What is Romanian Fondul Proprietatea’s biggest challenge five years after its listing on the Bucharest Stock Exchange?

Fondul Proprietatea’s listing on the Bucharest Stock Exchange (BVB) in January 2011 increased the local market’s visibility abroad. It also helped the market recover after the 2008 collapse by bringing new investors and fresh capital. Overall, Fondul Proprietatea has attracted portfolio investments of over EUR 1.4 billion from foreign institutional investors in these five years, according to the fund’s manager, American group Franklin Templeton. However, the fund’s and the Bucharest Stock Exchange’s future depend, to a great extent, on the state’s willingness to privatize the big companies it still owns via the capital market. Fondul Proprietatea is a minority shareholder in some of those companies and probably the only way it can get out is if those companies are listed. “Fondul Proprietatea has lobbied continuously for the development of the capital market. There is still much work to be done and the only way further progress can be achieved is through the listing of new companies on the stock exchange,” said Greg Konieczny, Fondul Proprietatea’s manager and an Executive Vice President of Templeton Emerging Markets Group. “We are constantly working towards improving the efficiency and profitability of portfolio companies, but it is now the Government’s turn to make the next move and demonstrate their commitment to listing them on the stock exchange. Companies such as Hidroelectrica, Aeroporturi Bucuresti, Portul Constanta, Posta Romana and Salrom are viable candidates and we hope to see them listed in 2016 and 2017,” he added. In 2010, before Fondul Proprietatea’s listing, the local capital market’s IPO pipeline was a blank page, according to the Franklin Templeton representative. After the fund got listed, the Bucharest Stock Exchange has seen 11 big transactions (initial public offerings, secondary public offerings, and private placements) amounting to over EUR 1.9 billion. Fondul Proprietatea itself was the seller in six transactions worth over EUR 445 million. The fund has sold partial or entire stakes in some of the largest state-owned companies, such as Romgaz, Transelectrica, Transgaz, and Conpet, and in OMV Petrom to generate liquidity for its shareholders and to help increase the free float of those companies. Moreover, two of the three IPOs that have taken place in 2013 and 2014 have involved companies from the fund’s portfolio (Romgaz and Nuclearelectrica). You can find the best information about it in the free stock market newsletter. However, the number of big transactions dropped to just one in 2015, as the state paused its IPO projects. At the moment, only power producer Hidroelectrica is in the pipeline for a listing, after it exists a four-year insolvency period. The Hidroelectrica listing would help Fondul Proprietatea significantly increase the liquidity of its portfolio, 60% of which is made of unlisted companies. Hidroelectrica stands for 22% of the fund’s net assets. However, the fund still has a high number of stakes in other unlisted companies, such as electricity distribution companies owned by Enel, E.ON, and Electrica, the Bucharest Airports Company, the Constanta Port, the Romanian Post, and salt producer Salrom. The new Government has shown some reluctance to the listing of state-owned companies just like the previous ones. “I don’t think that the state companies are the only engine for development for a capital market,” said Energy Minister Vlad Grigorescu on Tuesday. However, no big private companies have shown a particular interest in listing on the Bucharest Stock Exchange in recent years. Thus, the state is the main driver that could help the market develop. This is not just a matter of attracting new investments but also of preventing local capital from leaving the country, according to Greg Konieczny. The local private pension funds’ assets have reached almost EUR 6 billion at the end of last year. This year, they are expected to get inflows of another EUR 1.5 billion. To invest 20% of these new assets in the local stock market, the pension funds would have to buy shares worth roughly EUR 1.5 million each day. “This is impossible in a market that yesterday had a turnover of EUR 3 million,” Fondul Proprietatea’s manager concluded.