In The Name of God
Ministry of Economic Affaires and Finance
Decree of Divestiture Board
Divestiture Board in its session of 11/3/2009, upon proposal of the Privatization Organization and on the strength of Article "25" of the Law on Amendment of the Law of Fourth Economic, Social and Cultural Development Plan of the Islamic Republic of Iran and General Policies of Principle (44) of the Constitution, approved the directive of the said Article as follows:
Directive on the Mechanism of Receiving Commitments, inclusion of Conditions and granting Discounts to the Purchasers of Controlling Shares of the State Companies
Chapter I: Scope of Application
Article 1- Persons who purchase divestible controlling share of the state companies and take measures referred to in this directive, are authorized to enjoy discounts subject of this directive. Such discounts will be proposed in each case, by Privatization Organization and approved by Divestiture Board.
Note 1- Controlling shares are the least number of shares that enables a holder to determine the majority of the members of board of directors.
Note 2- Purchasers who purchase shares of the state companies from Privatization Organization, and by taking into account the shares they already have, become holders of the controlling shares and have elected majority of the members of companys board of directors from the time of purchasing shares from Privatization Organization until the time of enjoyment of discounts, are also authorized to enjoy discounts, subject of this directive.
Chapter II: Conditions and
Mechanism of Granting Discounts
Article 2- Privatization Organization will have to announce, in each case, in the divestiture advertisement, conditions including: New investment in the company, promoting productivity of the company, constant production and promoting the level of production, development of technology and increasing or maintaining the level of employment in the company. Purchasers who agree with the above-mentioned conditions, at the time of conclusion a contract, and take related measures within at most 5 years from divestiture, can enjoy the discounts referred to in this directive.
Note 1- Any elimination of the conditions mentioned in this Article or addition of more conditions and discounts resulting from them, if necessary and according to the conditions of the company which is subject to divestiture, will be proposed by the Privatization Organization and approved by the Divestiture Board.
Note2- Discounts subject of this directive will be calculated and applied twice at the most, at the request of purchasers, within five years after divestiture (in the case of cash divestiture) and within installment period (in the case of cash and installment divestiture), after two fiscal years of companys operation have passed from divestiture.
Note3- If the date of cash payment of the price of transaction by purchasers of the shares subject of this directive, falls within the first half of companys fiscal year, that year will be regarded as the fiscal years of the purchaser, other wise, the said year will be regarded as companys operation before divestiture.
Article 3- Privatization Organization has to classify in the following manner, at the time of divestiture, the size of divestible companies, on the basis of total base value of the divestible shares of the company or number of the staff. In assessment of the size of the company on the basis of criteria (a) and (b) below, the criteria which set the company in a higher category will be the criteria for the size of the company.
a- Size of the company on the basis of total base value of divestible shares of the company is equal to the base price of each share multiplied by the total number of shares;
b- Size of the company on the basis of staff number
Article 4- The criteria for assessment of new investment, is increase in the non-current assets or registered capitals from the source of share-holders (purchasers) cash capital; and 20% of each amount of increase of this criteria could be granted to the purchasers as discount from the principal price of transaction.
Note – Granting discount to purchasers from the source of this criteria is on the condition that non-current asset and registered added capital, is effective in the improvement and development of production Process of the company and increase in the non-current assets is not sourced from the appreciation of companys capital. Deciding the case is at the discretion of Privatization Organization.
Article 5- The criteria for assessment of improvement of efficiency and productivity is increase of ratio of annual sale and return of capital which is defined here below, and according to the size of the company will be per the following table:
Annual sale ratio = Sale / Number of work force
Return of capital = (Operational profit / Non- current asset)x100
Article 6- Criteria for assessment of improvement of production level is subordinate to the increase of production of the whole firm and according to the size of the company will be per the following table and corresponding discount will be granted if the purchasers haven’t enjoyed the discount related to "annual sale increase"
Note - In companies whose subject of activity is merely providing services, production is regarded equivalent to the sale.
Article 7- Rate of discount in return for increase of staff number mentioned in divestiture document will be according to Directive on Mechanism of Application of Financial or Non-Financial Incentives subject of Article 16 of the above-mentioned law.
