Iran Gov’t Decides ETFs Are Ideal

EghtesadOnline: The economy and oil ministries said Tuesday that they would stick with the previously announced method to divest government shares in four refineries via an exchange-traded fund and this week’s decision to offer shares only in blocks has be rescinded.

News ID: ۷۵۰۶۸۰

12 August 2020

The announcement came after disagreements between the two ministries over the divestment method rattled the stock market in the past two days and share prices took a hit.

Stocks in Tehran moved downward in the early hours of Monday’s trade after the Iranian Privatization Organization (IPO) put a notice on its website Monday saying that the previously announced plan to sell government shares in four refineries had been put off. It spoke about a new decision based on which government shares would be offered in blocks.

Asked why the IPO had come to such an unexpected decision, the IPO blamed the Oil Ministry saying that the ministry was in charge of setting up the ETF and was unable or unwilling to do so.

The abrupt decision came despite the fact that government officials on multiple occasions had stressed the role and significance of divestment via ETFs. This tempted investors, anticipating fat profits, to rush to buy shares of companies in which the government had stakes.

Reflecting on negotiations with Oil Ministry officials, the Economy Minister Farhad Dejpasand said the Oil Ministry has ultimately agreed to set up an ETF to sell government shares in four refineries. He added that the new ETF would make debut in the coming weeks.

It appears that the shift in approach came following strong criticism regarding the confusion and sudden change of heart by senior government officials that posed an explicit threat to the thriving share market.

Oil Minister Bijan Zanganeh wrote on twitter that he has instructed the National Iranian Oil Refining and Distribution Company to establish the ETF immediately. He told the press that the ministry is not opposed to offering shares via the bourse.

“The Oil Ministry is willing to cooperate. It has no issue with whatever divestment scheme the Economy Ministry decides,” he was quoted as saying by IRNA.

In the same vein, Mohsen Khodabakhsh, deputy for supervision affairs at the Securities and Exchange Organization said the SEO is ready to issue permits for setting up the ETF.

Block Sale Unattractive

The IPO’s latest decision to offer shares in blocks received more than its fair share of denunciation because the block approach had been tested and failed in the past.

The valid argument is that in the dire economic conditions potential buyers simply cannot afford blocks of shares worth millions of dollars.

Selling shares via ETFs is a new precedent in Iran. In May, the government offered its shares in three banks and two insurance companies via an ETF.  It generated 58.86 trillion rials by selling shares via the first ETF, dubbed as the “First Financial Intermediary”.

Government shares in the new ETF include 20% stake each in the Tehran Oil Refining Company, Isfahan Oil Refinery, Tabriz Oil Refinery Company and Bandar Abbas Oil Refining Company. There are plans to offer shares in giant auto and metal companies via a third ETF.