The government in Tehran plans to divest the residue of its stakes in 18 companies, estimated at 520 trillion rials ($3.2 billion).
According to a report by the Ministry of Economy, the divestitures are in line with efforts to help curb government intervention in the economy, the ministry’s news website shada.ir reported.
Two main divestiture policies are on the table, namely selling in cash to potential buyers and offering shares via exchange-traded funds.
The government seemingly prefers the former and if it does not produce the desired results it will take the ETF path. Offering shares via ETFs has the benefit that it lets a large number of people with small funds buy shares.
The ministry noted that executive guidelines to offer shares via ETFs have been prepared and approved by the High Council of Securities and Exchange—the stock market policymaking body.
An ad hoc committee with the Iranian Privatization Organization, in charge of divesting government property, earlier announced plans to offer the government’s remaining stakes in six refineries via a monolithic ETF.
The new ETF dubbed as the “Iranian Refinery Industry Investment Fund” was to function as a tool through which government assets would be offered in affordable volumes. However, this ETF’s launch was postponed due to differences over managerial issues.
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.
The government’s assets on sale in 18 companies include a 20% stake in state-owned oil refineries in Tehran, Tabriz, Bandar Abbas, Esfahan, 17% in Tejarat Bank and Bank Mellat each, 18.3% in Bank Saderat Iran and 11.44% in Amin Reinsurance Company.
The list includes 18.96% share in Persian Gulf Petrochemical Industries Company, 12.05% in the 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 the National Investment Company of Iran.
$185m Divested in One Year
The ministry did not specify a timeframe for divesting the government’s remaining shares. However, observers cast doubts on realization of the plan in the short-term considering the scale of divested properties in the past.
According to ministry report, which also covers government performance on divesting properties to the private sector, it sold about 30 trillion rials ($185 million) worth of shares in several companies during the last fiscal year that ended March 19.
The divestitures mainly included selling stakes in Tehran Oil Refining Company and Lavan Oil Refinery Company.
Experts have said realization of government plans would be difficult, if not impossible, unless procedures and methods are revised. Hadi Haqshenas is among economists who have expressed reservations about the government’s ambitious plans to find private buyers for its assets.
Pointing to previous procedures, he says the prices of property the government puts up for sale are usually so high and the conditions attached so daunting that few (if any) buyers show interest.
In the past, the government made several attempts to sell its shares in specific companies, including refineries and insurance companies, but could not buyers. The lack of interest, apparently, was due to snags in divestiture systems, which required buyers to purchase blocks worth millions of dollars -- a feat unachievable in the present economic climate.
Eliminating hurdles, cutting red tape and reducing divestiture formalities, such as compulsions to hold auctions, are seen as measures that could facilitate the sale of government assets.
The March 2020-21 budget allows the government to sell its excess assets “without upholding formalities”, a provision seen as underpinning the divestiture process.
However, the Economy Minister Farhad Dejpasan has said the government will invoke the measure only in “special cases”.
Divestiture of state-companies is backed by Article 44 of the Constitution that offers opportunities to private enterprise, promotes downsizing and curbs the bloated bureaucracy.
According to existing privatization laws and as per the same article, state-owned enterprises fall into three main groups.
The government is barred from ownership, investment and managerial posts in Group I. Likewise, it is obliged to transfer 80% of the total companies in Group II to private, cooperative, public and nongovernmental organizations. Ownership, investment and management positions in Group III is the exclusive premise of the government.
Intro: Two main divestiture policies are on the table, namely selling in cash to potential buyers and offering shares via exchange-traded funds.
Caption: The government plans to divest the residue of its stakes in 18 companies.
