Romania's Electrica shares drop below IPO price, share buy-backs might be needed

Romanian electricity distributor Electrica’s shares fell under the RON 11 price for which the company sold its shares in the initial public offering (IPO) ended on June 25. This may force Raiffeisen Bank and Citigroup, which acted as joint coordinators of the IPO to buy shares from the market in order to stabilize the price. Electrica made its debut on the Bucharest Stock Exchange (BVB) on July 4, when the share price gained 2.3 percent on the IPO price of RON 11, ending the day at RON 11.25. In the following days, Electrica’s share price slowly declined. Wednesday, July 9, Electrica’s shares closed at exactly RON 11 and Thursday, July 10, the price fell under this level to a minimum of RON 10.90. The fact that the IPO price was breached so soon after listing determined more investors to sell their shares and put further pressure on the market price. This may also force the managers of the Electrica listing, Raiffeisen Bank and Citigroup to start buying back shares from the market in order to keep the price from falling any further. According to the IPO prospectus, the brokers that managed the Electrica IPO can use up to EUR 21 million, or 4.85 percent of the EUR 444 million that the company raised in the transaction, in order to buy up to 8.42 million shares and support the price. The shares that will be bought for the share price stabilization operation will be returned to the company. Electrica sold 51 percent of its own shares in an initial public offering that took place between June 16 and June 25 raising a total of EUR 444 million. Some 80 percent of the shares were sold on the Bucharest Stock Exchange and 20 percent were structured as global depository receipts (GDRs) to be traded on the London Stock Exchange by investors that do not want to open accounts on the local market. Some 6.4 percent of the shares in the IPO (11.22 million shares) sold with a discount of 5 percent to retail investors. These investors, who paid RON 10.45 for their shares still have profits to mark as the current market price of RON 10.95 (on July 10, at 15:00) is still 4.8 percent above that level. In total, individual investors got 21 percent of the shares in the IPO, bust most shares were sold for RON 11. Andrei Chirileasa, andrei@romania-insider.com