iran’s commanding heights: conglomerate ownership in the islamic republic
TRANSCRIPT
Iran’s Commanding Heights: Conglomerate Ownership in the Islamic
Republic
Kevan HarrisUCLA ERF Forum on Private Sector
December 22, 2016
Outline Who owns Iran? Why does it matter?
Growth of the parastatal sector
Analyzing the Tehran Stock Exchange
The Conglomerate Form as Organizational Strategy
Who Owns Iran?
Bonyad Mostazafan Cooperative Foundation of
Islamic Revolutionary Guards Corps
Investment Fund of Leader’s Office
Who Owns Iran?
Social Security OrganizationInvestment Corporation Bank Pasargard
Rural and NomadInsurance Fund
Growth of the Parastatal Sector
1980s-1990s: Nationalization after 1979 revolution Postwar (1990s) conglomeration of
state-owned enterprises (push for public self-sufficiency)
Tepid privatization of public sector Private economic resurgence alongside
existing SOEs as downstream subcontractors
Growth of the Parastatal Sector
2000s: SOEs and semi-public companies extend
investments horizontally into financial speculation and cross-sectoral holdings
Government prioritizes the selling of shares of major SOEs as key economic plan
All political factions emphasized privatization of public sector as key to growth
Growth of the Parastatal Sector
Three types of SOE transfers (2005-2013): Stock market auctions and consignments Justice Shares – “popular” shares of ~60 companies organized
through provincial investment firms Government transfer in lieu of debt
80-90% of $80 billion USD in SOE transfers went to parastatal / semi-public / quasi-governmental sector
Legal category for privatization to parastatals in Iran: public non-governmental sector (نخش عمومی غیر دولتی)
Each has major social/political constituency and political factional support – no single dominant faction in Iranian politics
Growth of the Parastatal Sector
Contractor firms, banks, cooperatives, credit associations, and investment companies connected to five types of para-statal organizations: Military Institutions (IRGC, Basij, Armed Forces) Provincial Investment Companies Welfare and Retirement Funds (e.g., Social Security, Army,
Civil Service, Rural and Nomad) Revolutionary Foundations (e.g., Mostazafan bonyad) Religious Endowments (e.g., Imam Reza Shrine)
Source: Iranian Chamber of Commerce, Industry, and Mining, Study of Participation of Sectors of the Economic System in the Privatization Process in Iran from 1380-1390 (Tehran: Center of Cultural Affairs and Publishing, 2012)
Growth of the Parastatal Sector
Parastatals developed along similar organizational lines, no matter the ownership type
▪ Founded a major bank or linked to state bank
▪ Expanded into high growth sectors: real estate and finance, construction, transportation and services
Analyzing the Tehran Stock Exchange
Tehran Stock Exchange data from 2013/14 300+ companies Institutional investors
listed with 1%+ ownership
Coding for political linkage and concentration
Data limitations: not all listed firms have data, not all large firms are listed
Additional large non-TSE firms added
Top 500 companies in Iran ranked by quintile market share for Persian year 1392 (2013/14)
Two Largest Pharmaceutical Firms
Company % shares Investment Firm Group Linkage Coded42.31 Sobhan Pharmceutical Group Imam's Office Parastatal23.12 Sobhan Darou Pharmaceutical Company Imam's Office Parastatal
6.2 15th Khordad Bonyad Bonyad Parastatal5.7 Saipa Investment Group SAIPA Public3.41 Maskan Investment Group Bank Maskan Public
3.1Rural and Nomad Social Insurance Investment
Group SSO Pension2.28 Alborz Investment Co. Imam's Office Parastatal1.4 Sina Bank Bonyad Parastatal
1.09 Oil Company Retirement Fund Oil Ministry Pension
1.09 Pars Aryan Investment Group unk -
AlborzPharma
Co.
Two Largest Pharmaceutical Firms
Company
% shares Investment Firm Group Linkage Coded
72.05 Social Security Investment Company SSO Pension
6.27 Saba Tamin SSO Pension
4.22 Saba Investment Management Co. SSO Pension
3.79 Refah Bank SSO Pension
2.84 Tejarat MehranPrivate Investment
Co. Private
1.03 IDIC IDRO Public
1.03 Turqouise Partners Limited Private Mutual Fund Private
TaminPharma
Co.
Two Largest Auto Firms
Company % shares Investment Firm Group Linkage Coded
9.87 Tadbir Imam's Office Parastatal9.71 Samand Iran Khodro Public7.93 IDRO IDRO Public7.63 Unknown - -5.6 Gostar Borna ? -4.67 Negar Nasr Basij Parastatal4.36 IDRO IDRO Public3.65 NICI NICI Public3.35 Civil Servants Pension Fund Pension Pension2.99 Kish Sphere Iran Khodro Public2.16 Mellat Bank Semi-public Bank Public2.1 SSIC SSO Pension2.06 Industry and Mine Investment Co. IMIDRO Public1.63 Saba Tamin SSO Pension1.52 IPO proxy IPO Public1.17 IDRO IDRO Public1.08 Mellat Bank Semi-public Bank Public
1 Ternian Iran Khodro Public
Iran KhodroAuto
Two Largest Auto Firms
SAIPA
Company
% shares Investment Firm Group Linkage Coded
12.85 IDRO IDRO Public9.98 SEMICO Pension Pension6.72 Rena Semi-public Cong Public6.57 Radin SAIPA Public5.03 Rena Semi-public Cong Public4.8 IPO proxy IPO Public4.8 IPO proxy IPO Public4.08 IPO proxy IPO Public3.04 Bank of Investment and Mine Public Bank Public2.85 SAIPA Investment Group SAIPA Public2.76 Bank of Investment and Mine Public Bank Public2.68 SSIC SSO Pension2.04 SEMICO Govt Pension Pension1.93 SSIC SSO Pension1.9 NICI NICI Public1.72 Puya Hamgan ? -1.09 Mosktarak Toseh Bazar Iran ? -
Analyzing the Tehran Stock Exchange
Market concentration varies by sector Some sectors have lower barriers to entry for parastatal
and private capital
No single dominant category of ownership over top companies across sectors Most common is still public ownership
Main form of ownership is through conglomerate / holding company “amalgamation of legally-independent companies through
various formal and informal ties” (Colli and Colpan 2015)
Conglomerates in Iran
Ghadir Investment Company -- formerly owned by Export Bank, now majority owned by several pension funds
Conglomerates in Iran
Imam Reza Shrine (Astan Qods Razavi)a parastatal foundation based in Mashhad
Conglomerates in Iran
Social Security Investment Company—a pension-owned conglomerate
Conglomerates in Iran
Bonyad Mostazafan as Diversified Holding Company
The Conglomerate Form Example: Bonyad Mostazafan
150 firms 23 listed on TSE BM subsidiaries in 2014 produced $4.64 billion
USD in revenues (1.1% of GDP) Overall profit of 93 subsidiaries increased from
2006 to 2014 Estimate of profits in 2014: $1.36 billion USD New investments into mining, energy, services,
construction, sea transport Uses “management speak” but is opaque to state
The Conglomerate Form How many parastatal firms?
Estimate of Iranian Securities and Exchange Commission: 20,000 firms (summer 2016)
# of firms that have not disclosed any financial information to government: 19,000 firms
Rouhani govt efforts at enforcement?▪ Taking back shares of Telecom Iran from Etemad
Mobin▪ Rescinding ownership of MAPNA services from
Imam Reza Shrine
The Diversified Business Group
The Conglomerate Form Cases across the
world
Family and state capitalism does not diminish through liberalization
Difficult to explain with theories of lowering transaction costs
