Comment: Five reasons why the Hidroelectrica IPO is good news for everyone in Romania
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.
4. The Hidroelectrica IPO is also good news for the Romanians’ pensions. While the number of individual investors on the Bucharest Stock Exchange is low, over 7 million Romanians are indirectly investing in Romanian stocks through the pension funds. The seven mandatory pension funds currently manage assets worth around EUR 19 bln and they are always on the lookout for new investment options. Hidroelectrica will be a great opportunity for them to diversify their portfolios and also hedge against the energy-driven inflation which has eroded their results in the last year (mainly due to the negative reevaluation of state bonds).
5. The Romanian state can take credit for supporting the capital market and economy without selling its shares. In the past, the listing of state-owned companies faced many hurdles because the sale of state-owned assets always stirs controversies. There will always be someone to criticize such transactions for political gain. But this time, the Romanian state is lucky, because it won’t sell any shares. However, by approving the listing and working with Fondul Proprietatea on this, the Government does everyone a favor as it helps the development of the local capital market and gives Romanians the opportunity to develop their own compensation scheme against rising energy prices.
Besides the short- and medium-term benefits of this listing, in the long term, Hidroelectrica will be able to raise capital from the stock market more easily to finance its investment plans.
by Andrei Chirileasa, Managing Partner Romania-Insider.com
(Photo source: Hidroelectrica Facebook page)