Iran Gov’t Reversal Rattles Share Market

EghtesadOnline: Tehran stocks took an unexpected drubbing Monday following reports that the government had a change of heart and was suspending share offers in four refineries via exchange-traded funds.

News ID: ۷۵۰۶۶۶

11 August 2020

The Tehran Stock Exchange opened Monday’s session on a strong note and its main index, TEDPIX, gained more than 26,000 points in the early hours of trade before investors lost sentiment and rushed to sell on the perception that shares in big listed companies, mostly affiliated to the government, could plunge as the ETF divestment scheme is no more.

With sell-off pressure piling up, TEDPIX pared gains and lost 13,437 points to close 0.65% lower. The equal-weighted index fell by 1.62%.

The downturn was triggered after the Iranian Privatization Organization released a notice on its website saying that the previously announced plan to sell government shares in four refineries has been put off.

The IPO announced a new plan based on which government shares will be offered in blocks and blamed the opposition of the Ministry of Oil to setting up such an ETF.

Soon after, the Economy Minister Farhad Dejpasand echoed the same position, noting that “the relevant body [Oil Ministry] is not prepared” to offer shares via ETFs.

The Oil Ministry was quick to respond by publishing a counterclaim on its website, expressing surprise at Dejpasand’s statements about its refusal to offer shares via ETF. The ministry’s public relations office said the decision to offer government shares in blocks was proposed and backed by Dejpasand.

“The ministry, however, reiterated that “it is prepared to establish the ETF and delegate its authority in this regard to the Economy Ministry”.

Public Trust Harmed

The abrupt decision to cancel share sales via ETFs came despite the fact that the plan had been promoted with much fanfare in the past months by senior government officials.

The latest negative development has drawn the ire of stock market investors and spurred criticism from several quarters that such confusion undermines public trust in the government’s economic agenda and its official statements.

Iran’s share market has grown remarkably in recent months due largely to investors’ trust in the government’s repeated pledges to prop up the bourse.

Struggling to fund the budget and curb the ballooning money supply, the government has gone out of its way to lift the market by regularly inviting the public to invest their savings in the bourse.

Market observers say the government’s divestment schemes have been the main trigger behind the stock market growth. There are fears of massive capital outflow from the market as seen in the huge volume of unprocessed sale orders in  Monday’s session.

Anticipating price rises, in recent weeks large groups of investors bought shares of companies in which the government has stakes and planned to sell via ETFs. With the ETF scheme now invalidated, expectations of future price increases suddenly seem misplaced.

The government was partially successful in generating income via the share market by selling shares in several giant state-run listed companies.

Earlier in the week, head of the Plan and Budget Organization Mohammad Baqer Nobakht said the government earned 160 trillion rials ($695 million) from share sales in state-run companies, a figure that was far beyond the initial 119 trillion rials ($517b) projected in the March 2020-21 budget.

The government offered its shares in three banks and two insurance companies via an ETF in May and announced plans to offer shares in four refineries in the second ETF in the near future.

It has a 20% stake each in the Tehran Oil Refining Company, Isfahan Oil Refinery, Tabriz Oil Refinery Company and Bandar Abbas Oil Refining Company. There also were plans to offer shares in auto and metal companies.

It merits mention that the government has tried but failed to sell its shares in in blocks in the past. The setback, apparently, was due to fact that buyers simply could not afford a block of shares worth millions of dollars.

Monday’s Trade

About 11.67 billion shares valued at 216.9 trillion rials ($1.03 billion) changed hands at the TSE on Monday.

Mobarakeh Steel Company contributed the most to the benchmark's fall, followed by Iran Khodro Company, Khouzestan Steel Company and Parsian Oil and Gas Development Group Company.

Telecommunication Company of Iran gave the biggest boost to the benchmark index, followed by Islamic Republic of Iran Shipping Lines Company, Persian Gulf Petrochemical Industries

Iran Fara Bourse main index, IFX, lost 357.92 points, or 1.66%, to close Monday trade at 21,178.05. About 2.65 billion securities valued at 70.84 trillion rials ($337.33m) were traded at the over-the-counter exchange for the day.