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In the name of God

 

Ministry of Economic Affairs and Finance

Decree of Supreme Council for Implementation of the General policies of Principle (44) of the Constitution

 

Supreme Council for Implementation of General Policies of Principle (44)of the Constitution in its session of 15/2/2009, upon proposal of the Divestiture     Board and on the strength of the provisions of part (3) and Note (1)of paragraph(a) of Article (40) of the Law on Amendment of the Law of  Fourth Economic, Social and Cultural Development Plan of the Islamic Republic of Iran and Implementation of General Policies of Principle (44) of the Constitution, approved the "Executive By-law of Methods of Setting The Price For Firms and Way of Enforcing the Said Methods within the same framework "as follows:                                                                        

                                                                                                                                                                                       

Executive By-law of Methods of Setting the Price for Firms

 and Way of Enforcing the Said Methods

Within the Same Framework

 

 

Article 1-Terms in this by-law are defined as:

 

1- Divestible Shares: shares subject to divestiture which belong to the government or divestible state-owned companies.

 

2- Shares offered gradually: Shares offered in part and gradually, not in block , through Stock Exchange-market or markets outside of Stock Exchange-market.

 

3- Shares offered in full and in block: shares offered in full or in part  at  least equivalent to five  percent of total shares of  the company , through Stock  Exchange -market or markets outside of Stock Exchange -market.

 

4- Shares offered through tender or negotiations: Shares offered for sale in full or in part and in block shares through tender or negotiation in a market outside of the Stock Exchange -market. 

 

5- Active-Market Shares: Shares offered in Stock Exchange-Market, on the basis of reliable prices, which are constantly and commonly traded.

 

6- Shares offered for price estimation: Primary offer of shares in Stock Exchange -Market or outside of Stock Exchange -Market which will be subject to the Stock Exchange-market regulations.                                                                                                   

7- Base Price: The price determined by the share-pricing expert according to the methods  set  forth  in  this by - law and set  as   the  basis of  the  final  price  of divestiture after approval of the Divestiture Board. The base price for the shares which have an active market  is equivalent to  the price mentioned on the Stock -Exchange Board .  

 

8- Share - pricing expert : Natural or legal person  who takes care of determining the base price of divestible shares.

 

9- Expected Rate of  Return  on Investment : Equivalent  to  the latest rate of on account interest  of  governmental bond  in  the  year of pricing  plus  a  rate for investment  risk  which  is  determined   annually  by  the  Stock - Exchange Organization according to the type of the industry.

 

Article 2 - Divestiture  shares  which  have  an  active  market  will  be  priced according  to  the method  mentioned in  paragraph (a) of this Article and other divestible shares , depending  on  the  case , will  be  priced  according  to  other methods mentioned in this by-law.

 

a) - Market Method (using the prices of Stock-Exchange Market) :

The base price and price of divestiture for shares which are offered in parts and have an active market , is the price mentioned on the Stock - Exchange board at the time of transaction of shares.

The minimum base  price for the  shares which have  an active  market  and  are offered in blocks through  Stock – Exchange Market, is the price mentioned on the Stock-Exchange board at the time of transaction of shares. Board of Divestiture may add to the base price and determine a new  base  price on the  strength of  the  report  of  Privatization Organization.

 

b)Profitability Method:                                 

In this method , share price is determined by dividing weighted mean of the modified  profit  of  the  last  three  years  prior  to  the  year  of  pricing  before deduction of the tax (on the basis of audited financial statements of the company taking into account profit adjustment factors which are described here below)by the  expected rate  of return on investment  and  then such price will be adjusted according to the profit  adjustment factors mentioned in paragraph(2).

 

Note 1 - To determine average  relatives  of the profit , it is  necessary to apply a coefficient  to  adjusted profit  before deduction of  the related tax , respectively coefficient (3) for the first year before pricing, coefficient (2) for the second year before pricing and coefficient (1) for the third year before pricing , then total of products shall be divided by (6).

 

Note 2 -This method is only applicable to the companies whose average relatives

of past years profit, before deduction of this tax and after taking into account the

 

 

profit adjustment factors , is at  least equivalent to the five percent of the net present value of their assets [as per paragraph (c)  of this Article] .

 

Note 3 - In  companies  which , according  to  the  accounting  standards , consolidated financial statements shall be  provided , consolidate profit before deduction of the tax, up to the last three years prior to the pricing year will be  the basis of pricing.

 

1- Profit adjustment factors are as follows:

 

1-1- Incomes as well  as exceptional and unexpected expenses according to the accounting standards.

