The listing axis: Bucharest - London - New York
- Written by Alex Serban, Senior Fellow, Atlantic Council - Brent Scowcroft Center for International Security
In the past two years, the Romanian state, in partnership with the Bucharest Stock Exchange (BVB), has promoted the floating of two major energy companies - Romgaz (2013) and Electrica (2014) - on the London Stock Exchange (LSE).
Fondul Proprietatea (Property Fund) is also attempting a London float, as early this year its shareholders have mandated Franklin Templeton Investment Management to take all necessary steps to complete the floatation process for the LSE by 10 July 2015.
Franklin Templeton’s interest is only natural, considering that Property Fund stock is traded on the Romanian capital market at a discount of about 30%. Direct exposure to a very large pool of investors on the stock market can only benefit the Fund, as it proved in the case of two state-owned energy companies. Incidentally, in New York, Franklin Templeton and Fondul Proprietatea, together with the BVB and the Romanian state, were to submit (at the time of writing this article) portfolio opportunities to US investors, especially those on Wall Street, sometime around 30 March.
The decision adopted last year by the Financial Supervisory Authority (ASF) against a regulation of floats on secondary markets for a EU Member State through equity interests, has curbed the enthusiasm of Franklin Templeton and any other company interested in floats on the LSE. ASF has reconsidered its stance this year and will, most likely, pass clear regulation on this component. Otherwise, companies will retain the (more expensive) option of operating the external float through certificates of deposit (GDR - actually used by the Romanian state in the case of Electrica’s listing on the London Stock Exchange). However, it is important that such an encouragement exist, especially coming from the domestic financial market regulator. It would be a signal of consistency sent to investors, domestic and foreign alike, about Romanian government’s political commitments for the continued trend of dual listing on the Bucharest market and on the London market of various public companies such as Constanta Port, Aeroporturi Bucuresti and, perhaps the most important, Hidroelectrica.
Starting from EUR 1 billion debts at the time of its first insolvency call, in June 2012, Hidroelectrica managed to come out of 2014 with a record turnover of RON 3.4 billion and a profit of RON 1.2 billion (aside from the figure itself, it is worth mentioning the 30% profit rate). In the context of exceptional financial results, Hidroelectrica’s listing, anticipated for this year, once the second insolvency procedure is completed, will undoubtedly enjoy a good reception in the London market. In addition to the subsequent equity increase, the float will also determine the management to steer the company away from these problems in the future.
By creating a real phenomenon of secondary floats, stemming from the association of public companies such as Romgaz, Electrica, Hidroelectrica with efficient private companies such as Fondul Proprietatea, Romania can start building an interesting and attractive image and reputation among global investors operating in the capital markets of London and New York. This is perhaps the most important gain, not for a company or an industry, but for the Romanian economic and financial environment and for the coming-of-age of Romanian capital markets.