Economy, Domestic Economy

Automakers Selling Assets; Debt Payoff or ...?

Automakers Selling Assets; Debt Payoff or ...?
Automakers Selling Assets; Debt Payoff or ...?

Recent reports show that car production in Iran has increased this year in spite of falling demand. The auto industry has long been blessed to have state support, and now some critics say that's partly to blame for the public's lack of interest in domestically manufactured cars. Iran's car market is now in a state of uncertainty, filled with doubtful buyers who are lingering over what to buy and when.

The government does not seem to be pulling its support for domestic automakers in the foreseeable future. At the same time, there are people who believe the government-supplied liquidity that goes to the auto industry is not a bad thing since a developing country like Iran needs its own automakers. The financial aid also keeps the industry able to create auto-part making jobs, they say.      

Back in June, when this year's first reports of growth in car production came out, minister of industry, mine, and trade Mohammadreza Nematzadeh announced the sale of more than 675 million dollars of the non-operating assets of Iranian automakers – meaning Saipa and Iran Khodro.

So, it's not difficult anymore to know how these companies supply themselves with the liquidity whenever they need it – in case of low demand for instance. Three months after that report, Saipa and Iran Khodro are still selling their assets to pay off their debts to auto-parts makers.

The government announced the new scheme last year to finance auto industry through ways other than the Central Bank of Iran. Accordingly, industry owners were urged to release their financial resources in order to protect production lines, Nematzadeh told IRNA last week.

Accordingly, Iran Khodro and Saipa sold large portions of their assets to provide liquidity, he said.

Nematzadeh asserted that the government has worked this plan out to facilitate the supply of liquidity for automakers. Another such measure is to reduce the companies' debt limitation period. However, Nematzadeh has admitted that, overall, the best and most economical way for the automakers to provide liquidity is through sales of their property and fixed rate bonds.

"Iran Khodro has earned 12 trillion rials ($450 million) from selling its non-properties," Mohammad Nikfar, the automaker's deputy CEO for financial affairs said Sunday.

Meanwhile, Nikfar said Iran Khodro is trying to resolve problems left behind by the company's previous management. A major shareholder of Parsian Bank, Iran Khodro had "unlawfully" bought the private bank's stocks in its initial public offerings, Nikfar said. "We have taken some steps to sell the shares of Parsian Bank. However, the process has faced some legal problems and so far, there has been no progress," the official said.

Nikfar said that Iran Khodro allocated its earnings from asset sales to production and the result has been a double increase in its output.

"The increase in our car production rate is the result of proper management of finances," Nikfar said.

Improving Production

Saipa Group, for its part, earned 7 trillion rials ($263 million) from selling its non-operating assets, the company's accounting manager said.

"Saipa has sold some of its assets and has allocated the amount to improve its production lines," Hassan Ahadzadeh stated.

However, Behrouz Nemati, a member of the parliament's industrial committee has criticized what he called automakers' investment in activities other than production.

"Iran Khodro and Saipa have invested more than 80 trillion rials (about $3 billion) in bank stocks and other sectors of economy, and not on production," he said.

"An automaker should make cars instead of becoming a banker", he said.

Nematzadeh's comments mean that, for the time being, the auto industry should not expect much from the government in the face of its current stagnation. Instead, Saipa and Iran Khodro should keep selling their non-operating assets until they manage to do something to end the slowdown in demand and shift the trend in their favor. This looks to be quite a credible scenario considering Nematzadeh's latest remarks.

According to the industry minister, through selling assets in the past few months, automakers have not only grossed nearly $830 million in revenues, but they have also paid off half of their entire debt to auto-parts makers.