Iran Gov’t to Unveil New Divestiture Scheme

EghtesadOnline: The government will unveil a plan this week for the divestiture of state-owned companies in the stock market, the economy minister said.

News ID: ۷۸۵۰۵۰

23 November 2019

Speaking on a state radio program, Farhad Dejpasand said the new plan modifies past divestiture methods, the ministry’s news agency Shada.ir reported.

The new scheme comes after the government was unable to find buyers in the stock market for its remaining stake in five companies.

The snag in the past procedure lies in the fact that the government had offered shares in blocks of millions of dollars each and required investors to buy the blocks – a tough precondition many could not afford, according to Financial Tribune.

The minister did not elaborate, but there are speculations that the government may advance the new divestiture process with the help of exchange-traded funds.

On the sidelines of a Cabinet meeting last month, Dejpasand pointed to a plan to offer the remaining shares of government in six refineries in smaller and affordable packages. “This will let people with small savings to buy shares”.

In the same vein, Mohammad Ali Dehqan, a deputy  economy minister, confirmed earlier that using ETFs can be a viable option for the government.

“The government is looking at other options. Divestiture in the current framework was not welcome by private companies,” he said, pointing to the likelihood of offering  government shares in the form of ETFs.

The plan was earlier backed by the Plan and Budget Organization as part of broader package to plug holes in the annual budget.

PBO hailed the role of ETFs as it lets the government undertake management of ETF portfolios, and in turn, maintain control on the holdings.

An ETF can own hundreds or thousands of stocks across various industries, or can be isolated to one particular industry or sector.

ETFs own underlying assets (shares, stocks, bonds, oil futures, gold bullion and foreign currency) rather than only one, like a stock.

The government so far has offered its remaining shares in Shiraz Oil Refining Company, Lavan Oil Refining Company, Tehran Oil Refinery Company, Isfahan Oil Refinery and Alborz Insurance Company. But there were no buyers.

18 Companies on the List

The government has a plan to divest its remaining shares in 18 companies.  These include a 20% stake in state-owned oil refineries in Tehran, Tabriz, Bandar Abbas, Esfahan,  Lavan, Shiraz, 17% in Tejarat Bank and Bank Mellat each, 18.3% in Bank Saderat Iran, 17.34% Alborz Insurance Company and 11.44% in Amin Reinsurance Company.

Added to the list are 18.96% share in 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.

The divestiture will be handled by the Iranian Privatization Organization and is in line with Article 44 of the Constitution that opens opportunities to private firms, promotes downsizing and curbs the bloated bureaucracy.

According to privatization laws, state-owned firms fall into three main groups.

The government is barred from ownership, investment and managerial posts in Group One. Likewise, it is obliged to transfer 80% of all firms in Group Two to private, cooperative, public and non-governmental organizations. Ownership, investment and managerial positions in Group Three are the exclusive premise of the government.

Of the 18 companies on the divestiture list, three are in the first group. The remaining 15, including refineries and petrochemical companies, are in the second.