Vital Formula for Saipa's Divestiture: Overcoming the Crises of Hepco and Azarab

The bitter experience of the divestiture of Hepco and Haft Tappeh warns that selling Saipa without verifying the buyer's competence will lead to crisis. This post, 'Vital Formula for Saipa's Divestiture: Overcoming the Crises of Hepco and Azarab', first appeared on Safir Arjan.

According to Ambassador Arjan, privatization in our country is aimed at reducing government ownership, increasing productivity, strengthening competition and attracting investment. But in practice, we see that the privatizations have created new challenges and crises instead of reform. The experience of the past few decades shows that the transfer of ownership, without verifying the eligibility of the buyer, establishing effective competition, monitoring the obligations after the transaction and modifying the financial and operational structure, not only does not increase efficiency, but can lead to managerial, financial, production and social crises.

The experience of Hepco, Haftepe, Azarab and Tabriz Machinery shows this issue from different angles. Now that the transfer of Saipa shares is on the agenda, the main question is how and with what guarantees the transfer will be done in order to increase productivity and competition, not to transfer monopoly, weaken industrial capacity or create economic and social crisis. We must admit that Saipa is not just a manufacturing company; Rather, it is one of the pillars of the automobile industry and an important link in the network of parts manufacturers, suppliers, sales, after-sales services and industrial employment.

Hepco; Transfer of ownership without guarantee of revival of production

Hepco, one of the important manufacturers of heavy machinery in the country, after the transfer of management shares to the private sector, faced a decrease in production, accumulation of debt, delay in payment of employee salaries and inability to sustainably rebuild activities. This experience is an example of the distance between the goals of privatization and its practical results.

The use of past experiences shows that in the transfer of Saipa, the buyer should not be evaluated only based on the ability to pay the share price. The ability to provide working capital, supply chain management, maintaining production, providing parts, investing and reforming the financial structure should also be a qualification criterion.

In addition, it should be clarified that the buyer, in addition to providing purchasing resources, has a plan for financing production, product development, line renewal and supply chain stability. Delegating without operational and financial guarantees imposes the cost of failure on employees, the supply chain, and public resources.

Haftpeh; The importance of buyer qualification and post-handover supervision

Haftepe was handed over to the private sector in 2014, but it faced management and financial problems, labor protests and disputes related to the buyer's obligations. The way of transfer, pricing and managerial competence of the buyers were also criticized and finally the ownership of the company returned to the government in 1400. The studies of this case have considered the non-competitiveness of sales and the tensions caused by labor adjustment as important issues.

In order not to repeat Haft Tepeh, Saipa should be handed over; Eligibility includes financial, industrial, managerial and executive ability and the ability to fulfill long-term commitments. This assessment should not be limited to pre-trade; The implementation of obligations after handing over should also be measurable and continuously monitored.

Managing Saipa requires simultaneous management of hundreds of suppliers, production, working capital, quality, product development, and customer commitments; Therefore, the ability to buy shares is not necessarily the ability to manage the company. Obligations related to production, investment, employment and technology should be determined according to the nature of the company and accompanied by a clear performance guarantee.

Azarab; The necessity of guaranteeing financial capacity and contractual obligations

Azarab, one of the long-standing equipment and heavy industry companies, after ceding part of its shares to Iran Marine Industrial Company, faced non-payment of installments and incomplete implementation of financial obligations, and the ceded shares were sold again. This experience shows that even after the transaction, non-fulfillment of obligations can disrupt the stability of ownership and management.

For this reason, in the transfer of Saipa, the financial capacity should be measured based on real and reliable sources, not the value of nominal assets or the hope of financing after the transaction. The source of purchase sources, reliance on bank facilities, and the capacity to finance current activities and future investments should be examined independently.

Also, the sources of stock purchase must be separated from the resources necessary for running the company; The buyer may be able to pay the transaction price, but not have enough resources to provide the parts, pay the demands of the suppliers and implement the production plan. Therefore, the guarantee of financial and operational obligations should be part of the handover design.

Tabriz machine building; Warning about the buyer without industrial qualification

The experience of Tabriz Machine Building showed that handing over a long-standing industrial complex, without paying enough attention to the buyer's qualifications, the legal status of the assets, and reforming the company's structure, can lead to a crisis and the termination of the deal. This complex was handed over in 2017, but legal and financial problems complicated the assignment of ownership and management. The published reports emphasize the ambiguity in the assessment of assets and the necessity of obtaining industrial qualifications.

According to this issue, in the transfer of Saipa, a difference should be made between a mere investor and a buyer with the real ability to manage the industry. Financial ability is a necessary condition, but industrial and managerial ability is also necessary. Assets, liabilities, legal obligations, pledged shares, and relationships with subsidiaries must be clarified prior to the transaction.

What are the lessons of handing over Saipa?

In any case, these experiences show that the success of privatization cannot be measured by transferring shares or changing the title of the owner; The quality of the transfer of control, buyer qualification, financing, competition and actual results matter.

HEPCO: production and financial crisis; The need to achieve industrial capacity and continuity of production.

Haftpeh: management, financial and labor problems; Necessity of qualification verification and supervision after handing over.

Azarab: failure to fulfill financial obligations; The importance of checking real sources and guaranteeing implementation.

Tabriz machine building: eligibility problems and assignment structure; The necessity of asset transparency and structural reform.

The common conclusion is that divestment should be an economic and institutional process, not just a sale of shares. These experiences do not mean the condemnation of privatization; Rather, it shows that conditions should be provided so that the transfer of ownership and management leads to efficiency and competition, and the cost of failure is controlled by legal, financial and regulatory mechanisms.