The government is to launch the first exchange-traded fund to offer its remaining shares in banks and financial institutions, as part of a comprehensive plan to downsize and reduce its role in the economy.
According to Alireza Saleh, head of the Iranian Privatization Organization, the first ETF, which comprises government shares in three banks, is to be unveiled next week.
“The remaining government stakes in Bank Mellat, Tejarat Bank and Bank Saderat Iran will be offered via ETF in coming week,” IBENA quoted him as saying.
The government has a 17% stake in Tejarat Bank, 17% in Bank Mellat and 18.32% in BSI. The banks are listed with Tehran Stock Exchange.
The plan involves divestiture of the government’s residue shares in 18 companies either via ETFs or through other usual trading methods in the stock market, namely book building.
An ETF is a type of fund that owns various underlying assets (shares, stocks, bonds, oil futures, gold bullion and foreign currency), rather than one asset. They are listed on exchanges and ETF units can be traded in the stock market just like ordinary stocks.
After inauguration of the bank-based ETF, Saleh said, offering government shares in insurance firms, including a 17.34% stake in Alborz Insurance Company and 11.44% in Amin Reinsurance Company will follow.
Officials say offering shares via ETFs is advantageous both for the government and buyers as it helps the former raise funds by ceding assets to the private sector and provides investment opportunity for large numbers of people with limited funds.
As per the framework, people with small savings can buy the ETF units using their national ID numbers as trading codes.
The IPO chief forecast the initiative should attract an estimated five million people to the capital market.
President Hassan Rouhani on Friday instructed the Ministry of Economy Farhad Dejepasand to speed up the divestiture process and quickly lay the groundwork for selling government-owned shares.
The government has considered incentives for investment in state-controlled ETFs. According to Saleh, incentives include up to 20% discount on prices of ETF units for investors who buy ETF units worth maximum 20 million rials.
Discounts will not be applicable to purchases above this amount. In addition, institutional and legal entity buyers are not eligible for discounts and have to buy shares at the same price displayed on the stock market bulletin board.
In the past, the government made several attempts to sell its shares in assorted companies, particularly in refineries and insurance firms, but could not find buyers. The setback, apparently, was due to snags in the divestiture systems, which required buyers to purchase blocks of shares worth millions of dollars.
MRC Not Convinced
While the move is touted as realization of privatization goals, the Majlis Research Center, the influential parliamentary think tank, says the government scheme is not “privatization per se” and is incompatible with tenets of Article 44 of the Islamic Republic Constitution.
Article 44 says the economy should be downsized to be able to offer opportunities to private firms and curb the bloated bureaucracy.
“Given the nature of ETFs, it seems state-controlled enterprises on the divesture list would still be managed by the government, at least in the short term,” the Majlis think tank complained.
MRC said the government is pursuing two goals via this initiative: generating income by divesting ownership of its properties without losing control over it.
The budget law for the current fiscal year (March 2020-21) obliges administrative bodies to name the subsidiaries in which the government share is below 50%.
