Unique Divestiture Opportunities on Offer in Iran

With roughly $10 billion of assets ready to be divested, Iranian Privatization Organization presents valuable opportunities to both domestic and foreign investors that are unique in many aspects, said an IPO board member in an interview.

"Although we have already transferred most of the state shares to the private sector–at around $50 billion–some of our best assets remain to be divested and that is up for grabs for both Iranian and foreign investors," Hassan Mohammad-Tabar, IPO's deputy for divestitures, told Financial Tribune.

According to Mohammad-Tabar, among the assets to be privatized are Damavand Petrochemical Company, which is twice the biggest utility company in Asalouyeh, Jajram aluminum powder manufacturing plant, which is the biggest in the Middle East, Luleh Gostar of Esfarayen company–the only manufacturer of seamless steel pipes and the National Iranian Drilling Company, which has a 95% share in the domestic market.  

"It is not that the best companies have been already divested, as the privatization process takes place in no particular order," he said, adding that only recently the body has received the mandate to privatize agro-industrial businesses and power plant companies.

Mohammad-Tabar, who has been part of Iran's privatization initiative since its early days, urges investors to utilize the lucrative niches that have only become available thanks to a privatization mandate that took new momentum in 2005. It was then that the parliament voted to amend Article 44 of Iran's Constitution, clearing the way for the divestment of large-scale sectors such as banking and telecommunications.

Before that, although the need for making the government smaller through privatization had been felt, basic laws still required that heavy industries stay in the hands of the state.  

The IPO has since then transferred the shares of state-owned giants such as Telecommunications Company of Iran and its affiliate Mobile Telecommunications Company of Iran, Persian Gulf Petrochemical Industries Company and Esfahan Steel Company.  The value of assets so far divested amount to $50 billion.

"This is one of the most convenient ways of investment since it spares you the hassle of going through the difficult red tape involved in starting a new business," he said. "Not to mention the fact that the government has made investment only in areas where there is considerable demand."

According to Mohammad-Tabar, the Iranian Parliament has further passed legislation to take privatization one step further by transferring the shares still owned by the public sector—companies not owned by the government but still not purely private like the pension funds–to the private sector.  

Incentives

Asked about incentives for foreign investment in IPO, Mohammad-Tabar is quick to point many features that make Iran and as a result, the IPO, an attractive destination for foreign capital.

With 75% of the country's population being young and educated, which comprise an inexpensive workforce, combined with huge natural resources and raw material, the official believes Iran offers an investment bonanza.

"Iran possesses 8% of oil reserves and 15% of gas reserves of the world, as well as 50 million tons of petrochemical capacity that the country aims to double. There is also the 70,000-megawatt per hour of electricity capacity that is to be expanded 100,000 MW," he said.

The official refers to a consumption market of 80 million in the neighborhood of a 300 million-strong market (in Middle East and Central Asia) with Iran being the most secure export route to these countries.

As for IPO, he notes that while the interest rates in the money markets are in the +20% range, the IPO assets are sold in seven-year installments at 11 %.   

Requirements   

Mohammad-Tabar emphasized that IPO makes no distinction between domestic and foreign investors, and treats them all as the private sector. But when it comes to foreigners, he recommends that they first make a foothold in the country by establishing a legal entity.

"This is because all our procedures take place in Farsi with checks and promissory notes being issued within the Iranian legal framework," he said.

The IPO recently launched a department to focus on foreign investment, since it believes lack of information has led to a lackluster reception from abroad.

Farid Dehdilani, IPO's advisor on international affairs, said their efforts first and foremost center around increasing their visibility and preparing their team to better address the needs of foreign investors since they have different needs compared with domestic ones.

Basically, IPO has the largest and the most diversified private equity platform in Iran with unmatched internal rate of returns for savvy foreign investors," he said.

"The fact is that we have seen renewed interest only in the past six or seven months due to developments in post-sanctions period … So we are ramping up our marketing efforts, seeking advice from different organizations involved in investment marketing and attending conferences held overseas."