Interest Lacking in Refinery ETF

EghtesadOnline: The government’s move to sell shares in four major refineries via an exchange-traded fund was received coldly by investors as barely 20% of the assets were bought in the subscription phase.

News ID: ۷۵۱۱۱۹

28 September 2020

Initial data show that about 4 million people took part in the subscription and bought units of the ETF worth a total of 130 trillion rials ($480 million). The government had plans to divest its shares worth a total of 600 trillion rials ($2.2 billion) in four refineries.

The ETF, dubbed “First Refinery”, holds government shares in Tehran Oil Refining Company, Esfahan Oil Refining Company, Tabriz Oil Refining Company and Bandar Abbas Oil Refining Company. The government owns 20% of shares in each refinery.

According to Dovod Razaqi, manager of the refinery-based ETF,  100 trillion rials of the ETF units were bought through stock market brokerage firms and the remaining were sold via agent banks.

Subscription commenced on August 26 and was supposed to last two weeks. But the government had to extend the period for ten more days as the offer was not well-received.

Investors’ aversion to risk capital in government shares can be construed by the declining stock market sentiment during the first subscription timeline of the ETF.

The subscription phase coincided with heavy downturn in the bourse where investors preferred to step back rather than put money in stocks.

Government incentives to offer discount on the ETF was futile.

ETF units were priced based on average final prices of ticker symbols of the four refineries on the Tehran Stock Exchange bulletin board a day prior to the subscription. The government initially offered 20% discount on this price to encourage buyers.

With relentless sell-off pressure mounting on stumbling share prices, including refinery stocks, the government later increased the discount by 30% days after the subscription ended.

As per regulations, having a trading code is not obligatory in the subscription stage and the general public can buy ETF units using national IDs as trading codes. Each buyer can purchase maximum 50 million rials worth of ETF units.

Legal entities and foreign nationals cannot subscribe.

Second of its Kind

Selling shares via ETFs is part of the government’s effort to raise funds for budgetary needs. In May it sold stakes in three banks and two insurance companies and plans to offer shares in giant mineral, steel and auto companies.

The first ETF was inaugurated with 17% of government stakes in Tejarat Bank, 17% in Bank Mellat, 18.32% in Bank Saderat Iran, 17.34% in Alborz Insurance Company and 11.44% in Amin Reinsurance Company. The government then made 58.86 trillion rials ($214m).