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Iran Offers Shares of Loss-Making Banks At Stock Market To Raise Money

Stock market employees work at Tehran's Stock Exchange. FILE PHOTO
Stock market employees work at Tehran's Stock Exchange. FILE PHOTO

The Iranian government is planning to offer its shares in three major Iranian banks and two insurance companies for sale at the Tehran Stock Market.

This is part of the President Hassan Rouhani administration's attempt to make up for the budget deficit caused by a catalogue of problems. These include U.S. sanctions on Iran's oil exports and international banking, the sharp drop in the price of oil in the world market, a reduction in demand for oil and the economic strains resulting from the COVID-19 outbreak.

According to the manager of the stock market's supervisory board, the shares will be offered to the public with a 20 percent discount via investment funds.

The banks whose shares are going to be listed are Mellat, Tejarat and Saderat and the two insurance companies are Alborz and Amin. It appears that the government is optimistic people will actively welcome the listing of these shares and will buy them within a short time.

However, based on official figures released last September, nine Iranian banks made an accrued loss of 560 trillion rials ($3.6 billion) which is more than the value of all the cash currently at people's pockets, the official news agency IRNA reported.

One of these three banks, Bank Tejarat has an accrued loss of 110 trillion rials ($710 million) and is the country's second largest loss-making bank. The government owns 17 percent of the shares of this bank directly as well as another 40% indirectly. Considering that government-owned companies also hold shares in this bank, the government in fact owns over 70% of Bank Tejarat.

The government also owns 58% of Bank Saderat which has an accrued loss of 85 trillion rials. According to an IRNA report, the banks incurs more losses every year as it is unable to pay the interest they promised to pay on deposits.

As a result, the Iranian government has decided to sell the shares of loss-making state-owned companies and banks to the public to raise money.

In order to encourage the people to buy these shares, last week the government suddenly brought down the interest rates on banking deposits.

The Iranian government is also planning to sell some of its companies and other assets including oil refineries, car manufacturers, and metal industries with a 20 to 30 percent discount.

The resulting resources are estimated to be roughly 500,000 trillion rials ($33 billion), or equal to 10 percent of the country's annual budget.

During the past years, experts always criticized the privatization process in Iran as most of the time the shares the government sold were simply transferred to companies owned by the office of Iran's Supreme leader or by the Islamic Revolution Guards Corps (IRGC).

The private sector has always been left with very little opportunity to buy the shares sold by the government.

Despite the controversial privatization process, the government's plans, objectives and targets in selling its assets have never been effectively met.

In February, the Majles Research Center reported that the funds resulting from the sale of the government assets have always been less than what the government had projected.

For instance, in the Iranian year beginning March 2018, the government had planned to sell 25,500 billion rials worth of assets, but in practice it earned only 3,770 billion rials.

Meanwhile, in the first seven months of the following year, starting March 2019, the government managed to sell only 1,870 billion rials of the 44,500 billion worth of assets it had offered to the market.

This year, the Iranian government plans to sell 494,000 billion rials of its asset which is ten times bigger than the target set for the previous year.