“The government divested a portion of its stocks in state-owned companies this year…The plan for next year’s budget is to continue on the same track,” Mohammad Baqer Nowbakht was quoted as saying by IRIB news.
Nowbakht added that selling government stakes in affiliated companies would be one measure to cope with the recession next year.
“Offering government stakes will infuse fresh blood into the bourse… shares with high return potential will be offered.”
The official said the government will adopt an expansionary fiscal policy in drafting the annual budget, in which sources of revenue would largely be taxes and divesting government assets.
Expansionary is a form of macroeconomic policy that seeks to encourage economic growth. It is intended to boost business investment and consumer spending by injecting money into the economy. Expansionary policy is adopted to prevent or moderate economic downturns and recessions.
Earlier in the week, Nowbakht said 4-5% decline in the production sector tax has been envisioned in the next budget. "Tax on consumption, however, will increase," he was quoted as saying by Mehr News Agency.
As per a report by the Iranian Privatization Organization, the government divested shares worth 272 trillion rials ($1 billion) in 16 state-owned companies through the stock market in the year ending August 2019.
The IPO said the divested amount totaled 16% of all divested government stakes since IPO’s inception in 2001. The government sold stakes in two companies in blocks worth 29 trillion rials ($116 million).
In addition, stakes in 15 listed companies worth 125 trillion rials ($500m) were sold as retail shares. The government divested shares in several companies in lieu of its mounting debt to the Social Security Organization. Stakes in these companies were valued at 62 trillion rials ($270m).
It also sold shares in three banks and two insurance companies via an exchange-traded fund. Earlier reports said 56 trillion rials ($224m) in shares were sold to 3.5 million buyers.
Funding Development Projects
Revenue from divestment of government financial assets would be exclusively used to fund development projects, Nowbakht said.
As per provisions of the budget law, the government should use up to 700 trillion rials ($2.8 billion) of its earnings to complete development projects.
Budget planners initially assumed that funding for national projects would be sourced mainly from oil revenues. However, the sharp decline in international crude oil prices and restrictions on oil export have made it difficult (most say impossible) for the Rouhani administration to pay for macro projects many of which are now on hold.
Apart from declining oil revenues, the widening budget deficit, reliance on the bond market, petroleum products, tax revenue plus the mounting cost of the fighting the coronavirus have further undermined government’s financial clout.
12 Listings Planned
Outlining the government’s roadmap to sell shares in the near future, the IPO Chief Alireza Saleh said 12 government-owned companies are to be listed in the stock market.
The listing includes three power plants, the Securities and Exchange News Agency quoted him as saying.
According to Saleh, Esfarayen Industrial Complex (a steel manufacturer), Opal Parsian Sangan Industrial and Mineral (OPSIM) and Omran-E-Maskan Sazan Iran, a construction company would go public from next week.
Additionally, there are plans to sell shares in four refineries via an ETF. The ETF holds 20% of government stakes in Tehran Oil Refining Company, Esfahan Oil Refining Company, Tabriz Oil Refining Company and Bandar Abbas Oil Refining Company. Value of the shares is estimated at 600 trillion rials ($2.4b).
Plans also include the launching of an ETF in the January. This ETF will reportedly offer in some giant enterprises including 12.05% government stake in the National Iranian Copper Industry Company, 17.2% in Mobarakeh Steel Company and 14.04% in Iran Khodro and 23% in SAIPA (two main domestic carmakers).
Divesting government assets is in line with amendments to Article 44 of the Islamic Republic Constitution that requires the government to downsize and accelerate its privatization projects.