Ownership threshold for Romanian mass privatisation funds lifted

The 5% ownership threshold at the five Romanian financial investment funds (SIF), launched in the mid-90s as mass privatization funds, was lifted as of July 23. This could lead to new increases for the shares of these companies, which are significantly undervalued compared to their official assets.

The combined net assets of the five SIFs were over RON 10 bln (EUR 2.1 bln) at the end of June, while their market capitalization today is about half that level.

The initial threshold, introduced in 1997, was 0.1% to prevent a single investor or a group of investors from taking control of these companies. The limit was then raised to 1% in 2005 and 5% in January 2012.

The views over the impact of eliminating the threshold diverge. Still, it is assumed that the share prices should increase as a new category of investors will gain access, and a new battle for their control could start.

Ziarul Financiar quotes traders expressing expectations for higher liquidity of the SIFs' shares. Consolidation of their shareholders, possibly informally preceding the new regulations, might also occur - analyst Dragos Cabat said, quoted by Ziarul Financiar.

Bursa daily writes in a column on a more pessimistic note about the "crypto-communists taking back their country." The shares distributed to the people by the post-communist regime in the early 1990s will return into the hands of the businessmen originating from the former nomenklatura (who already informally control the SIFs), the columnist argues.

"I estimate that, within a year, the SIFs will turn into something similar to Fondul Proprietatea, which is on the verge of liquidation and disappearance," business lawyer Gheorghe Piperea told Bursa.

He estimates that the five SIFs will end up being controlled by two or three groups of investors.

The main reason for introducing and subsequently maintaining the ownership threshold was to prevent some investors from taking advantage of the dispersed ownership structure and control these companies with only a small fraction of the total shares and then manage companies only in favor of small interest groups. However, the ownership limit has allowed the SIF managers to remain in charge for more than 20 years, in some cases, without actually answering to the shareholders.

The SIFs, formerly mass privatization funds (FPP), are post-communist coupon-based privatization funds. When they were launched, they received minority and even some majority stakes in some of the most valuable state companies at that time, ranging from the banking sector to the hotel and energy sector - mostly unlisted companies.