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Iran sells off 85% of carmaker

By Guy Dinmore in Tehran
Financial Times
6 March 2000

Iran's main state-holding company sold 85 per cent of Pars Khodro, the country's third largest car manufacturer, on Monday in an $82m deal that will consolidate the auto industry and could strengthen the position of France's Peugeot-Citroen group.

Officials said Saipa, Iran's second largest vehicle-maker, and the state Social Security Investment Company emerged as the successful joint bidder for Pars Khodro after a two-day auction on the Tehran Stock Exchange. Their bid of IR7,944 a share - more than 50 per cent above the starting price - valued the 85 per cent stake in Pars Khodro at IR675.2bn ($82.3m at the open market rate).

The auction was billed by the government as Iran's biggest privatisation conducted through the stock exchange since the 1979 Islamic revolution. But officials admitted privately that Pars Khodro would effectively remain under state control. The government is the largest shareholder in Saipa with a 48 per cent holding and appoints its managing director. Government funds are also main shareholders in Saipa.

"Legally speaking Pars Khodro was privatised but practically speaking the government remains in control," one industry executive commented. "The government has to keep control for social and economic reasons." Iran's undeveloped but highly protected car market has attracted strong interest from foreign manufacturers with France's PSA group of Peugeot and Citroen leading the way.

Iran produces about 250,000 cars a year, about half of estimated demand. Iran Khodro, the largest domestic vehicle-maker, assembles the Peugeot 405 under licence and will produce the 206 next year.

Saipa has an agreement with Citroen to assemble the Xantia and another, as yet unnamed, model. Saipa already produces the Pride, a compact car under licence from South Korea's Kia. Saipa is also negotiating with Iveco, Volvo and Renault to assemble trucks.

But car experts agree that Iran needs a cheaper and more basic model. To this end Italy's Fiat had been negotiating with Pars Khodro to assemble the Palio, while Volkswagen of Germany was in talks to produce the Skoda in a three-way arrangement with its plants in Bosnia and the Czech Republic.

Fiat had been negotiating to buy a 25 per cent stake in Pars Khodro. One government official said Fiat took part in the auction through an Iranian partner but was outbid by Saipa. Other officials denied this, saying Fiat intended to enter talks with Saipa on producing the Palio at the Pars Khodro plant outside Tehran. Negotiations with Volkswagen would also continue, they said.


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