Franklin Templeton argues against Romania's Hidroelectrica buying CEZ assets

Franklin Templeton, the manager of the biggest Romanian investment fund - Fondul Proprietatea (FP), argues against power producer Hidroelectrica's plans of taking over part of the local assets of Czech utility group CEZ, Ziarul Financiarreported.

Fondul Proprietatea holds a 20% stake in Hidroelectrica, while the Romanian state holds the majority 80% stake.

Hidroelectrica will hold a shareholders' meeting on June 25 to endorse the firm bid that the company wants to submit to CEZ.

Hidroelectrica plans to form a consortium with electricity distribution and supply holding Electrica (49% controlled by the state) and SAPE (100% state-owned) for this transaction. Reportedly, Hidroelectrica would be interested in CEZ's wind farm in Dobrogea.

Franklin Templeton's strategy has been to maximize Fondul Proprietatea's value in the short term. Thus, the fund manager has constantly argued against the long-term investments of the companies where the fund is a shareholder.

In its press release, Franklin Templeton outlines seven reasons for Hidroelectrica not to get involved in the deal. The arguments include the lower profitability of the CEZ assets, the regulatory risks faced by Hidroelectrica by getting involved in new sectors, the takeover calendar interfering with the planned Hidroelectrica IPO, and the deal going against the principles of liberalization.

It is a risk-averse investment rhetoric, which should, in principle, be matched by low profitability. Indeed, Hidroelectrica is a low-risk business: with the assets built during the communist regime, it generates cash, which has exposed it to repeated frauds carried by corrupt management. The Government's representatives will perhaps outline their strategy for the company in the June 25 shareholders meeting when a final decision could be taken.

There are reportedly about 20 bidders interested in the assets CEZ wants to sell in Romania.

(Photo source: Facebook/Hidroelectrica)