Gov’t IPO Turns Sour

The government cannot get rid of its poorly managed companies fast enough. The latest offering of government companies to the public left 95% of the offered shares without buyers.

The Iranian Privatization Organization managed to sell only 740 billion rials ($20.6 million at market exchange rate) of its planned 15 trillion rials ($418.5 million) offering. It was to be the largest initial public offering of the year, but most of the shares remained unsold because of the bearish market and the poor quality of businesses.

“The offerings are to be the largest sale of government owned companies in the 1395 fiscal year (started March 20),” Seyyed Jafar Sobhani, a consultant to the organization’s chief executive, told state-owned IRNA a week ago.

The IPO has sold 5.73 trillion rials ($159.7 million) of assets on the Tehran Stock Exhcnage and Iran Fara Bourse, so far this year.

Apart from the Oct. 3 sale, 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.

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

 Low Expectations

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.

With the recent offering turning sour, IPO has to rethink its selling pitch or scrap the remaining companies. Even the companies that found buyers on Oct. 3 had been offered without success before.

“We must accept that companies left over from the early years of privatization are not in high demand,” said Sobhani.

 Pricing Dilemma

The organization faces a dilemma in pricing its assets. As IPO officials claim, if the companies are offered at their “real value”—what the government thinks they are worth—then some companies may be left without buyers, as it seems is the case with the current offering. On the other hand, if the companies are offered at lower prices, the organization can bet on facing allegations of corruption and rent for selling them at a low price.

The organization has faced much criticism for its actions during the Ahmadinejad years, where large stakes in Iran’s major corporations were sold to quasi-state organizations or forced on pension funds in lieu of debt.

Those moves effectively handed the control of Iran’s heavy industries to the quasi-state sector, while management changes and competition became even remoter concepts.