|Codrut Seres: spearheading the move to develop Romania’s capital markets through privatization|
Transelectrica offered 7.3 million new shares in a capital increase through a public offer in Romania and an international private placement.
Privatizations in central and eastern Europe have to date mainly been carried out via strategic sales rather than listings but the Romanian government has now decided to change tack. The Transelectrica deal is the first in a series of listings planned in the next few years.
“Unlike other countries in the region, the Romanian government plans to foster the development of its capital markets [through privatization],” says Siegfried Neumüller, deputy head of equity capital markets in the CEE at RZB. “This means it will not just sell [strategic] stakes but it will strengthen the market, keep some capital in the country, and pave the way for future IPOs from the private sector.”
IPOs have certain advantages over strategic sales, bankers say. The mechanism of the capital markets gives a more transparent valuation than a strategic sale, and the company can then use this valuation for future capital increases and other funding options.
The decision to bring private investors to Romania’s utilities companies mirrors a trend in western Europe, argues Laurentiu Ciocirlan, a director of debt and equity origination at Raiffeisen Capital and Investment in Romania, who worked on the deal. The consortium of banks arranging the IPO also included Alpha Finance Romania and BRD Securities.“Governments there are trying to introduce private sector efficiency to state-owned companies while retaining a certain degree of control. The capital markets provide a perfect way of doing this, as they bring discipline to companies, while the government retains substantial ownership,” he says.
The issue price for the IPO was set at L16.80 a share. It consisted of a 40% retail tranche and a 60% institutional tranche. The institutional tranche was 8.4 times subscribed, while the retail tranche was 3.5 subscribed.
“Even though emerging markets have been going through a very difficult time recently, with many deals being cancelled, the response from international investors to the deal was very positive,” says Neumüller. Investors from Austria, Germany and Italy drove the deal, closely followed by those from the Nordic region and the UK.
The IPO raised €35 million, which the company will use for modernization and developing its infrastructure. “While this deal, and the others planned, are relatively small, at about 10%, they are a very important signal both for the Romanian economy and for business people internationally,’ says Ciocirlan.
Although more companies are listed on the Bucharest stock exchange than on the New York Stock Exchange, the free float of the vast majority is very small and liquidity is consequently limited. The average turnover on the exchange this year has been about €20 million – although this is many times the level of just a few years ago.
“This deal has definitely broken the ice for future issuers,” says Dana Mirela Ionescu, director general at Raiffeisen Bank Romania. “Even though many companies are listed on the stock exchange, few are heavily traded. Even a 10% listing with some of the other deals, which are also for companies of a similar size scale, will create volume on the market.”
In the pipeline
Other listings planned in the next couple of years include natural gas transportation company Transgaz; two electricity distributors, Electrica Muntenia Nord and Electrica Transilvania Nord; Bucharest international airport; the port of Constanta; fixed-line telephone operator Romtelecom (which is majority owned by Greece’s OTE); and two electricity producers, Hidroelectrica and Nuclearelectrica. The Proprietatea Fund, a restitution fund for those whose properties were seized by the Communist government between 1947 and 1989, is also on the list of intended listings.
Bankers also hope that the deal’s success will encourage private companies to consider a listing. “It will be an example not only for the government but also for private individuals who have companies that have reached a certain critical mass – it is a good example of how the capital market is a viable source of financing,” says Mirela Ionescu.
Dexia has withdrawn from the sale of CEC, Romania’s final big bank to be privatized, leaving two Greek players – EFG Eurobank and National Bank of Greece – together with Hungary’s OTP and Raiffeisen International, to contest the sale.
The CEC privatization follows the acquisition of Banca Comerciala Romana by Erste Bank last December for €3.75 billion.