Bucharest stock market heads towards worst week in history after 3 days in the red

Sorin Melenciuc 21/12/2018 | 14:31

The main indexes of Bucharest Stock Exchange (BSE) continue to fall for the third day in a row on Friday as investors reduce exposure on local energy firms and banks on worries about the new taxes introduced by the government in 2019 and on massive dividend payments imposed to state-owned companies.

At 2:00 PM, BET, the index including the main 15 companies listed on the market, lost 2.7 percent to 7,134.06 points. Banca Transilvania is on the red again as its shares lost 3.2 percent, while BRD fell 2.9 percent.

The biggest drop was registered by the state-owned Nuclearelectrica’s shares, of 17.5 percent, as the government imposed the payment of extra-dividends this week due to poor fiscal outcomes.

On Wednesday, following the announcement of new taxes on banks, capping gas price and major changes regarding private pensions scheme, BSE’s main indexes and shares crashed in one of the worst days in Romanian stock market’s history.

Banca Transilvania, the bigger Romanian bank in terms of assets, lost 19.9 percent at the closure of the market session, while BRD-Groupe Societe Generale fell 16.6 percent, in a session called by analysts and journalists “the Black Wednesday.”

If the market will close in the red on Friday, it will be the worst week in history for BSE. Compared with Tuesday, BET lost 15.3 percent, Banca Transilvania fell 21.7 percent and BRD lost 20.7 percent of its value.

Energy firms are also among the big losers of the week. Romgaz, one of the biggest state-owned companies, lost 19.1 percent of its value in 3 days, while OMV Petrom, control by Austria’s OMV, fell 17.1 percent in the same period.

This means that investors lost more than EUR 3 billion this week. Banca Transilvania’s value declined in 3 days by more than EUR 500 million, from RON 11.3 billion (EUR 2.43 billion) to RON 8.85 billion (EUR 1.9 billion).

OMV Petrom’s value decreased in the same period from RON 19.7 billion (EUR 4.2 billion) to RON 16.3 billion (EUR 3.5 billion).

The Financial Supervisory Authority (ASF), whose chiefs were imposed by the main ruling party, has announced that it will verify all transactions made in the day before the crash of the stock market for possible inside informations.

Greed tax

On Tuesday evening, the Finance minister Eugen Teodorovici said that the Romanian government will introduce a tax on bank assets of 0.9 percent from January 1st, 2019, and will cap the retail and corporate gas price at RON 68/Mwh.

Visibly stressed during his presentation and refusing to answer to reporters’ questions at the end of his long speech, Teodorovici presented the new tax on bank assets as a “tax on greed.”

“Banks pay 2 percent interest rate, on average, for savings but take 8 percent for loans,” the minister argued.

According to his speech, the so-called “tax on greed” will depend on 3-month and 6-month ROBOR levels, being between 0.2 percent of assets for ROBOR rates between 1.5 and 2 percent, 0.4 percent for ROBOR between 2 and 2.5 percent, 0.6 percent – 2.5-3 percent – and 0.9 percent – between 3 and 3.5 percent.

ROBOR maintained above the 3 percent in Romania during most part of this year as inflation rose to the highest level in the EU so banks will have to pay a 0.9 percent-tax on assets if the measure is imposed since the beginning of next year.

The Finance minister also said that the government will cap internal gas price at RON 68/Mwh for retail and corporate domestic markets alike, arguing that retail price is now 3 times higher than production cost.

A similar project was already proposed this year but the project was withdrawn by the Finance ministry.

The two gas producers in Romania are state-owned Romgaz and Austrian OMV Petrom. Meanwhile, Fondul Proprietatea, the closed-end fund managed by Franklin Templeton, called this project an “ill-considered decision.”

Favoring Russia

Experts say that capping internal natural gas prices will hit hard the two main gas producers in Romania, Romgaz and OMV Petrom, and will limit investment in gas fields, while the advantages for retail consumers are only for short term.

EU competition legislation bans such practices and energy directives impose a liberalization of gas prices, which Romania had already done by April 2017.

If the proposal passes, Romania may risk infringement procedures by the European Commission.

Experts also argue that such a measure will favour gas imports from Russia.

Households in Romania paid in 2017 the lowest prices for gas and the fifth lowest prices for electricity among the 28 European Union member states, according to Eurostat.

The government has not released until now a budget project for 2019 and many experts say it has no money to finance its soaring spending on public servants’ wages and pensions.

Romania’s general consolidated budget, which includes fiscal and social budgets of the government, registered after the first ten months of this year a deficit of RON 21 billion (EUR 4.5 billion), or 2.2 percent of estimated GDP, being 3.2 times bigger compared with the same period of 2017.

During his speech at the Social Democratic Party’s National Council on Sunday, party leader Liviu Dragnea launched a series of attacks against multinational companies, especially those in energy and telecommunications, as well as banks, and spoke once again about the idea of introducing a tax on their turnovers.

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