Romania’s Hidroelectrica remains in insolvency despite record profits

Romanian state-owned electricity producer Hidroelectrica will not exit the insolvency process this year, as initially expected, due to lengthy court actions, the company’s legal administrator said in an interview with Reuters.

Hidroelectrica has managed to reorganize its activity in the last three years and posted record profits in 2014 and the first quarter of 2015, but still has to solve its problems in court.

"The court challenges are advancing very slowly," said manager Remus Borza. He added the company still had 19 ongoing trials out of an initial 75. "The company will surely not exit insolvency this year. We hope next year," Borza concluded, according to Reuters.

Hidroelectrica declared insolvency in June 2012 as the company was losing money because of several large contracts to sell electricity below market prices corroborated with lower electricity production due to draught. The company lost about USD 1.4 billion over six years due to those unfavorable long-term contracts, which it cancelled after going into insolvency.

However, the companies whose contracts had been cancelled, most of them electricity traders, went to court and challenged Hidroelectrica’s insolvency. This led to lengthy trials and prevented the company from coming out of the procedure. Hidroelectrica briefly existed insolvency in late 2013, but a court ruling in favor of one electricity trader sent the company back to judicial management in early 2014.

Investors on the Bucharest Stock Exchange were expecting Hidroelectrica out of insolvency in the first half of this year and were hoping of an initial public offering (IPO) in fall. This would have raised new awareness for the Romanian capital market that has failed to produce any new equity offering after the EUR 444 million IPO conducted by state-owned electricity distributor Electrica in June 2014.

Romanian investment fund Fondul Proprietatea, which holds 20% of Hidroelectrica’s shares, was also hoping of an IPO, which would have allowed it to sell some of its shares if needed. Fondul Proprietatea has the Hidroelectrica stake valued at some EUR 493 million in its portfolio, which translates into a market value of almost EUR 2.5 billion for the whole company.