Romania: Electric start for privatization
Transelectrica on the block; Pricing ‘key to success’
Romania’s government will attempt to revive its stalled privatization process this month with the sale of a 15% stake in state power firm Transelectrica.
The state-owned grid operator began meeting domestic investors on February 13 and is expected to start a European roadshow – covering London, Warsaw, Stockholm and Frankfurt – in the first week of March, before coming to market mid-month.
expected proceeds from sale of 15% of Transelectrica
The Bucharest offering – expected to raise around $60 million – will be the first of a state-owned asset since July’s aborted $700 million secondary public offering of oil firm OMV Petrom. Russia’s Renaissance Capital, EFG Securities of Greece, and local firms BT Securities and Romcapital were mandated on the OMV Petrom sale. With at least five more privatizations in the pipeline this year, investors will be watching closely to see if lessons have been learned. The privatization programme is a key condition of the €20 billion bailout received from the IMF, World Bank and EU in March 2009. Market insiders believe a recent government reorganization should not derail the sales.
Tenders were due by March 1 for another privatization and IPO candidate, Hidroelectrica. On January 27, the government also awarded the mandate for a €250 million to €500 million IPO of natural gas producer Romgaz – expected before the end of June – to a consortium led by Goldman Sachs. Nuclearelectrica might be up for grabs, too, while market rumours suggest that the Petrom mandate will be retendered when it expires at the end of April.
"The privatization office has been on a very steep learning curve since Petrom," says Dan Weiler, executive director in the corporate finance and investment banking division at BCR, which is leading the Transelectrica SPO and is also on the mandate for Romgaz, along with parent bank Erste. "The government’s understanding of and interaction with the capital markets may not be perfect now, but it’s much better than it was."
Robert Koleczek, head of ECM and syndication, at Wood & Co agrees. Wood is one of three banks working on a $120 million SPO of gas transmission firm Transgaz, which will likely be second into the market after Transelectrica. "We’re seeing increasing flexibility and openness on the part of the privatization agency," he says. "They are willing to talk to the brokers and the banks, to improve the process."
Bankers have said the privatization process could also benefit from recent changes at the Bucharest Stock Exchange (BSE). In January, shareholders replaced the smaller brokers who had previously made up the BSE’s board with a panel of respected finance professionals led by BCR chief economist Lucian Anghel.
"We now have a partner at the BSE that will work with us, for example by making the fees more realistic and actively promoting the exchange domestically and internationally," says Weiler.
Romania is also taking action to address widespread concerns about corporate governance at state-owned firms, although here some say progress has been slow. Laws passed last year regarding the size and composition of the boards of state-controlled companies are yet to be implemented.
The launch in January of an investigation into corruption at Romgaz added to the European Commission’s recent contention that Romania is still lagging behind regional peers, such as Poland, in corporate governance.
"If [the Romgaz scandal] had to happen, it’s much better that it happened now than to blow up in our faces six months from now," says Weiler. "The positive signal is that the government addressed the issue head on."
Greg Konieczny, Fondul Proprietatea
Greg Konieczny, fund manager at Fondul Proprietatea – Romania’s holding fund with minority stakes in state firms, set-up by the government to compensate citizens who lost property under communism – is confident that doubts over corporate governance will not affect the privatization programme. "The timetable does allow the government enough time to resolve these issues [of corporate governance at state-owned firms] to the satisfaction of international investors," he says. Konieczny points to the oversubscription of Romania’s recent $1.5 billion 10-year bond as evidence of buy-side interest in the economy, as well as the resilience of the leu during the recent government reshuffle that saw prime minister Emil Boc ousted in response to protests.
"From the macro perspective, Romania is in very good shape compared with neighbouring countries in emerging Europe," adds Konieczny. "Now, hopefully with this new supply of shares, we’ll really see Romania moving from frontier-market to emerging-market status again."
The real test, however, might come in the pricing for Transelectrica and Transgaz. "These days, investors like to see a proper discount, and the question is whether, or not, the Romanian state is willing to do that," says one banker close to the deals. "I see that as the biggest, single challenge."
Weiler adds: "We had a good turnout for the [Transelectrica] roadshow in Bucharest and the interest is there, but it will probably come down to whether or not there is a discount."