Esfahan Steel Company, Iran’s third-largest maker of the metal, is seeking buyers amid plans to boost production. However, an attempt by its majority stakeholders to sell the company failed this week.
“Companies in South Korea and Luxembourg are interested in taking a stake,” says Masoud Gholampour, research and marketing manager at Novin Investment Bank.
Novin is advising the government on the sale. Majority stakeholders Social Security Investment Company (known by its Persian acronym SHASTA) and the Steel Pensioners’ Fund for retired Iranian steel workers want to sell a 73% stake, Bloomberg reported.
According to Mojtaba Fereydouni, an investment manager at the company, ESCO aims to boost production to 3.2 million tons by the end of the current Iranian year (March 20, 2017) from 2.4 million tons a year earlier.
“Output had declined 4% a year earlier as economic growth slowed because of low oil prices,” he said.
Iran is the biggest steel producer in the Middle East after Turkey, according to World Steel Association.
Output rose to 1.5 million tons in April from 1.3 million tons at the end of last year before western sanctions against Iran over its nuclear program were lifted in January.
The Iranian Privatization Organization is overseeing the sale of a 56% stake in ESCO that the SHASTA–the investment arm of Iran’s main social security provider–took over in 2013.
According to Gholampour, SHASTA was unable to pay for the stake in full.
The SPF owns the 17% that is being put up for sale.
As a first step, the entire 73% stake was offered through a block sale on the over-the-counter Iran Fara Bourse on Sunday, yet it did not attract any takers, according to Gholampour and Jafar Sobhani, an adviser to the head of IPO.
Consequently, the company’s shares fell 5% in over-the-counter trading on Sunday.
Over 5.7 billion of ESCO’s shares were put up for sale for 4,116 rials per share on Sunday.
A block sale might be offered again “in the near future”, Sobhani said.
A Tough Sell
The sale did not generate much excitement among investors, as “ESCO has been making losses and potential buyers cannot count on getting any dividends”, Ali Khosroshahi, the head of Omid Investment Bank’s market making operations, told Financial Tribune on phone.
The company posted a 21% loss in its shares’ value over the past fiscal year (March 2015-16).
Other disadvantages include the company’s high production costs, outdated machinery, lack of transparency regarding capital increase through property reevaluation and the steel market’s overall unfavorable condition.
Investors’ reluctance is explicable in the context of Iranian firms’ resistance to restructuring and the bureaucratic complexity of trimming losses.
Privatizing ESCO has proved to be a burdensome task ever since the idea was first floated in 2008. The last serious bid for its purchase, going up to 4,894 rials per share for a 53% stake was made back in 2012 by Mahan Steel Company and a consortium made up of Behin Pouya Brokerage and Bank Shahr.
The owners, however, called it off, citing “changes in block sale regulations”.
ESCO was Iran’s first steel company and is currently the country’s largest producer of structural steel and rails, exporting to over 23 Asian, African and European countries.
It was established in 1965 with the cooperation of Iran and the Soviet Union’s Tyazhpromexport Company in Isfahan Province. The company’s steel production facilities became operational in 1972 and structural steel and sheet production started with an annual capacity of 550,000 tons.
Bahador Ahramian, a member of Tehran Chamber of Commerce, Industries, Mining and Trade, has slammed IPO’s decision to sell off ESCO before resolving its debts and losses, deeming it to be illegal.
“Esfahan Steel must declare bankruptcy if it cannot increase its capital,” he said, pointing to the company’s $1.7 billion debt.
Ahramian believes mismanagement, government-enforced pricing and unsound investment decisions have brought ESCO to the brink of bankruptcy.
