The Romanian experiment: Building a capital market from the bottom up

A software developer, a tech start-up, a tracking device manufacturer and a cold pressed oil producer present their businesses in front an audience of more than 100, in the amphitheater of the Economic Studies Faculty in Cluj-Napoca, in the heart of Romania. They seem open to discussion and questions from the audience and willing to experiment with a new instrument: financing via the capital market. Thirteen other companies have already presented their investment cases in front of interested investors, in Bucharest, and announced plans to get listed on the new AeRO market, Bucharest Stock Exchange’s alternative market dedicated to small and medium enterprises and start-ups. Two of those thirteen, a Polish start-ups fund, and a Romanian courier firm have already started trading on AeRO, on Wednesday, February 25, when the BVB officially launched the market. Bucharest Stock Exchange’s bet is to attract smaller companies and start-ups in this segment, which is sort of a preparatory class for companies that could later make their move to the main market. As larger private companies have proven reluctant to come to the Bucharest Stock Exchange for financing and the latest successful private listing was in 2008, the bourse’s Polish CEO Ludwik Sobolewski decided to try a different approach: building the market from the bottom up. “I think the Romanian market is unique in the world, in the sense that we started to build the appeal for enterprises to get listed not from the top, but from the bottom. We are trying to use small companies to attract interest from bigger players,” Ludwik Sobolewski told Romania-Insider.com. This is completely different from what he did in Poland, where he launched the NewConnect market dedicated to SMEs and start-ups well after the Warsaw Stock Exchange reached a critical mass of companies and investors. However, as there are few large private companies in Romania that would be suitable for listing on the main market, and almost none of them are interested in raising money on the stock market, as bank financing is very cheap these days, the BVB was practically pushed to try this new approach. But no experiment is easy, and the BVB’s biggest challenge will be to find investors willing to invest in these smaller or early-stage companies, which are riskier. “It is much more difficult, because pension funds are only allowed to invest on the regulated market, and the foreign institutional investors are not interested in this segment, so the potential investor range is smaller,” Sobolewski explains. Not even the state’s big listings in recent years, those of Romgaz and Electrica, managed to attract large numbers of local individual investors. The number of individual investors is around 60,000, of whom only 5,000, at most, are active and trade shares on a regular basis. The BVB has been more active in promoting itself to the public and trying to attract new investors, via trading contests, investor days and investor forums, such as the one organized in Cluj-Napoca at the end of February. The market operator has also been working on increasing the market accessibility for retail investors and on making them feel safer on the market. But progress is slow in terms of new investors. “We have started the market to get these smaller companies revealed, as well as to get investors. But we also need brokers and authorized advisors to be more active. We currently have very few brokers who are capable of having an active sales practice,” says BVB’s CEO. Some investors say that AeRO market would only work if it started with a few success stories. From this perspective, the BVB has the final word, as it has the possibility to select which companies get admitted. “We will be selective when it comes to companies on AeRO. However, we will admit not only potential stars, but also companies with a considerable level of risk, if they have proven management capabilities.” Having some of these companies among the stars of the local regulated market or, why not, even abroad on NASDAQ, would be the perfect outcome, according to Sobolewski. He doesn’t see the AeRO having a spectacular growth for number of companies: the target for this year would be to have between 10 and 20 new companies coming to this market. “So far we have contacted about 100 companies and we can safely say that around a third are interested in getting listed.” The first two companies that have made this step are courier firm Delivery Solutions (Sameday Courier) and Polish investment fund Carpathia Capital. Neither of them raised any money from the AeRO market, however, before making this step. Carpathia Capital raised some EUR 1.5 million from Polish investors for investments in small and medium-sized enterprises in Romania and in other countries of Central and Eastern Europe.