Iran embarks on biggest IPO as economy struggles
Sale of shares in state-run holding company generates income for government
Iran embarked on its biggest-ever initial public offering on Wednesday, selling 10 per cent of the shares of Shasta, its wealthiest state-run holding company, to generate income for the government as it struggles with the economic consequences of coronavirus and US sanctions.
The shares in Shasta — the investment arm of Iran’s Social Security Organisation which is country’s leading pension fund — were largely bought by retail investors generating about IR70tn ($440m based on the open market rate).
The multibillion-dollar holding company’s interests span petrochemicals and cement to finance and shipping.
President Hassan Rouhani hailed the IPO as the biggest in “the history of Iran’s bourse” and said it benefited “around 2m shareholders on the stock market”.
At a cabinet meeting on Wednesday Mr Rouhani said he urged other ministries and armed forces to sell the shares of their major holding companies, too.
Since Donald Trump pulled the US out of the nuclear accord in 2018 and imposed tougher sanctions, many Iranians have turned to the Tehran Stock Exchange to protect their money against inflation of 34.8 per cent and a more than 60 per cent devaluation of the national currency.
The surge in investment has made Iran’s capital market into one of the best-performing in the world with the main index, Tedpix, growing 220 per cent over the past year.
The coronavirus pandemic, which has hit Iran hard, has worsened its economic prospects and sparked anxiety as the value of savings falls. The authorities have encouraged people to invest in capital markets and have vowed to accelerate the privatisation of state-run companies.
“Offering the shares of Shasta to the public can certainly lessen the budget pressure on the government and helps the Social Security Organization to keep paying the retired, pay for unemployment insurance to an increasing number of jobless people and insure coronavirus patients,” said the director of an investment company. “The bourse is doing very well because other alternative sectors such as housing, gold and foreign currency markets are not attractive.”
Iran has vowed not to bow to US pressure despite a huge drop in petrodollars — the country’s lifeline. But Covid-19 is expected to deepen the recession and lead to a fall in tax revenue.
Mr Rouhani has opposed any draconian quarantine policies, arguing that a weakened economy cannot afford to pay people to stay at home. Instead, he has ordered the country to largely return to its normal life as of next week.
Iran has called on the US to lift sanctions and appealed for international help including a $5bn loan from the IMF to tackle the coronavirus fallout.
Jihad Azour, director of the IMF’s Middle East and Central Asia department, said: “Since we have had limited engagement with Iran in recent times, the process of obtaining the information we require to assess the request is taking time.”
Asked about reports in Iranian media that the US was against the IMF supporting Iran, Mr Azour said “every member of the fund has the same right of access, financing and resources subject to the funding and an approval by the executive board”.
The IMF forecasts that Iran’s economy shrank 7.6 per cent last year, not as severe a contraction as it previously predicted. But the fund believes it will contract a further 6 per cent this year after previously expecting output to be flat in 2020 because of the impact of Covid-19 and the collapse in oil prices.
But Iran’s central bank governor said on Tuesday that the IMF estimates were “irrelevant” and “not based on precise information”. Abdolnaser Hemmati said the economy contracted in the first half of the last Iranian year, which ended on March 19, but started growing in the second half before the virus outbreak. “Our worst estimate suggests a contraction of 1.5 per cent [this year].”
The Islamic republic hopes privatisation of more state-run companies in the coming months will help it narrow its budget deficit.
“I apologise to people . . . If our hands were more open, we would have assisted more . . . We have many resources but we cannot access them because of sanctions,” Mr Hemmati said. “But we get financial resources from anywhere we can.”