Exclusive: Iran Gov't Divesting Reinsurance Stake

In what would mark a big stride toward the development of Iran's insurance industry and the promotion of its privatization initiative, the government is to relinquish its remaining stake in Amin Reinsurance, a major company domiciled in the Free Trade Zone of Kish Island.

The sale is expected to fast track the development process for the Iranian insurance industry–still far from attaining a global status–especially if a foreign bidder succeeds in making the lucrative investment.

"There are only a handful of reinsurance companies in the country and since the industry is still underserved, this presents a niche for both domestic and foreign investors," said Farid Dehdilani, the international advisor to Iranian Privatization Organization, the main body in charge of divesting state assets belonging to the Economy Ministry.

According to Dehdilani, the government's remaining shares in Amin Re is about 11%, which will be divested via a share flotation on Iran Fara Bourse–the country's over-the-counter market. The date for the divestiture has been set for the end of October.

"We have received significant interest so far about the event because first and foremost you don't need a lot of money to make the purchase and secondly, the company for sale is already a public firm, which means there is transparency," he said.

The IPO official also said a third reason to be enthusiastic about the offer is the uniqueness of Iran's insurance market in general and reinsurance in particular, which makes it a very attractive place for investment due to its high potential.

Despite its low penetration rate, the Iranian insurance industry has great potential for development. The value of Iranian insurance market hit $8.298 billion in 2016. It is now only 0.18% of the global insurance market, placing Iran 42nd in terms of insurance, according to Sigma, a research firm.

Dehdilani added that the buyer of the stake would in effect take the government's share in the company and secure a place on the board as well as voting rights.

"As for the flotation, there would be no restrictions for acquirers and the highest bidder would simply get the deal in the most transparent manner," he said, adding that although some foreign and domestic suitors have already approached the IPO about the deal, the bidding process would take place through open competition.

Striking a positive note on the interest of foreigners in the deal, Sara Haqiqivand, a senior insurance expert and a member of the Committee of High Council of Insurance, said foreign firms would be normally more receptive of the upcoming deal.

"This is because Amin Re is a privately-run entity and requires less due-diligence work by the buyer," she told Financial Tribune.

"The deal is a propitious event for the Iranian insurance industry, since it fosters competition and openness in the industry."

Bigger Divestitures on the Way

The reinsurance divestiture would be the first major act of privatization after the reelection of President Hassan Rouhani in May and since it falls under the financial sector–an area targeted most by sanctions–it could be the harbinger of more deals to come.  

Dehdilani announced that there are more and bigger divestitures on the way, including one for a huge sugarcane holding, which will constitute the largest privatization in store as it supplies 55% of Iranian sugar and holds great potential for exports.

"In recent years, the new strategy of the government has been to make privatization a new priority since we know that privatization in the past years has not been able to meet its projected goals," Dehdilani said, referring to a series of botched divestitures during the former administration where giant state companies ended up in the hands of quasi-state players rather than the real private sector players.

He added that flexibility in pricing and terms of contracts, and a stronger mandate given to IPO to resist opposition from entities inimical to its stance are among recent reforms.

Dehdilani pointed to the optimism surrounding the nuclear deal's future in the wake of the recent joint venture with French oil major Total and Korea's $8 billion finance deal for Iranian projects.

Over the last year, the IPO has engaged internationally to promote divestiture opportunities in Iran and sent three delegations to Asian and European countries for that purpose.

"The interest shown by foreigners is beyond our expectations, but things cannot change overnight as domestic reforms are also needed," he said.