January 5, 2016 / 5:46 PM / 3 years ago

REFILE-Saudi's Savola says to stay in Iran despite diplomatic rift

(Adds reference to Nichols owning Vimto brand)

* Senior executive says company to be in Iran long-term

* Savola share price plunges on concerns over Saudi-Iran dispute

* Savola is one of few Saudi firms operating in Iran

By Katie Paul and Celine Aswad

DUBAI, Jan 5 (Reuters) - Saudi food producer Savola, one of the few Saudi companies with a presence in Iran, plans to maintain its investments there despite a diplomatic standoff between the regional powers, a senior executive at the firm told Reuters.

“We knew the risks of doing business in Iran from the start,” said the executive, who declined to be named due to Saudi disclosure rules. “For the long term, Savola will have a competitive advantage once sanctions have been lifted.”

Saudi Foreign Minister Adel al-Jubeir told Reuters on Monday that Riyadh would sever “all commercial relations” with Iran, along with flights and diplomatic ties, after tensions boiled up over its execution of a prominent Shi’ite cleric.

Those comments sent Savola’s stock price plunging 11.5 percent as of Tuesday and led Iran’s Press TV to speculate that the company may sell its Iranian edible oils and sugar businesses, which account for some 13 percent of total revenues.

According to its most recent annual report, Savola holds a 90 percent stake in Savola Behshahr Company, which dominates Iran’s edible oil market with some 40 percent market share.

It also has full ownership of Savola Behshahr Sugar Company and distribution firm Tolue Pakhshe Aftab in Iran.

With over 10 percent of Savola owned by the Saudi government, Iranian websites have voiced concern that Savola’s commanding presence could put the country at risk should it fail to supply the Iranian market for political reasons.

Although those suspicions could be exacerbated by the recent rift, most analysts agree the company will stay the course.

“It’s a negative for Savola,” said Dipanjan Ray, an analyst at Banque Saudi Fransi in Riyadh. “But Savola has been in Iran for a long time and this is not the first time a geo-political uncertainty has originated. They can weather it.”

FEW COMMERCIAL TIES

Trade links between Saudi Arabia and Iran have long been sparse, with only a few companies - mostly in food and consumer goods - wagering that they can profit in spite of Western sanctions and political animosity.

Saudi Arabia’s family-owned Aujan Group Holding, which makes popular Ramadan drink Vimto under licence from British firm Nichols plc and has a $1 billion joint venture with Coca-Cola, has had major Iran manufacturing operations since 2005.

Aujan Industries Iranian Company (AIIC), a private joint stock company based in Tehran, is an authorised manufacturer and distributor of the company’s Rani Refreshments products.

Aujan’s Kaveh Aluminum Can Company, established in 2009 in Kaveh Industrial City, supplies cans to AIIC as well as Coca-Cola, Pepsi and other brands for sale in Iran.

An Aujman spokesman declined to comment on whether the diplomatic feud would affect the company’s operations.

Iranian gold producers also export to Saudi consumers, although the head of its jewellery producers’ union said on Tuesday that the severing of commercial ties with Saudi Arabia would not affect their industry.

“We can easily find a new market,” Ebadallah Mohammad-Vali was quoted as saying by the ISNA news agency. (Additional reporting by Bozorgmehr Sharafedin; editing by Adrian Croft)

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