Note 2 of 2020 Budget Law allows the government to list the remaining shares of the government in the corporations through common methods or via the Exchange-Traded Fund (ETF). Such funds would be established by a relevant ministry and no other organ than a relevant specialized organ would be authorized to set up ETF. The authorization for setting up ETF could not be transferred from one organ to another. Therefore, based on this legal capacity, the Iranian Ministry of Economy and Finance has been authorized to privatize the Isfahan, Tehran, Bandar Abbas and Tabriz oil refineries within the framework of three ETFs. Bijan Zangeneh, minister of petroleum, had earlier said he agreed with selling refinery stocks on the stock market, saying the ministry would cooperate wherever needed.

Disposal of Refinery Shares

The amount of shares to be disposed at the four refineries plus the Lavan refinery to ETF would be determined after subscription by the relevant funds and collecting required sums from potential buyers.

The price of each disposal of share has to be announced in the subscription announcement for natural persons. It is determined based on the average final price of the shares of a refining company in the exchange market. A 20% discount is also applied.

Pursuant to a decision made by the Supreme Economic Coordination Council, natural persons willing to purchase shares of ordinary investment units will benefit from a 20% discount either directly or indirectly. That would include 15% direct discount in the price during subscription and 5% indirect discount when ETF purchases from the government. The Stock Exchange has also adopted a decision based on which up to 200 IRR 20 million worth of shares could be purchased by natural persons. That includes a 15% discount.

National Iranian Oil Refining and Distribution Company (NIORDC) is in charge of listing the refinery shares.

An advantage of ETF is that there is not restriction for subscription. That explains why the process of subscribing shares of refineries was warmly welcomed.

Attractive Shares

Parallel markets to the Tehran Stock Exchange may not attract investors as TSE has become the sole and high-yielding choice for absorbing liquidity. One major reason for people welcoming refinery share disposal was the significant growth of these shares. Even when oil prices had fallen into negative territory, this growth was continuing. On average, refineries have experienced 500% share in their stocks since the beginning of the current calendar year.

On behalf of the government, NIORDC owns part of refinery shares. NIORDC holds 13.75% of the Isfahan refinery (equivalent to 7 billion shares), 15.85% of the Tehran refinery (7 billion shares), 16.66% of the Bandar Abbas refinery (5 billion shares) and 16.14% of the Tabriz refinery (2 billion shares).

In terms of value, the shares of Tehran and Isfahan refineries are more valuable. That is why natural persons are more interested in the shares of these two companies than any other company.

A review of the market value and the government’s share of the market value of these companies shows that disposal of shares of these refineries would earn the government more than IRR 980,000 billion (20% discount excluded).

Therefore, the fall in global prices on the one hand, and disruption in the global stock market transactions on the other, slowed down the injection of liquidity and undermined the investors and shareholders’ interest in the shares of refineries and petrochemical markets listed on the stock market.

Some stock exchange experts believe that the flow of liquidity is a key factor in the capital market with the wave of liquidity currently going towards shares except for refining and petrochemical industries.

To dispose of its bank and refinery shares, the government had only two options; it had either to dispose of shares collectively or to sell shares via ETF.

In April, the government agreed with a proposal forwarded by the Ministry of Economy and Finance for the establishment of the first ETF mainly from the government shares of several banks and insurance agencies. A second ETF was agreed to be established from the government shares of the four oil refineries: Tehran, Tabriz, Bandar Abbas and Isfahan. The first one was handled by the Ministry of Economy and the second one is run by the Petroleum Ministry. The government eyes a third ETF. To that effect, the Ministry of Industry, Mine and Trade is to set up this fund via the government shares in Iran Khodro, Saipa, National Copper and National Steel companies.

As soon as the second ETF took shape to sell shares, refineries were promoted at the stock market and attracted the highest equity.

Thanks to a 20% reduction in the average monthly price of refinery shares, most analysts predicted the shares of these companies to increase in price in coming weeks so that the government would make more earnings. Legal entities were selling the shares of refining companies and natural persons showed high willingness for purchasing these shares.

Due to the market growth for these companies, the government is earning IRR 1,000 billion. However, this figure is subject to change due to possible changes in the price of shares in coming days.

Oil, Condensate Refining Capacity Growing

Due to existing restrictions on crude oil selling, Iran is planning to increase its crude oil and gas condensate refining capacity to 2.4 mb/d by the end of the current calendar year from the current 2.15 mb/d. About 850,000 b/d of crude oil and gas condensate, barred by US sanctions from being supplied on the oil markets, is refined in the country to be converted to products of higher value-added. These policies are being pursued in line with feedstock receipt for maximum supply of crude oil and gas condensate onto refineries. That would increase the gas condensate supply to the refineries from 450,000 b/d to 500,000 b/d and crude oil supply from 1.7 mb/d to 1.9 mb/d.

These policies are said to be one of tactics the Iranian Petroleum Ministry is exercising due to international sanctions for the purpose of debottlenecking in the refining sector.

Last calendar year, in addition to Phase 4 of the Bandar Abbas Gas Condensate Refinery, commonly known as the Persian Gulf Star refinery, added 120,000 b/d to the condensate refining capacity of the country. Furthermore, 300,000 to 350,000 b/d was added to the crude oil processing capacity of the Abadan, Isfahan, Tehran, Arak, Shiraz and Bandar Abbas oil refineries.

Courtesy of Iran Petroleum