating stocks represent the total number of shares that are open to public for investment. It is a measure that excludes closely-held shares. Closely-held shares are stock shares that are held by company insiders or controlling investors.  Floating shares indicate the number of shares available for trading.