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private investors including the BVB as the main beneficiary from the existence of this infrastructure. We are working to construct the business case and attract possible investors into the CCP.”
Questions over IPO pipeline
It was previously believed that the
BVB wouldn’t be able to boost liquidity sufficiently to get its upgrade to emerging market status without the IPO of Hidroelectrica. While this has proved incorrect, the Hidroelectrica IPO, set to be one of the biggest ever if not the biggest on the local exchange, is still hotly anticipated. However, it isn’t expected any time soon. Next
year would be the “most optimistic scenario,” says Tanase, “but this will
be a government decision and we
can’t influence it. All we can do is communicate to the government the need to have a decision sooner or later.”
Complicating things are the government’s efforts to set up a new sovereign fund, which would take over the state participations in Hidroelectrica and other major state companies. “If
all state participations are put into
the planned sovereign fund portfolio, probably any privatisation decision
through the Made in Romania programme. However, it is in something of a double bind: it doesn’t have a strong enough domestic investor community to buy smaller tickets, and it doesn’t have enough Romanian entrepreneurs who are looking to the capital market as an alternative to finance their businesses.
This brings Tanase back to the need to attract more retail investors, especially since the BVB doesn’t currently
offer a large enough investor base of small-scale investors to make a listing worthwhile for smaller companies.
“The BVB is a solution rather for bigger than for smaller tickets because it is dominated by institutional investors – pension funds, foreign investors – while individual investors have a very weak presence.” Similarly, development of
the Aero market, which was launched
in 2015 to target early stage companies, start-ups and SMEs, has been stymied by the lack of smaller investors.
Currently there are only around 15,000 active individual accounts, which Tanase says is “very low”. The BVB is aiming
to push the number up to 100,000. “When we reach that number, the
BVB will really be an opportunity for
Admittedly Romanians’ incomes are typically small compared to those in other EU member states, but Tanase points to the “mass” of savings in the country, with household bank deposits in the €40bn to €50bn range, and overnight deposits alone amounting
to around €17bn, which is comparable to the size of the entire local capital market.
A strong growth story
While these constraints exist, the overall story in Romania is very positive, Tanase believes, citing the fast GDP growth
rate that has outstripped those of most European countries in the last couple of years. On top of this there are the high dividends paid by Romanian companies. He plays down the concerns voiced by many foreign investors about the lack of predictability in the country. “Locally, the macro indicators are looking good. We have some risks with the fiscal deficit but our GDP growth is the biggest in the EU and this is still a very attractive proposition for international investors,” Tanase says.
On the other hand, there is considerable global uncertainty and Romania is not an isolated market, admits the BVB CEO: “Of course we are not untouchable, looking at the global context, but our protection at the moment is the very attractive dividend yields offered by the companies listed on the BVB. We have
a general dividend yield for the whole market of 8%.”
The BVB has been reporting a strong performance of its main index, the BET, throughout the year. In September, the BVB published a statement stressing that: “The Romanian capital markets are strongly in the black while investors see the international markets going deeply in the red”, comparing the BET’s increase by 4.4% US dollar-equivalent, to the sharp fall in MSCI indices for international emerging and frontier markets. The fol- lowing month, the exchange announced that its total return index had surged by 17% to all-time highs in the first nine months of the year.
“The Romanian capital market is just one step away from becoming an emerging market”
would be taken by the sovereign fund going forward. My guess is the top priority for the government is to set up the sovereign fund.”
On the other hand, the BVB has had considerable success in attracting private companies to list. While not
on the scale of Hidroelectrica, two
of the new listings, food service operator Sphera Franchise Group which holds the local franchises for KFC and Pizza Hut, and Purcari Wineries from neighbouring Moldova, are now part of the BVB’s blue chip BET index.
The BVB has been actively trying to reach out to entrepreneurs, including
entrepreneurs to place their businesses and their tickets and their stories into the market.”
To achieve this goal, the BVB is putting a lot of emphasis on education, and Tanase believes a simple approach is best. “We should promote the idea
of investing in the capital market not
as a complicated game, but as a simple exercise where so long as people invest in a diversified portfolio their risks are mitigated. The population should be aware that as long as they comply with this discipline, investing in equities would bring a superior return compared to investing in bank deposits, which at this moment is their main solution.”
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