Update: Romanian telecom group Digi finalizes EUR 190 million IPO amid corruption scandal

Romanian telecom group Digi Communications (DIGI) successfully finalized its initial public offering (IPO) on the Bucharest Stock Exchange, despite a corruption scandal involving its local business RCS&RDS. The group’s shareholders have set up a price of RON 40 per share for selling a 23.3% stake in the company, close to the low end of the IPO range, of RON 38-RON 56 per share, market sources have told Romania-Insider.com. The selling shareholders will thus get some EUR 190 million from this deal, which values the whole group at around EUR 820 million. Update: Digi Communications officially announced the RON 40 per share price in a statement. The company also announced that the individual investors would get more shares than initially announced, due to the high demand on their tranche, while institutional investors will have to settle for less. The IPO price may have been negatively influenced by a group announcement which said that RCS&RDS, the company through which it operates in Romania, was investigated as a suspect in a corruption case targeting the sale of broadcasting rights for football matches in Romanian’s top league (Liga 1). The National Anticorruption Directorate (DNA) announced on Friday, May 5, just days before the closing of the Digi IPO, the indictment of Dumitru Dragomir, the former president of Romania’s Professional Football League (LPF) for taking a EUR 3.1 million bribe between 2009 and 2011 in exchange for awarding RCS&RDS the broadcasting rights for Liga 1 matches for three seasons, starting 2008. Two RCS&RDS senior managers, Ioan Bendei and Mihai Dinei, as well as the former CEO Alexandru Oprea were also officially notified by DNA that they are being investigated for bribery and money laundering. “On May 8, 2017, RCS & RDS also received official notification from the Anti-Corruption Directorate that it is a suspect in this ongoing investigation for the same offenses,” reads a note to Digi Communications investors. “The Company continues to fully cooperate with the investigation and believes that RCS & RDS and its current and former officers have acted appropriately and in compliance with the law,” according to the same note. However, the group informed its potential investors that it could not predict if the company would be indicted in this case and the extent of the sanctions that may result from a possible lawsuit. Although some information about this corruption case was included in the risk factors chapter of the listing prospectus, the new developments in recent days may have unsettled some investors and may have ultimately affected the IPO price, according to a market source that wanted to remain anonymous. In spite of this scandal, RCS&RDS managed to complete the biggest private listing in Bucharest Stock Exchange (BVB) history. Moreover, this is the third-biggest IPO ever completed at BVB, after the ones carried out by electricity holding Electrica (EUR 444 million, in June 2014), and gas producer Romgaz (EUR 391 million, in November 2013). Both Electrica and Romgaz are state-controlled companies and both had dual IPOs in Bucharest and London. Meanwhile, Digi Communications, which is officially registered in the Netherlands, but has its business headquarters in Bucharest and last year made close to two-thirds of its EUR 843 million revenues in Romania, went for a fully local listing. The Digi offering managed to draw a high interest from the so-called retail investors on the Bucharest Stock Exchange, who are in fact high net worth individuals familiar with such investments. The retail tranche drew over 6,000 orders worth close to RON 4.2 billion (EUR 920 million) as some investors got local banks to "sponsor" their subscriptions via guarantee letters in order to get a higher number of shares. Even if the retail subscriptions may have been artificially inflated, the individual investors showed they had the resources to mobilize tens of millions of euros for this transaction. The individual investors benefited from discounts of up to 7% of the final IPO price as well as guaranteed allocation for up to 267 shares. Meanwhile, the subscription level on the institutional tranche, which was allotted 85% of the total shares sold in the IPO, is unknown. However, it is expected that some big foreign institutional investors participated in this IPO alongside local pension and investment funds, given the big investment banks involved. The offer was managed by Citigroup and Deutsche Bank, as Joint Global Co-ordinators and Joint Bookrunners, Societe Generale Corporate& Investment Banking, BRD, Raiffeisen Bank, Wood&Company, as Joint Bookrunners, and BT Capital Partners, as Joint Bookrunner and Lead Manager. The biggest seller in the IPO was Carpathian Cable Investments, a company registered in Luxembourg, which put up for sale 18.9% of the company’s shares. The firm may thus get some EUR 155 million from this transaction, considering the RON 40 price. Meanwhile, Zoltan Teszari, the investor who founded RCS&RDS more than 20 years ago and controls over 56% of Digi Communications' shares, only sold a small stake in the IPO. His stake in the company is now officially valued at EUR 460 million. The Digi Communications shares will start trading on the Bucharest Stock Exchange on May 16 under the ticker DIGI.