Gov’t Prepares for Year’s Largest IPOs

The Iranian Privatization Organization is lining up its largest initial public offerings of the year, amid a bearish market with low demand for risky assets, as it tries to help bridge the gap in government finances.

The stakes of government property prepared for sale are estimated to bring in 15 trillion rials ($418.5 million at market exchange rate) for the organization, according to Seyyed Jafar Sobhani, a consultant to the organization’s chief executive.

The offerings will be the largest sale of government-owned companies in the 1395 fiscal year (started March 20), state-owned IRNA reported.

Any money made by the administration is welcome, given its precarious fiscal situation. The government’s first quarter operational deficit came in more than expected in the report published by the Central Bank of Iran last week.

Government revenues were 223 trillion rials ($6.2 billion at market exchange rate) short of expenses in the first quarter of 1395. The deficit accumulated during the first quarter is nearly half of last year’s total deficit of $13 billion.

Apart from the upcoming sale on Oct. 3, the organization has 200 more companies to sell in 1395. The organization was handed a list of 1,111 companies to sell at the onset of privatization a decade ago. Since then, most have been sold, dissolved or bankrupted, according to the consultant, and now 200 remain.

“We have to prepare and price all remaining companies that are designated for privatization through Tehran Stock Exchange and Iran Fara Bourse in 1395,” said Sobhani.

However, the organization’s officials are not betting on high demand and easy sale of their remaining stock of corporations. Most of the big names were sold under dubious circumstances during the presidency of Mahmoud Ahmadinejad (2005-13). So, the remaining companies are small and some have financial problems.

“We must accept that companies left over from the early years of privatization are not in high demand. As in any firm, they buy the merchandise first and in the end, problematic companies remain and this makes things hard for the Iranian Privatization Organization,” said Sobhani.

The organization faces a dilemma in pricing its assets. As Sobhani posits, if the companies are offered at their “real value”—what the government thinks they are worth—then some companies may be left without buyers. On the other hand, if the companies are offered at lower prices, the organization can bet on facing allegations of corruption and rent.

The organization has faced much criticism for its actions during the Ahmadinejad years when large stakes in Iran’s most lucrative companies like the Telecommunications Company of Iran were sold to quasi-state organizations affiliated to the armed forces at huge discounts. Those moves effectively handed the control of Iran’s heavy industries to the quasi-state sector. These events left the economy worse off than when it was state run, according to presidential advisor Masoud Nili.

“Thus, offerings in 1395 are both complex and difficult,” said Sobhani.

The Oct. 3 privatization lineup includes complete control of four slaughterhouses, three of which are priced at 100 billion rials and the fourth at 150 billion rials, and a 92% stake in Qaemshahr Textiles Company priced at 290 billion rials, Esfarayen Industrial Complex worth 11 trillion rials, Esfarayen Tube Company priced at 2.75 trillion rials and a stake in Parian Sepehr Refinery worth 130 billion. This is the second time the organization is auctioning Qaemshahr Textiles Company, as it failed to find a buyer for the company during the last auction in summer.