Small individual investors who will subscribe on the small tranche of Romanian electricity distributor Electrica initial public offering (IPO) will have the option to choose between having their orders guaranteed up to 1,000 shares or getting a 5 percent discount to the final IPO price, according to the prospectus. The procedure, however, is not the easiest.

The tranche for small investors in the Electrica IPO is 7 percent of the total number of shares sold by the company. That is 12.4 million shares out of a total of 177.19 million shares. The price interval for the IPO is RON 11 to 13.5 per share.

Subscriptions for the small retail tranche start at a minimum of 250 shares and go up to 20,000 shares. When making the subscription, investors must pay the maximum price per share of RON 13.5. At the end of the IPO period, which is June 16-25, the price of the IPO will be set based on subscriptions made by institutional investors, who get 85 percent of the total shares.

Retail investors will pay the same price as institutional investors. For example, if this price is RON 12 per share, small investors will get back the difference of RON 1.5 per share.

Small investors who make their subscriptions in the first five days of the offering period (up until and including June 20) will get a 5 percent discount to the final price. Again, as an example, if the price is RON 12, then the discounted price would be RON 11.4. However, investors who choose to have their subscriptions guaranteed do not get the discount.

Investors can choose to have their subscriptions guaranteed up to 1,000 shares. In this case, the advantage is that they know from the start how many shares they will get in the IPO, so the allocation ratio is one on one. A maximum of 10 million shares will be set aside for guaranteed subscriptions, with a first come, first served policy.

It’s uncertain if an investor who wants to subscribe between 250 and 1,000 shares can also choose not to have his subscriptions guaranteed, in order to get the discount. However, in this case he could get significantly less shares than the number he applies for, because the allocation will be pro-rata. So if the non-guaranteed portion of the tranche is five time oversubscribed for example, he will get only 20 percent of the shares he subscribed.

Small investors who want to subscribe more than 1,000 shares also have more options. For example, someone who wants to subscribe 10,000 shares can make two orders, one for 1,000 shares with guaranteed subscription, and one for 9,000 shares non-guaranteed, for which he gets the 5 percent discount. He can also go with a single order for 10,000 shares non-guaranteed.

It’s not the easiest subscription procedure and investors will have to be very careful how they structure their orders in order to get the expected results. Assistance from a broker would prove useful, but even among brokers there are different interpretations given to the prospect. Hopefully all these will be clarified by Monday, June 16, when the offer starts.

Investors in Romania can subscribe in the Electrica IPO through BRD, Raiffeisen Bank and brokerage firm Swiss Capital, which are members of the intermediary consortium. But most local brokerage firms can also receive subscriptions from investors which they pass forward to the syndicate.

More details in the IPO prospectus.

Andrei Chirileasa, andrei@romania-insider.com