 

1-2-Reserves deficit of the last three years as basis of determination of profit as per paragraphs of the report of the auditor and legal inspector and investigation of expert of pricing shares.

 

1-2-1- If  due  to the  restrictions  and  ambiguity  no  amount  is  mentioned for reserves  deficit in the report  of  the auditor and legal  inspector , share  pricing expert should make a reasonable  estimation of the reserves deficit and include it in its calculations . Adjustment events occurred after the date of balance sheet and after the date of report of auditor and legal inspector and before the date of pricing report shall be taken into account in the adjustment of the related annual profit.

 

1-3- Incomes and non-operational expenses which do not fall within normal and regular activities of the company such as profit and loss arising out of the sale of fixed assets.

 

1-4- Other adjustment features according to the report of the auditor and legal inspector.

 

1-5- Profit of the intended years before the pricing year ( after application of the above adjustments ) should  be adjusted according  to  the changes of  wholesale prices index , before they  are  included  in determination of  average relatives of the intended profit.

 

1-6- Governmental or non – governmental  advantages and restrictions such as dependencies and special  trade relations , customs  duties , special  policies  for pricing  goods and services ( imported and exported) , received  subsidies , non-utilization  and  non - exploitation of  production  factors , enjoyment of special banking   facilities  ( normative ) ,  access  to  secure or exclusive  market  and application  of  special  governmental  laws  and  regulations  which  affect the companys profit but will not be extended or will change when they are divested will be evaluated by the share pricing expert  and  will  be  taken into account as adjustment factors for determination of the profit.

If for any reason the effect of such factors cannot be evaluated, share pricing expert shall disclose such cases with necessary explanations in his report.

 

2- When the shares price is determined in accordance with the above procedure, it will be adjusted according to the following factors:

 

1-2- Assets  accrued  from  capital  increase ( cash or kind ) will be added  to the price of shares , except for the capital increase from the  claims  of  persons  and shareholders in the pricing year.

 

2-2- Resources distributed among shareholders in the pricing year or the year before pricing including distributed dividends will be deducted from the share price.

 

2-3- With respect  to  the years for which  final assessment paper of corporation income  tax  is  not issued , related  tax  reserves  deficit  and  possible  penalties provided in the direct tax law will be calculated  and deducted from the price of shares by share pricing expert .

 

2-4- Net recoverable  value  of  tangible  and  intangible fixed  assets which have been unused until three years before the year of divestiture and has not affected the operation and profitability process and also recoverable value of  rare goods will be added to the price of shares.

 

2-5- Value of development and supplementary projects including projects which are semi -prepared or ready for operation and are  not operated until the end of the year  of divestiture  will be calculated , in each case , in one of  the  following ways along with the assumptions and justifications:

1-Replacement value

2- Net recoverable value

3- Net present value of future cash flow resulting from implementation of the project

4- Cost of the project which is determined according to accounting standards.

 

Note 1- Value of development projects which thirty months  have  passed  from the date of their operation (since the end of the year preceding the pricing year) will be added to the share  price provided that the  return of each one on the basis of the rate  of  return as  well as  operation period  in each  year before  the year of divestiture  are  calculated  and  deducted  from  the profit  of  the said  years as adjustment factors.

 

Note 2- Such parts of the capital asset acquisition project whose budget are or will be provided through the public budget resources including semi-prepared projects  or projects  which  are  ready  for  operation  and  all  movable  and immovable properties up to  the  date of  operation  and divestiture will not be regarded as development projects of the intended company.

 

2-6- Present value of investment in other companies will be added to the shares price provided  that it has  not led to  the control or significant  influence on the recipient  company  and  profits  derived  from  such  investments as adjustment factor will  also be deducted from the profit of the company.

 

2-7-Investment in other securities will be added to the shares price. Profits of such investments will be deducted from the company profit.

 

2-8- Remaining cash inventory balance, investment deposits, bonds and other similar financial assets and rights which are derived from capital increase and cash contribution of share holders in the year preceding the pricing year and have influenced the process of profitability of the company and amount of this effect can be clearly evaluated will be added to the price of shares and its effect on profitability will be deducted as adjustment factor from the profit of the said year. In case such assets have had no effect on the profitability of the company during the preceding year, only the amount of it will be added to the price of shares. In case such assets have had a significant influence on the profitability   of the company but this effect cannot be clearly evaluated, adjustment is not required unless the expert deems it necessary to a certain extent.

