The Romanian government has set up a working group that will assess which of the remaining state-controlled companies are to be privatised and eventually listed on the Bucharest Stock Exchange.
According to Dragoş Andrei, adviser to the Romanian Cabinet and a representative of Romania at the European Bank for Reconstruction and Development (EBRD), the country’s Finance Ministry will appoint experts to the group, including fund managers and investors, to establish which privatisations should be prioritised.
Andrei said the move was consistent with the Romanian government’s “strategic decision to boost capital markets” and make them a “reliable source of financing for the economy”, at a time when the country’s banking sector remained under pressure.
The Romanian government, in agreement with the IMF and the EU, is delivering an asset sale programme that culminated in the RON1.94bn (€440m) IPO of energy company Electrica in 2014.
Further IPOs are scheduled to take place over the next months, including those of energy companies Hidroelectrica and CE Oltenia, as well as postal service company Posta Romana.
The Romanian government is also discussing the privatisation of infrastructure assets such as Bucharest Airport.
Although the government’s objective is to increase investment by international institutions in Romania, the IPOs are also expected to benefit local pension funds, which have taken part in the strong growth of the domestic stock market.
According to Lucian Anghel, chief executive at BCR Pensii and chairman of the Bucharest Stock Exchange, Romanian pension funds acquired between 15% and 30% of the shares issued in the major IPOs completed so far, and held more than €700m of Romanian equity on the exchange as of last year.
Among the investors that have participated in the IPOs of Romanian state-controlled companies is Fondul Proprietatea, a €2.9bn closed-end fund managed by Franklin Templeton.
The US asset manager, which had more than €640bn in AUM as of last year, is heavily involved in Romania as sole manager of Fondul Proprietatea.
The fund was created in 2005 to compensate Romanians whose properties were confiscated by the Communist regime.
This week, Franklin Templeton completed the secondary listing of Fondul Proprietatea on the London Stock Exchange, saying the deal represented a “truly historic milestone”.
The listing, originally scheduled to take place last year, was pushed back when the Romanian financial regulator delayed the approval of new rules that would allow it to proceed to a secondary listing.
Fondul Proprietatea’s shares will be tradeable on the LSE’s Specialist Fund Market as global depositary receipts (GDRs), as the fund becomes the fifth-largest closed-end fund listed on the exchange.
The decision to list Fondul Proprietatea’s shares on the LSE was partly driven by pressure from shareholders, which include activist investor Elliot Advisors.
Fondul Proprietatea, which invests in major Romanian companies including oil and gas producers, as well as unlisted state-controlled infrastructure projects, has rewarded investors with substantial cash distributions and share buybacks, and seen its share price increase by more than 70% since its inception in 2010.
However, the shares have traded at a significant discount to NAV, and it is hoped the secondary listing on an international stock exchange will improve liquidity and eventually close that gap.
The shares’ current discount to NAV is 20.81%, having decreased from 55.67% in 2011.
Though corporate governance remains a concern for many prospective investors in frontier markets, Mark Mobius, executive chairman at the Templeton Emerging Markets Group, said the firm had witnessed a “complete change in psychology and orientation” towards governance, as authorities approved new rules and began enforcing best practices that make investment safer and more profitable.
In addition to new regulations and a commitment to the IMF and EU-backed privatisation programme, Romania enjoys good economic fundamentals, with GDP growth forecast to reach almost 3% in 2015, and a public debt to GDP ratio of less than 30%.
Thanks to the sustained growth of the country’s capital markets, Romania may soon graduate from frontier to emerging markets, providing additional investment opportunities and boosting confidence of domestic pension funds.
Romania’s four mandatory second-pillar pension funds reached more than €4.2bn in total assets last year, having grown at an average of 11.2% since their creation in 2008.
The voluntary third-pillar sector, launched in 2007, is made up of 10 funds with €221m in AUM and has returned 8.2% since inception.
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