Comment: Five reasons why the Hidroelectrica IPO is good news for everyone

The selection of the consortium of brokers for the Hidroelectrica IPO marks an important milestone in preparing this transaction, which will likely start a new phase for the Bucharest Stock Exchange. Here are five reasons why this transaction is so important for Romania.

1. Hidroelectrica’s IPO will bring Romanian assets to the attention of large international investment funds. The reason is very simple: Hidroelectrica is the most valuable company in Romania right now – close to EUR 13 bln according to Fondul Proprietatea’s latest valuation – and the IPO will bring a substantial stake into the market – at least 15% of the company’s shares. Never before have foreign institutional investors been offered the opportunity to make such a large bet on Romania - the value of the IPO could come close to EUR 2 bln. At the same time, Hidroelectrica is a growth story, with record profits in recent years from the rise in electricity prices. It’s also the biggest power producer in Romania, a country that currently faces an electricity deficit, which makes it a rather safe bet. Moreover, Hidroelectrica's capacities are mostly hydropower plants, which fit well into the EU drive to lower CO2 emissions. So, the interest is likely to be huge.

2. Other Romanian listed companies could benefit from this. Why? Because after a large investment fund will buy Hidroelectrica shares, it will start looking more closely at what other Romanian assets are available to buy. In particular, energy companies such as Nuclearelectrica, OMV Petrom, and Romgaz could also see a boost in interest from investors. Fondul Proprietatea itself could get a new boost for its shares if it manages to get a good price from selling its Hidroelectrica stake. But in the long run, the whole market will see a boost, because Hidroelectrica will likely bring the confirmation that the Bucharest Stock Exchange has firmly moved into the “emerging markets” league. This is important because it means that more money will be channeled to Romanian assets.

3. Hidroelectrica’s IPO is also a perfect opportunity to open the Romanians’ appetite for the stock market. The number of Romanian individual investors buying stocks on the Bucharest Stock Exchange has remained relatively low in recent years, in spite of the positive market evolution. The current number of trading accounts on the Bucharest Stock Exchange is lower than 100,000. By comparison, some estimates indicate that around one million Romanians may be investing in cryptocurrencies. However, the current economic context with high inflation and large corrections for risky assets could determine more local investors to look at safer alternatives. Meanwhile, Romanians are reminded every day that electricity prices (and their utility bills) are growing. In this context, investing in Hidroelectrica shares would be a good way to protect against rising energy costs. All it takes is to get the message out there.