Retail investors expected to bring USD 700 mln for Romania's biggest stock listing
Individual investors on the Bucharest Stock Exchange (BVB) could buy around 30% of the initial public offering (IPO) in which Fondul Proprietatea will sell at least 15% of Romania’s biggest power producer – Hidroelectrica, local brokerage firm TradeVille estimates. The transaction, expected to take place in the second half of this year, will be the biggest Romanian listing ever and one of the biggest IPOs in Europe this year.
Fondul Proprietatea expects to get about USD 2.3 billion for 15% of Hidroelectrica but it doesn’t rule out selling its whole stake in the company (20%) if the demand is high enough. This means, that local retail investors are expected to mobilize around USD 700 million to buy Hidroelectrica shares. A true test for the Romanian capital market, which has been struggling for years to become more than a niche alternative for local investors.
“The possibility of owning shares in Romania’s most valuable company might spark the interest of Romanians in the capital market,” says Georgiana Androne, Senior Broker at TradeVille.
According to TradeVille, individual investors show a heightened interest in Hidroelectrica and people who have never invested in stocks before are asking its brokers how they can buy shares in the company. The 24% increase in the number of individual investors in Romania in 2021 and the high interest shown in previous IPOs carried out by local energy companies are among the arguments for a more consistent retail tranche in Hidroelectrica’s IPO.
Traditionally, in developed capital markets, retail investors were allotted around 10% of the shares sold in IPOs, while institutional investors - with higher purchasing power - were reserved the remaining 90%. In recent years, the participation of retail has increased due to the development of trading applications that make investing more accessible for individuals, including in Romania.
In Romania, the retail investors’ interest in the listings of large state-owned energy companies has manifested since 2013-2014. While the tranches allocated to retail investors in the IPOs carried out by Nuclearelectrica (SNN) - 15%, Romgaz (SNG) - 20% and Electrica (EL) - 21% - were generous, there were significant oversubscriptions (SNN - up to 5.6 times; SNG - 17.7 times; EL - more than 8 times).
However, none of these offers were anywhere near the size of the expected Hidroelectrica IPO. The biggest IPO on BVB to date is the one carried out by the electricity distributor Electrica in June 2014, in which the Romanian state raised EUR 444 mln by selling 51% of the company’s shares. Gas producer Romgaz’s IPO, which took place in November 2013, was also close to EUR 400 mln in size. Both were dual listings, taking place on the Bucharest Stock Exchange and London Stock Exchange.
Fondul Proprietatea has also been advocating for a dual listing of Hidroelectrica, aiming to maximize the value of its stake by selling part of the shares in London. However, Romania’s market supervisor ASF recently limited the number of shares available for a secondary listing of Hidroelectrica to one-tenth of the total shares on sale. Previous rules allowed for up to two-thirds of shares in an IPO to be made available on an external market. The move is aimed at keeping most of the liquidity generated by the Hidroelectrica IPO on the local market.
The idea that investors on the Bucharest Stock Exchange could come up with over USD 2 bln to buy Hidroelectrica shares is not far fetched. The local pension funds alone manage over EUR 18 bln worth of assets. Meanwhile, Romanian households currently have about EUR 57 bln parked in bank deposits that offer negative real returns because the interest rates paid by the banks are significantly below the inflation rate. In this context, more Romanians are interested in equity investments.
In 2021, Romanian private companies raised EUR 234 mln from BVB investors through private placements and IPOs, a significant part of this sum coming from individuals. Meanwhile, the bond issues carried out by the Finance Ministry and local private companies on the BVB also raised EUR 1.8 bln last year.
Despite the pandemic raging on for the past two years, the Bucharest Stock Exchange (BVB) has seen continuous growth until recently in terms of stock prices. The BET index, which follows the top 20 companies listed on the Bucharest Stock Exchange, gained 33% in 2021 and started 2022 at its highest level ever.
A similar trend was seen elsewhere as well, with new retail investors in the US, Europe, or Asia entering the stock market in an attempt to safeguard their finances against inflation and the effects of the pandemic. A report by financial consultancy firm Charles Schwab dubbed the phenomenon the “rise of [the] investor generation.” The term describes a widespread and notable increase in the number of individual investors – with a median age of 35 – who show increased optimism for the stock market and plan to invest more in the future.
By Radu Dumitrescu, journalist
Edited by Andrei Chirileasa