The EUR 444 million initial public offering (IPO) of Romania’s electricity distributor Electrica, the first state-owned company to privatize by selling a majority stake on the capital market, shows the commitment of the Romanian Government to continue structural reforms and the opening of the economy, prime minister Victor Ponta said in his speech at the opening bell ceremony that marked Electrica’s debut on the London Stock Exchange.

“This is a positive message for the direction of the Romanian economy, for the structural reforms that we have started, for the privatization and opening of the economy,” said Victor Ponta, who opened the London Stock Exchange for the second time in the last six months, after doing this back in November for the listing of Romgaz, Romania’s largest gas producer. “Now we must prepare something for November,” Ponta added.

The opening in London was simultaneous with trading opening for Electrica’s shares on the Bucharest Stock Exchange (BVB), which was attended by officials from Romania’s Energy Department. They said that the record amount which the company raised on the capital market demonstrates that international investors are interested in Romania. They also promised that the next IPO of a state owned company, that of electricity producer Hidroelectrica, will be even more spectacular.

“Electrica’s listing was a great effort. The fact that we made a majority privatization on the capital market was possible first of all because the Prime Minister wanted to make a strong example for the modernization of Romania’s economy,” said Gabriel Dumitrascu, the head of the privatization office in the Energy Department. Dumitrascu coordinated the Electrica listing on behalf of the state.

“We hope this will confirm that privatizing through the capital market is the best way to privatize state owned companies and to improve their corporate governance. I will end with a promise that Hidroelectrica’s IPO will be even more spectacular than Electrica’s,” Dumitrascu added.

The Romanian state reduced its stake in Electrica to less than 49 percent after the IPO, while private investors such as the European Bank for Reconstruction and Development (EBRD) and ING’s pension funds now hold 51 percent of the company and will have an important saying in how the company is run, by imposing international corporate governance standards.

The optimism showed by Romanian officials is backed by the fact that the Electrica IPO managed to attract solid interest from international institutional investors, in a really intense context on the capital markets. There were 20 offerings going on at the same time, which means that the competition for investors’ attention and money was really strong. Even locally, Electrica’s IPO had some competition from Fondul Proprietatea’s private placement of a 5 percent stake in Romgaz, which raised EUR 146 million from local and international investors.

Adding this to the EUR 444 million raised by Electrica, investors placed in Romania almost EUR 600 million in less than a month.

Most of this money is here to stay on the long-term.

“We were able to allot 90 percent of the institutional tranche to long term investors. We also had new international institutional investors that came especially for Electrica,” said Dana Mirela Ionescu, head of capital markets at Raiffeisen Bank, who was the leader of the intermediary consortium. Citibank and Societe Generale were also joint managers and bookrunners for the IPO and BRD was local manager.

“We are happy that by this IPO we managed to increase Romania’s visibility abroad and to show that this is a viable market where international investors can place their money. Electrica’s IPO will contribute to Romania’s upgrade to emerging market status,” Dana Ionescu concluded.

The representatives of the Bucharest Stock Exchange also pointed out that Electrica’s IPO reflects the progress that was made in the last year in changing foreign investors' perception. The fact that 80 percent of the IPO was sold through shares listed on the Bucharest Stock Exchange and only 20 percent was structured in global depository receipts (GDRs) listed in London, compared to 36 percent in the Romgaz IPO, shows that more international funds were persuaded to buy shares instead of GDRs and to enter the Romanian market directly.

“This shows a different perception of international investors as Romania’s capital market has a strategy and an investment case. The prime minister is now in London, but next week he will be here in Bucharest and he will meet with us, the representatives of the local capital market to talk about what else is to be done to develop the market,” said Ludwik Sobolewski, CEO of the Bucharest Stock Exchange.

He added: “Today we have two ceremonies: the debut of Electrica’s GDRs on the London Stock Exchange but also the farewell of GDRs (of Romanian companies – e.n.) on the LSE," suggesting his belief that future listings of Romanian companies will be carried out only on the Bucharest Stock Exchange.

For Sobolewski and his team at the Bucharest Stock Exchange, the challenge is to attract international investors to open accounts in Romania and to contribute to future listings, both of state-owned companies and private companies, but also to bring more liquidity for the existing companies on the market.

The impact of Electrica’s IPO and of the other progresses made by the local capital market was quite visible in the last two months, as the main index of the Bucharest Stock Exchange gained almost 10 percent from end-April, while the daily trading volumes saw a significant increase.

Today (Friday, July 4) the trading volume on the BVB increased to more than EUR 23 million, one hour before market closing, with Electrica’s shares accounting for more than half of the liquidity. The share price stood above RON 11.2 for most of the day, which is 2 percent more than the IPO price of RON 11. This gives the company a market value of EUR 885 million, which makes it the sixth most valuable Romanian company listed on the BVB.

Andrei Chirileasa, andrei@romania-insider.com