Emerging Europe: Romania’s new champion steps into i-banking

Bank snaps up local advisory firm; M&A activity ‘on upward trajectory’, says CEO.

Omer Tetik-600
Omer Tetik, CEO of Banca Transilvania


Banca Transilvania is reinforcing its role as Romania’s new national champion with an entry into investment banking through the purchase of local advisory firm Capital Partners.

Omer Tetik, Banca Transilvania’s chief executive, says the deal is a "perfect fit" for the Cluj-based bank, Romania’s largest domestically owned lender. "Our ambition is to be a strong and reliable business partner for our clients in Romania, and by acquiring a local investment banking champion we strengthen our market presence and coverage," he says.

The deal marks another step in Banca Transilvania’s recent rapid expansion. Set up in 1994 by a group of Transylvanian entrepreneurs, the bank remained a relatively small regional player until 2008. In the wake of the financial crisis, however, it took advantage of heavy deleveraging by Romania’s big foreign-owned banks to build market share. 

Ranked 10th by total assets in 2009, Banca Transilvania had moved up to number three by 2012. Two years later, the bank made its first large acquisition, buying the Romanian subsidiary of failed Austrian lender Volksbank. The merger, which was completed in December 2015, added 43% to Banca Transilvania’s balance sheet and boosted the bank’s net income for 2015 to a record L2.4 billion ($602 million).

Combination

The purchase of Capital Partners represents another big development for the bank, which has traditionally focused on Romania’s small and medium-sized companies. The acquisition, which was announced in March, will see Capital Partners merged with Banca Transilvania’s brokerage arm, BT Securities. The combined entity, BT Capital Partners, will provide corporate finance and M&A advisory services. 

Investment banking activity has been subdued in Romania in recent years, but Tetik is confident that the market will recover. He notes that M&A volumes, while still below pre-crisis levels, tripled in 2014 to $3.1 billion thanks in part to a surge of private-equity interest in Romania’s services, retail and IT sectors. 

"We believe that this positive market trend will continue in the years to come," says Tetik. "The approaching maturity date for certain investments in the private-equity sector could be another factor with a positive impact on the local M&A market, as investors will be seeking profitable exits."

He adds that the recent lean pickings in the sector have had the advantage of thinning out the competition. 

"A number of local advisory firms didn’t survive the financial crisis," says Tetik. "The only Romanian firm which not only survived the crisis but grew during and post-crisis is Capital Partners."

At present, the main M&A players in Romania are the US banks, Rothschild, and the advisory arms of regional banks such as UniCredit, Raiffeisen and Société Générale, according to Dealogic.

Romania’s equity capital markets have also shown signs of progress over the last three years. A long-awaited privatization programme – a condition of Romania’s IMF bailout in 2009 – finally got underway in 2013 with IPOs of energy firms Nuclearelectrica and Romgaz. 

The $535 million Romgaz sale, which included a listing in London as well as Bucharest, attracted interest from international investors, as did a $604 million dual-listed IPO of Romanian power supplier Electrica in June 2014. Since the latter, however, progress on privatization has been slow. A couple of follow-on offerings – of Romgaz and Transelectrica – have been successfully completed but no new names have emerged.

Tetik says the lack of activity is not due to a shortage of demand. "The bottom line is that investors would probably eat up anything new on the market with quality fundamentals," he says. "Additional interest can be attracted from new investors, both local and, more importantly, foreign, if a large IPO is announced."

He notes that retail deposits in Romania stand at around €33 billion – which, combined with an ultra-low interest rate environment, creates "sizeable potential" for equity investment. "The main problems with the local capital market are not caused by the potential size of the investor base, which could be considered adequate to support its development," he says.

Bigger barriers

According to Tetik, bigger barriers to the more rapid expansion of local equity markets in Romania are access problems caused by the small free-float and cumbersome fiscal procedures, incomplete adoption of corporate governance measures, lack of quality IPO supply, relatively high costs compared with other regional markets and, above all, very low liquidity and product diversity. The derivatives market in Romania is almost nonexistent and there are no facilities for short selling or stock lending.

"For the structural issues, such as low free-float and availability of products, the main steps to be taken would be the establishment of a central counterparty system for both the spot and derivatives markets," says Tetik. 

He is supportive of a recent drive by Ludwik Sobolewski, the head of the Bucharest Stock Exchange, to get Romania upgraded from frontier to emerging-market status in global equity indices. "Frontier only accounts for a fraction of the emerging-market exposure of large funds and Romania only makes up around 2% of the frontier index, so at present we are a small fish in a small pond," says Tetik. 

He notes, however, that the biggest hurdle to equity market development in Romania is the very high level of liquidity in the banking system. "Combined with a strong propensity to opt for traditional credit financing, this means that large private companies do not see the stock exchange as a suitable means of raising funds at present," he says.