Page 31 - bne_Magazine_June_2017

bne June 2017 Cover Story I 31
As stock market officials, journal- “This transaction was closed against major investor in the Digi IPO, points to
ists and the team responsible
for the Digi Communications IPO gathered at the Bucharest Stock Exchange (BVB) for the launch of trading on May 16, one of the advisers clustered at the back of the room was overheard commenting that it had been “a hell of a ride”.
To the challenges of carrying out Romania’s largest-ever private sector IPO was added the announcement of
a corruption probe into Digi’s main subsidiary RCS&RDS part way through the offer period. Despite this hiccup, the entire offer of shares was sold, and the RON950mn (€209mn) offering beat the previous record set by healthcare com- pany Medlife in December 2016.
Admittedly, at RON40 (€8.78), the price was towards the lower end of the range included in the IPO prospectus, and while Digi was a resounding success among retail investors, some institu- tional investors are believed to have been put off by the news of the National Anticorruption Directorate (DNA) probe concerning broadcast rights for foot- ball matches. The day after the launch of trading, the DNA announced it had extended its investigation to RCS&RDS CEO Serghei Bulgac, and the share price closed the day 4.1% down.
Nonetheless, the European Bank for Reconstruction and Development (EBRD) confirmed to bne IntelliNews that it had carried through with its bid to buy 3.25mn shares (3.25% of total shares), helping to boost investor confidence in the company, and other investors seem to have taken the same approach.
Speaking shortly before the trading
bell rang on May 16, Bucharest Stock Exchange (BVB) CEO Ludwik Sobolews- ki referred to the investigation obliquely as he congratulated Bulgac and his col- leagues on the successful listing.
“This happens to be the largest IPO con- ducted by a completely private company in the history of the Romanian stock market,” he said as the stock price started to scroll on the screen behind him.
some headwind . but the real strength and growth comes through continuous efforts and facing tough challenges that can be all of a sudden appearing around us. I think this is a good perspective for the shareholders of this company.”
Breaking barriers
Within Southeast Europe, Romania has been the exception that proves the rule. Outside Romania – with its more devel- oped capital market and strong pipeline of companies for privatisation – the small stock exchanges’ shallow markets attract relatively little investor inter- est. But even the Bucharest exchange struggles with low liquidity.
Yet that situation looks like changing now, with the listing of Slovenia’s Nova Ljubljanska banka (NLB) potentially paving the way for more IPOs of state assets on the local exchange, while planned regulatory changes in Bulgaria could open up a pipeline of IPOs by energy and infrastructure companies.
For now, however, Romania is still lead- ing the way. The IPO of Digi, hot on the heels of Medlife’s, shows that the efforts of the BVB, the financial markets regula- tor, government officials, and other stakeholders to develop the exchange are bearing fruit. Initiatives such as the 8 barriers programme targeting barriers to investment, the launch of a new trad- ing platform, and a financial education
numerous positive developments on the market in the past five years.
“Listings of major state owned com- panies have raised awareness of the market. Another positive factor is the development of the legal and regulatory framework. It was a very good initiative of the Bucharest stock exchange to identify a list of barriers,” Reichmann tells bne IntelliNews. “Throughout this period our working groups comprising
a wide task force have focused on remov- ing these barriers, and has brought the Romanian capital markets closer to a potential reclassification by MSCI from frontier markets to emerging markets.”
The main barrier that still remains to achieving this upgrade is liquidity. Small and medium sized IPOs such as those of Digi and Medlife will help, but passing this hurdle ultimately depends on the expected listing of state hydropower company Hidroelectrica, for which the timing is still unclear. Greg Konieczny, the manager of property restitution fund Fondul Proprietatea, a minority share- holder in Hidroelectrica, said in April that it would “take a miracle” for the IPO to go ahead this year.
In 2013 and 2014, the BVB saw its larg- est ever IPOs with the listings of three majority state-owned energy companies, Nuclearelectrica and Romgaz in 2013 and Electrica in 2014. Since then, however,
“I think the ice has broken because we saw several Romanian entrepreneurs opened their minds”
campaign for retail investors are aimed at enticing companies to list, attracting more investors and – ultimately – achiev- ing the goal of an upgrade from frontier to emerging market status, which would enable more foreign institutional inves- tors to buy Romanian stocks.
While further steps are still needed, Cristina Reichmann, partner at CMS Cameron McKenna, an adviser to one
the pipeline of state-owned enterprises coming to the market appears to have
– temporarily at least – dried up. The Hidroelectrica IPO is not now expected before 2018, and proposals from the property fund for IPOs of other compa- nies such as salt monopoly Salrom have so far failed to win over the government.
At the same time, there is increasing confusion over the government’s longer-
www.bne.eu