Page 43 - bne_May 2021_20210501

bne May 2021 Southeast Europe I 43
on the listing of 10% of Hidroelectrica's shares, but the process has met many obstacles in recent years, most recently the coronavirus (COVID-19) pandemic and the adoption of the law blocking the sale of shares in state-owned companies.
companies, Meyer pointed out: “We need to keep in mind from a historical point of view the fund has continued
to trade at a discount to NAV, which becomes very difficult to justify when you are using cash that is being realised
As a shareholder at Hidroelectrica, FP was involved in the battle against the so-called “smart guys” – the company had been hamstrung by contracts signed under previous managers, under which it sold electricity at a loss to private traders, dubbed “smart guys” by the company. These were cancelled, but
not without difficulty. Progress was finally made in early 2015, when Hidroelectrica won several court cases against the traders.
Two years later, FP warned that new law initiated by two Romanian MPs could result in a massive transfer of wealth from the state to private individuals at the Bleak Sea’s largest port, Constanta. FP said at the time that should the law enter force, a new group of “smart guys” would emerge.
Some of the disputes with the government as majority shareholder concerned a capital increase at Posta Romana, part of which was aimed at covering the company’s overdue debts to the budget, and the disbursement of holiday vouchers to employees of national salt company Salrom.
Most recently, FP warned that Hidroelectrica could end up paying 55% higher taxes for the water it uses under amendments promoted by Energy Minister Virgil Popescu and Environment Minister Tanczos Barna. Should the proposal be accepted, it would hike Hidroelectrica’s expenses at a time when the company is preparing to list its shares on the BVB. FP called the change an "unnecessary and unreasonable increase" that pumps money in the pockets of "another state institution”.
“In pursuing the privatisations of its portfolio companies, FP fund managers have frequently clashed with the Romanian government"
Now Hidroelectrica will finally be able to launch the IPO after the current centre- right ruling coalition decided to change the law to enable the sale of shares in state-owned companies.
FP has long pushed for the IPO of Hidroelectrica. It has already reduced the size of its portfolio considerably
in recent years. In 2015, FP’s portfolio comprised 49 companies, down from almost 90 following a series of sales and IPOs. By the beginning of 2021, this had fallen further to 32 companies: six listed and 26 unlisted.
The fund has sold its easier-to-sell stakes in listed companies such as Transelectrica, Transgaz, Romgaz and Conpet, and significantly reduced its holdings in OMV Petrom. In February it emerged that FP had exited its entire state in Romanian nuclear energy company Nuclearelectrica.
Commenting on the exit during an online press conference on March 24, Meyer told journalists: “We constantly look at the portfolio and we look at
the potential in every investment on an ongoing basis. We got to the point where we were looking more intensely at Nuclearelectrica and the potential returns that could be generated going forward and we made the decision to sell. A block of it was a large transaction that would be incredibly difficult
to execute on the market on an ongoing basis.”
In answer to a question on why FP doesn’t buy into other Romanian
from investors in the portfolio to reinvest in lots of companies at a discount.
The reality is the shareholders can own the listed shares directly at no discount to themselves, as would happen via Fondul.
“Looking at the current situation, we are pleased to see a contraction of level of discount to NAV ... However, it still makes sense to continue using discount control mechanisms considering the upside potential we see in the portfolio, especially for unlisted investments where we continue to employ a conservative approach to valuation and upside can be realised by bringing companies like Hidroelectrica, or Bucharest Airports at some point, or Salrom to the stock exchange.
“We still believe immense value that can be unlocked by bringing unlisted assets to the market,” Meyer concluded.
Conflicting approaches
In pursuing the privatisations of its portfolio companies, FP fund managers have frequently clashed with the Romanian government – the majority shareholder in many companies in which FP owns a minority stake – over how they should be managed and privatised.
Since Franklin Templeton became manager of Fondul Proprietatea, the investment firm has been working to improve corporate governance, through pushing for reforms to Romanian legislation as well as changes within its portfolio companies.
www.bne.eu