Romanian fund, close to a deal with state-owned holding on electricity distribution assets

Romanian investment fund Fondul Proprietatea (BVB ticker: FP) could reach an agreement with state-controlled power holding Electrica (EL) for the sale of its minority stakes in Electrica’s electricity distribution and supply subsidiaries. The value of the deal could be a little over EUR 100 million, according to market estimates. Fondul Proprietatea, which has been divesting some of its significant holdings in the past two years, has all its electricity and gas distribution portfolio for sale. This includes minority stakes in 13 companies controlled by Italian group Enel, German group E.On, French group GDF Suez, and Romania Electrica. The 13 stakes are worth some EUR 770 million, according to Fondul Proprietatea’s net asset value at end-December 2014. “We’ve been trying to sell these assets, but in all cases the prime buyer is the majority shareholder. The closest transaction is that with the Electrica group of companies. We are currently negotiating with Electrica and we hope to have an announcement by the end of this month,” said Marius Dan, investor relations director at Franklin Templeton Investments in Bucharest, Fondul Proprietatea’s manager, in a presentation for investors in London. “We will use the proceeds of the transaction for share buybacks,” Dan added. He didn’t mention what would be the potential value of the transaction. Fondul Proprietatea holds 22% stakes in Electrica Distributie Muntenia Nord, Electrica Distributie Transilvania Sud, and Electrica Distributie Transilvania Nord, as well as in Electrica Furnizare. The four companies distribute and supply electricity to about one third of Romania. They are closed companies controlled by Electrica, which is trading on the Bucharest Stock Exchange and London Stock Exchange. Fondul Proprietatea has the four stakes valued at EUR 173 million in its portfolio, as of December 31, 2014. Electrica, however, is not willing to pay near as much, according to market sources. “A deal will not be made unless Fondul Proprietatea accepts a discount to its portfolio valuation. A fair price for Electrica would be somewhere around EUR 100 million,” a person familiar with the negotiations told Romania-Insider.com. “Fondul Proprietatea must be aware that Electrica will start investing in its subsidiaries and all the new investments will be made via capital increases. The fund is not willing to make new investments, so its stakes will diminish,” the same sources said. Electrica had EUR 475 million in cash and equivalents at the end of 2014, most of the money coming from the EUR 444 million initial public offering the company conducted in June 2014. The company plans to invest some of the money in developing its distribution assets while also looking for expansion opportunities abroad. The state controls 49% of Electrica’s shares, with the remaining 51% trading on the Bucharest Stock Exchange and London Stock Exchange. Electrica has a market capitalization of EUR 970 million. Fondul Proprietatea has been trying to sell some of its unlisted stakes as well, to increase the liquidity of its portfolio and to reduce the discount at which its shares trade on the Bucharest Stock Exchange, which is currently around 26%. Franklin Templeton, the fund’s manager, has a target to bring the discount under 15%. Share buybacks and capital distributions to shareholders have been the main operations used by the fund’s manager to reduce the discount. Franklin Templeton is also pushing for a secondary listing in London, to bring new investors into the fund. Fondul Proprietatea had a market capitalization of EUR 2.38 billion (as of March 9, 2015). Its net asset value was EUR 2.88 billion at the end of January 2015.