Non-institutional investors on the Bucharest Stock Exchange have mobilized almost EUR 1 billion to buy Hidroelectrica (H2O) shares in the first five days of the biggest initial public offering (IPO) in Romania.

They have placed subscription orders for over 42.3 million Hidroelectrica shares, which is almost four times more than the size of the tranche allotted to them in the IPO (11.7 million shares), according to data available on Thursday evening (at 18:30 Bucharest time).

As a result, the retail investors will receive only a fraction of the shares they subscribed, the final allotment rate depending on the total number of shares subscribed and the seller’s potential decision to increase the number of shares for the retail tranche.

The retail investors were asked to pay the top price of RON 112 per share and to transfer the money into the collection account, which is one of the conditions to have the subscription orders validated.

The final sale price will be decided at the end of the subscription period (July 4), based on the demand from both retail and institutional investors. The institutional investors could place bids between RON 94 and RON 112 per share.

Given that the institutional tranche (66.3 million shares) was also reportedly oversubscribed after the first three days, it’s likely that the high demand will push the price up towards the top of the range.

At the maximum price of RON 112 per share, Fondul Proprietatea (FP) would cash in RON 8.7 billion (EUR 1.77 bln) for the 78 million Hidroelectrica shares on sale in the IPO. The fund has also granted the IPO’s Global Coordinators and over-allotment option to meet the potentially high demand from institutional investors. This option also means that Fondul Proprietatea could sell its entire stake in Hidroelectrica (89.7 million shares or 19.94% of the company) following this IPO.

The high demand for Hidroelectrica’s shares is backed by the company’s strong fundamentals. Hidroelectrica is the biggest power generation company in Romania and its portfolio is made entirely of renewable energy capacities, mainly hydropower plants. The company has seen strong revenue and profit growth in recent years, taking advantage of the rise in energy prices.

In the four quarters ended March 31, 2023, Hidroelectrica recorded a net profit of RON 4.9 billion (almost EUR 1 bln). At the top IPO price of RON 112 per share, the company is valued at RON 50.4 bln, which stands for a Price to Earnings (P/E) ratio of 10.3. Companies with similar profiles traded on international markets are value at P/E ratios of over 12. For example, Austria’s Verbund is trading at a P/E ratio of 14 and Spain’s Iberdrola is trading at a P/E ratio of 16.

Hidroelectrica’s dividend policy is also attractive for investors as the company has pledged to continue distributing at least 90% of its net profits to shareholders in the coming years.

An extra incentive for the retail investors is the 3% discount for those who placed their subscriptions in the first five days of the offer. For example, if the IPO closes at the top price of RON 112, the retail investors who subscribed in the first five days will pay RON 108.64 per share. This grants them the possibility for higher gains when the shares start trading on the Bucharest Stock Exchange.

editor@romania-insider.com

(Photo source: Hidroelectrica)