 

2-9- For the period between the end of last financial year and the date of pricing shares , a profit equivalent  to  the  product  of  multiplication of the on account interest  rate  of governmental  bond by  the  determined  price of  the company shares will be calculated and added to the price of shares after application of all adjustment factors.

 

C- Method of net present value of the company assets

 

Net present value of the company assets is equivalent to value of all assets after deduction  of  all  debts of  the  company  which  is  determined  as  follows : In companies which preparation of consolidated financial statements are required according  to  the  standards , net  present  value of  the  assets  is  determined according to the consolidated balance sheet of the end of the year preceding the pricing year.

 

1- Present value of the fixed asset of the company whose continuation of activities is  under ambiguity will be  determined on  the  basis of the their net recoverable sale - based value by the share-pricing expert using expertise of the qualified persons and preferably official experts of justice administration.

 

2-Present value of the fixed assets of the company whose activities are continued ( whether  profitable  or  unprofitable ) will  be  determined  on  the  basis  of depreciated replacement value by the share-pricing expert using the expertise of qualified persons and preferably official expert of justice administration.

 

3- Present value of the inventory of raw materials will be determined on the basis of the replacement values.  Present value of inventory of goods in the process of production will be determined on the basis of the cost and present value of the produced goods will be determined on the basis of net recoverable value.

 

4- In cases where shares of the investment recipient company are accepted in the Stock – Exchange  Market  and  have  an  active market , present  value  of  the investments  which  are  not  consolidated  will  be  determined  on  the  basis of transacted price in the  Stock-Exchange Market. With respect to the companies which are not presented in the Stock – Exchange Market and are not active, such value will be determined as follows:

 

4-1-If such investment is between twenty percent to fifty percent, depending on the case ( and  has  had  a  significant  influence  on  the  investment  recipient company),value of the investment will be determined according to the methods mentioned in this by-law or on the basis of the net worth.

 

4-2- If such investment is between five percent to twenty percent , depending on the case,( but has not led to the significant influence of the investing company on the recipient company),Value of the investment will be determined in accordance with paragraph( 4-1) , otherwise it will be determined on the basis of information existing in the unofficial market.

 

4-3- If percentage of shares of the investing company in recipient company is less than five percent, value of the investment will be determined on the basis of net book value of the asset of the recipient company.

 

5- Present  value  of  the  assets  and  monetary  debts is equal to their book value according  to  the  latest audited financial statements of the company, If the share pricing  expert  relatively ensures of  the accuracy  of the value of these items , on the basis of documents and evidences obtained , he is not required to re-calculate their present value , otherwise  the  expert will determine the  remaining of every items  on  the  basis  of  his investigations  and  will  add/deduct the differential of book values  and present values to/from the book values , depending  on the case, and with regard to the provisions of the following paragraphs.

 

5-1- Deficit of reserves of bad debts,  reserve for debts resulting from the realized expenses and related offences  will  be determined on the basis of the audit report of  financial  statements and  will be  deducted  from  the above  items or  will  be added  to  it  as  adjustment . In case due to the ambiguity or restriction in investigation, determination of the said amounts by the auditor is not possible, pricing expert will make an estimation of them and will disclose his assumptions.

 

5-2- Reserved amount of end -of- service benefits of the employees of the         companies which there is an ambiguity with respect to continuation of  their activities will be determined on the basis of  the last three months total salary and benefits for each year of their service. With respect to the companies whose activities are continued this amount will be determined according to the procedure of the company and related regulations. For extra work forces in the companies whose activities are continued reserves of end-of- service benefits will be determined on the basis of last three months total salary and benefit for each year of their service.

 

6- Price of the shares shall be determined in a date no longer than six months from the end of the last financial year of the company , otherwise pricing expert  shall determine , in accordance with the above paragraphs, the present value of the items  mentioned  in  the balance  sheet  on  the  basis of overviewed , Semi - annual financial statements and reflect it in the assessment report.

 

Note -1- Any significant event  occurred between the end of the last financial year and the date of pricing shares which has had a significant influence on the assets  and debts of  the  company  shall  be considered  by  the  expert  and  all unilateral transfers (unilateral events) such as distribution of cash dividend out of  components of share - holder equity  as  well  as grants received or accorded during  such  period  will be  added to or deducted  from  the  price  of  shares , depending on the case.

 

Note -2 - In case semi - annual  financial statements  are not  prepared ; in the profitable companies the profit of the period between  the end of the last fiscal year and the date of pricing shares will be determined by the pricing expert by application of  the on account interest rate  of the bonds to the  net value of the assets, and in the unprofitable companies average of the profit or loss of the last three years before the pricing year will be determined by the share pricing expert and necessary adjustment will be made.