Note – In Case of maintaining the same level of employment, discount will be merely applied to the interest of installment sale as per the following table:
Article 8- To determine the index for improvement of level of technology of divested companies, Privatization Organization may, at the request of purchasers, and using consulting services, measure and compare the level of technology of the company at the time of divestiture and at the time of studying the possibility of granting discount. Assessment resulting from this index should consider the factors such as change in the product formulation or change in the process and production methods or process controls. Improvement of index of technology promotion level of divested companies will eventually be determined upon proposal of the Privatization Organization and approval of Divestiture board. Maximum discount granted from this index will be 2/5% of the principal price of transaction.
Article 9- In case purchasers take effective and positive measures mentioned in Article 4 to 8 and upon confirmation of Privatization Organization and in accordance with the provisions of this directive, a discount will be granted to them, equivalent to the total amount of discounts resulting from above-mentioned acquired indices and to the ceiling of 25% of the principal of the price of divested shares.
Note 1- For companies with special conditions any adjustment of coefficient for determining the discount subject of Articles 4 to 8, is permissible. In this case adjustment of coefficients will be proposed by the Privatization Organization and approved by the Divestiture Board.
Note2- Final application of discounts to the account of purchaser(s) is contingent upon payment of at least half of the principal price of the transaction.
Article 10 - In addition to the discount in the principal price of the transaction, discounts subject of this directive will include reduction of interest of installment sale up to the ceiling of 100% of the interest of the installment sale and extension of installment period for four years without taking into account the interest of installment sale. Privatization Organization will have to propose to the purchaser(s), extension of the installment period for 2.5 month or 5 percent discount in the interest of installment sale instead of 1% discount in the principal price of transaction, and in case purchaser(s) apply for this kind of discounts, propose the case to the Divestiture Board.
Note- Privatization Organization is authorized to propose to the Divestiture Board, a discount up to the ceiling of 3% of the principal price of the transaction in addition to other discounts subject of this directive for the purchaser(s) who abide by contract provisions and fulfill their contractual obligations during the contract term.
Article 11- All Rial amounts mentioned in this directive will be adjusted on the basis of the price of the year of divestiture, according to the producers price index announced by the Central Bank of the Islamic Republic of Iran.
Article 12- Indices referred to in Articles 4 to 7 of this directive are measured as follows:
a- Sale, operational profit and non-currant assets will be on the basis of amounts mentioned in audited financial statement of divested state companies at the time of divestiture as well as increase of similar amount in audited financial statement in a specific year or specific years after divestiture in comparison with the three-years trend prior to the divestiture.
b- Total amount of production will be on the basis of the amounts mentioned in explanatory notes attached to the audited financial statement of divested state companies at the time of divestiture, and in case amount of production is not mentioned in the said explanatory notes, it will be on the basis of written reports of the board of directors at the time of divestiture which have been confirmed by the inspector and similar amounts in the same manner in a specific year or specific years after divestiture in comparison with the three-years trend prior to the divestiture. In case the company produces several kinds of goods, amount of growth in the harmonized production index including total production will be calculated on the basis of weight average of growth of produced goods.
C- The criteria for assessment of employment changes in divested companies is constant payment of insurance premium for at least one year for new employees after divestiture until the date of request and submission of valid document for the payment of insurance premium by purchasers, in the circumstances of raising employment.
Chapter III – Miscellaneous Articles
Article 13- In return for enjoyment of discounts subject of this directive, purchaser(s) must undertake to prepare the ground for supervision over their proper fulfillment of obligations as well as presenting necessary documents and evidences and making possible the visit of experts or representatives of the Privatization Organization to the company.
Article 14- Discounts subject of this directive will only be granted to the purchasers of the state companies whose contract for sale of shares has been made after the notification of the above-mentioned law. Granting discount to the purchasers whose contract for sale of shares has been made before the notification of the law, will be in accordance with the directive of Article 9 of the by-law related to paragraph (f) of Article (14) of the Third Development plan, endorsed in Article (9) of the Fourth Development Plan.
Article 15- All resources required for incentives subject of this directive will be funded from the purchasers remaining installments. In case the purchasers remaining installments are not sufficient in installment or cash sale to provide required resources for securing funds for incentive of this directive, the mentioned resources will be funded and paid in coordination with the State Treasury General, from the account of refunding incomes resulting from the sale of companies shares.