EghtesadOnline: As the budget deficit expands, the Economy Ministry has asked the government to divest a part of its stakes in seven companies.
According to a press release published on the Cabinet website cabinetoffice.ir, the ministry acknowledged that “there are major difficulties around ceding government shares” but divesture is essential due to the budgetary constraints.
The government, as per the budget, can generate 950 trillion rials ($3.5 billion) by selling shares in state companies in the present fiscal year that ends in March 2022.
The ministry said the government potentially is capable of selling shares worth 1,700 trillion rials ($6.3b) in the seven companies, but has to remove the hurdles and simplify procedures.
Three of the companies on the divestment list are affiliated to ministries and administrative bodies that seem unwilling to sell assets.
The problem with the remaining four companies is that their shares owned by the government are held as collateral by banks and cannot be sold easily.
The ministry asked the Cabinet to help remove hurdles in coordination with the seven organizations and find ways to redeem the collaterals.
Companies on the present divestment list are the Islamic Republic of Iran Shipping Line Group (IRISL), Persian Gulf Petrochemical Industries Corporation, Telecommunication Company of Iran, Mobarakeh Steel Company, National Iranian Copper Industries Company and the two major automakers Iran Khodro (IKCO) and SAIPA.
The divestiture would be handled by the Iranian Privatization Organization (IPO) in line with Article 44 of the Constitution, which calls for creating space for private firms and reduce the government’s dominant role in the economy.
According to privatization rules, state-owned firms fall into three main groups and the seven companies on the divestment list are categorized as Group Two companies.
The government is barred from ownership, investment and managerial posts in Group One. Likewise, it is obliged to transfer 80% of all firms in Group Two to private, cooperative, public and non-governmental organizations. Ownership, investment and managerial positions in Group Three are the exclusive premise of the government.
The ministry said that when its proposal is approved by the Cabinet, a special committee within IPO will decide on the divestment procedure, pricing and other terms and conditions.
The government’s forecast in the current budget in selling shares is almost eight times the 115 trillion rials ($430 million) in the previous year’s budget.
Drawing on stock market in the first six months of the last fiscal year (March-Sept. 2020), government income from selling assets was far beyond the budget projections.
As per statistics provided earlier by the former economy minister, Farhad Dejpasand, the government sold assets worth 1,240 trillion rials ($4.5b) last year.
Most of the earning was from government stakes in big companies via two exchange-traded funds. The government also embarked on retail sales of shares.
It sold ETF units worth 130 trillion rials ($480m) to four million people in Sept 2020. The ETF held government shares in four major refineries, namely Tehran Oil Refining Company, Esfahan Oil Refining Company, Tabriz Oil Refining Company and Bandar Abbas Oil Refining Company.
Shares divested in government-controlled refineries via the ETF accounted for about 20% of the total and the bulk (80%) of shares remain unsold.
In May 2020 the government sold stakes in three banks and two insurance companies via another ETF. The ETF held 17% of the government stakes in Tejarat Bank, 17% in Bank Mellat, 18.32% in Bank Saderat Iran, 17.34% in Alborz Insurance Company and 11.44% in Amin Reinsurance Company making 58.86 trillion rials ($218m).
However this time around and given the bearish trend in the stock market, it is a tall order for the government to realize the revenue projected in the budget by selling shares.