ETFs to Help Gov’t Sell Shares

EghtesadOnline: In the budget bill for the next fiscal year (March 2020-21) the government can divest its stake in state-run companies via exchange-traded funds.

News ID: ۷۸۵۱۲۲

11 December 2019

As per the draft budget, administrative bodies are obliged to name subsidiaries in which the government’s share is below 50%.

They are required to send the names of the companies to the Ministry of Economy and Plan and Budget Organization by June  2020.

Note 2 of the bill stipulates that the government divest its assets in the form of ETFs, albeit after ascertaining the eligibility of the applicants, according to Financial Tribune.

The divestiture of government assets is in line with Article 44 of the Constitution that offers opportunities to private enterprise, promotes downsizing and curbs the bloated bureaucracy.

It appears that the ETF is the government’s last resort to get rid of its stake in the companies because it had tried other divestiture methods in the past with no effect. The government was unable to find buyers in the stock market for its stakes in five companies.

Snags in past procedures seemingly were 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.

The proposal to use ETFs for selling government assets was made earlier by a group of economic officials after the government’s plan to sell the shares flopped.

Affordable Packages

Economy Minister Farhad Dejpasand had spoken about the possibility to offer the remaining shares of government in six refineries in smaller and affordable packages, which he said “will let people with small savings buy the shares”.

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

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 has plans 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.

The list 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.

President Hassan Rouhani submitted the budget bill for the upcoming Iranian year (March 2020-21) to the parliament on Sunday.