Romania’s rocky road to reform
"The ministry of finance has failed to create a local and international market for government paper, which the corporates could build on," says Mihai Florian, vice-president of DCM at Merrill Lynch. "They are very conservative on the accounting side of things and have not driven forward the necessary changes in the capital markets. It can’t happen overnight, but I don’t think they are even putting in the groundwork at the moment."
One government official agrees. "My personal preference would be for local borrowing," he says. "I think that the government has said it might do half local and half internationally as it wants to maintain a reputation in the external environment." The sovereign recently mandated Credit Suisse, EFG and UBS to arrange a €500 million, five-year or 10-year Eurobond issue. But as conditions in the global capital markets continue to be volatile, some analysts doubt that the deal will go ahead, and, if it does, consider that the price will be unfavourable.
The equity market is one area that excites bankers. In 2007, national gas transporter Transgaz launched an IPO worth €64 million, which was oversubscribed 28 times. In line with this success, the government has announced plans to float other state-owned companies, including Nuclearelectrica, the operator of the nuclear power plant; Hidroelectrica, the operator of the Romanian hydroelectric power system; and Romgaz Medias, a gas producer. Ten percent stakes from each company have been earmarked for the first stage of the listing process. In time, bankers hope these will be the first steps towards a liquid and transparent secondary market. Other potential IPOs are airline Tarom and telecoms company Romtelecom. These much needed listings will probably take place after the general elections at the end of 2008.
Beyond government listings, market participants are not expecting any other issuance. "Local listing costs need to be rationalized to encourage companies to list on the local exchange. It seems that local costs, on a comparative basis, are higher, which should probably be revisited to allow issuers improved access," says Shahmir Khaliq, country head at Citi.
At the moment there is a fundamental problem for Romanian capital markets. Very few companies want to raise money denominated in leu or need to. Moreover, a large part of the corporate sector is foreign-owned and financed by parent companies.