Iran Gov't Takes Different Approach to Divestitures

EghtesadOnline: The Iranian Privatization Organization has outlined plans to facilitate divestiture of government assets in the coming Persian calendar year that begins in March.

News ID: ۷۸۵۳۴۳

03 February 2020

Setting up an investment fund, which provides investment opportunity for large numbers of people with limited funds, is among the plans, Financial Tribune quoted IPO head Alireza Saleh as saying.

The exchange-traded fund is said to worth 200 trillion rials ($1.5 billion), which will seek to attract small funds from ordinary people. The fund is expected to attract more than five million people to the capital market, ISNA reported.

An IPO committee in charge of divesting government property earlier announced plans to offer the government’s remaining stakes in six refineries via a monolithic exchange-traded fund.

Inauguration of the ETF was postponed due to disagreements over management issues, Saleh said, adding that it will be launched in the coming Iranian year.

Regarding public participation in such investments, he pointed to coordination with the Securities and Exchange Organization to allow unprofessional investors and ordinary people to use their national ID numbers as trading codes to be able to trade in the stock market.

The IPO has considered incentives for investment in ETFs in bid to attract bigger investors. Incentives include up to 20% discount in prices of ETF units.  Pricing will be based on average final price of shares displayed on TSE and IFB bulletin boards during a calendar month on the day prior to the subscription date.

This includes a 1.5% discount during the subscription phase and 5% discount when the fund purchases shares from the government.

There is also a 14% discount for real entity buyers who want to invest in the refinery ETF. As per a decision by the SEO High Council, each buyer can purchase ETF units worth 20 million rials ($15).

An ETF is a type of security that involves a collection of securities—such as stocks—that often tracks an underlying index, although they can invest in any number of industry sectors (shares, stocks, bonds, oil futures, gold bullion and foreign currency) or use various strategies.

ETFs are listed on exchanges and ETF shares trade throughout the day just like ordinary stock.

This is while in previous divestiture methods, which involved selling a block of millions shares, the government demanded higher prices from buyers, Saleh recalled.

By buying a whole block, the potential buyer is entitled to a seat on the managing board of the company. For this reason, the base price will be 20% higher than the price of the share on the stock market bulletin board.

In the past, the government made several attempts to sell its shares in specified companies, including refineries and insurance companies, but could not buyers. The lack of interest, apparently, was due to snags in the divestiture systems, which required buyers to purchase blocks worth millions of dollars.

Cutting Red Tape

Eliminating some of the hurdles and reducing divestiture formalities, such as the compulsion to hold auctions, is another IPO move to speed up the sale of government assets.

“By eliminating auctions, divestitures would be handled by the stock market,” Saleh said.

Divesting parent holding companies, instead of their subsidiaries, is also on the IPO agenda.

In past procedures, in which a subsidiary of a larger holding used to be divested, the parent company would later face managerial challenges, and in some case divestitures led to disruption in the production chain of the holding company and its subsidiaries.

Divesting a part of shares of a parent company will go a long way in improving transparency in government-controlled companies, Saleh said.

“When listed with the stock market, a state-run holding company will have to uphold professional norms mandated by the bourse, which could and should in turn promote transparency.”