 

D-Determination of the price of minor shares:

In special circumstances and in case due to the minority of the amount or value of shares application of the procedures described in sections (a) to (c) above are not economically feasible, the base price of the shares will be determined on the basis of the nominal value or net book value of the assets (net worth) or any other appropriate procedures upon proposal the privatization organization and approval of the Divestiture Board.

 

E- Special Considerations:

1- Share pricing expert shall , relying  on  his  expertise and skill , consider in pricing the  shares  the factors such as type of  production , technology used , management, efficient work force, domestic & foreign market of productions, companys  position in comparison with  trade competitors  whether domestic

or foreign, market shares of the companys products.

 

2-If share-pricing expert achieve quite different results by applying the methods contained in sections (b) and (c) above or determination of the share price on the basis of profitability method is not possible , he should use his professional judgment and apply financial analysis  tools such as financial ratios and trends to analyze the obtained prices and finally determine and introduce a single base price for the company shares which shall be based on documented reasons and analyses and represent the fair value of the company.

 

Article 3- Base Price Adjustment:

a- Base price of the shares which are offered through tender is the expert price approved by the Divestiture Board. In case there is no purchaser for the shares at the base price , Divestiture Board , relying on the feasibility report of the Privatization Organization and considerations contained in the report of shares pricing expert, will determine and announce lower prices for the next tenders.

 

b- Base price for the shares which are offered for the first time through Stock-Exchange Market is the expert price determined in accordance with the procedure set forth in section (b) of Article (2) of this by-law .For the shares which are accepted in  Stock- Exchange Market  but doesn’t have an active market, expert price will be on the basis of the price approved by the Divestiture Board, but to discover the price, related shares are required to be traded for appropriate period, in sufficient numbers, by various agents. If discovered price is less than the base price, the discovered price will be valid for divestiture. Offering such shares in blocks in Stock Exchange Market before discovering the price is forbidden and after discovery, provisions of paragraph (2) of section (a) of Article (2) will be applied.

 

C- Base price of the shares sold through negotiation is the price approved by Divestiture Board, but Divestiture Board, relying on the feasibility report of Privatization Organization and on the basis of considerations contained in share pricing expert report , will determine the permitted range of deduction or increase of the share price.

 

Article 4:

4-1- Base price of the shares which are offered in blocks are valid until meeting of the general assembly of shareholders for the approval of new financial  statements or change in the company capital is held, unless Divestiture Board specify a shorter term for its validity.

 

4-2- Features, terms and conditions of appointing share-pricing experts will be approved by the Divestiture Board upon proposal of Managing Director of Privatization Organization in accordance with related regulations.

 

4-3- Guidelines and performance framework and method of reporting on the pricing of divestiture shares will be prepared by the Ministry of Economic Affairs and Finance according to provisions of this by-law.

 

4-4- Member of board of directors and managing director of the companies whose shares are divestible and government or governmental companies have control or significant influence on them are obliged to provide the share-pricing expert with the required information and thus minimize the ambiguities of the share pricing. Members of the board of directors and managing director of such companies are individually or jointly, depending on the case, liable for any deficiency in the share value resulting from their failure to comply with this paragraph.

 

Article 5- Payment of the price by the purchaser will be as per the following arrangements:

 

a- If sold shares have an active market, payment of the price will be according to the principles practiced in Stock-Exchange Market.

 

b- If shares are offered and sold in a manners different with that of Stock-Exchange Market, payment of the price shall be made in accordance with the by-law of transactions of  the Privatization Organization and observing provisions of this by-law.

 

Article 6- Pricing and procedure of its application to the ownership right of saleable  assets  of  divestible  firms , properties  and  good will , stock  and subscription  privilege  derived  from  divestible  shares  or  stocks  of  the governmental firms or those affiliated to the government, in all cases where divestiture of  firms is not in the form of public or private joint stock companies will be in accordance with the provisions of this by - law , regardless of the procedure of divestiture.

 

Note- Amount of rental and management fee in divestiture by means of rental and management contract related to the exploitation and management right of the firms will be within the framework of guidelines which will be proposed by Privatization Organization and approved by the Divestiture Board.

 

Article 7- Ministry of Economic Affairs and Finance shall supervise the implementation of this by-law.        

 

Seyed Shamseddin Hosseini

                                                                                    Minister of Economic Affairs and Finance