Investors pin hopes on state-owned securities

Energy companies, the five financial investment firms and the Property Fund’s listing are seen by some as the last throw of the dice to attract newcomers onto the Bucharest Stock Exchange (BSE). Market specialists say investors are seeing opportunities in state-owned securities.

Dana Ciuraru

Bucharest Stock Exchange (BSE) investors won’t see the consistent returns of a few years back for some time, experts have warned. The pool of companies to which investors can turn is growing ever smaller.

“Recommended for investments during this period are energy companies such as Petrom, the five financial investment companies (SIFs), and smaller companies that enjoyed good results despite the recession such as Compa, Dafora, and so on,” Andreea Gheorghe, analysis department director at SSIF Intercapital Invest, tells Business Review.

Moreover, Claudiu Simulescu, GM of Fairwind Securities, a brokerage house owned by businessman Dinu Patriciu, told BR that, “In this period, people should seek to benefit from the corrections to those securities such as Transgaz, which – with or without the construction of the Nabucco project – has a key position in the Romanian economy and gas transportation to Western Europe.”

He adds, “Also we expect solid dividends for next year, as the BSE has announced new listings, from SIF 2 Moldova and even Transelectrica, which is currently being affected by the exchange rate fluctuations.”

Property Fund, the BSE’s golden goose

According to the Fairwind Securities GM, the capital market is currently seeing an increasing appetite from major players, the investment banks, for investments in state companies. The announced IPOs and the Property Fund listing will be able

to make the BSE into a regional leader, an investment hub, says Simulescu.

The Property Fund’s listing is set for the beginning of 2011. Franklin Templeton Investment Management Limited was recently officially appointed investment manager and administrator of the multi-billion euro Romanian restitution fund.

“The decision paves the way for the fund’s listing on the BSE which will benefit its shareholders and the broader Romanian capital market in addition to attracting foreign institutional investors to the country. We also applaud the decision to approve the distribution of a dividend to shareholders, bringing us a step closer to long-awaited restitution which should be fully realized on completion of the fund’s listing in early 2011,” said Mark Mobius, executive chairman of the Templeton Emerging Markets Group.

In other developments, the state-owned gas transportation company Transgaz Medias recently announced that the government ordinance which approved the sale of a share package through a public offering had been published. According to company information, the public offering will involve 15 percent of Transgaz’s share capital, representing a total of just under RON 17.7 million (about EUR 4.2 million).

“The recently announced IPOs involve companies that have a monopoly position in the Romanian economy today. It is not clear how these IPOs suit the energy strategy on which the government has been working for the last two years, but we will find out more details in the coming weeks,” Andrei Ciubotaru, head of brokers at Tradeville, tells BR.

“Investors will be interested in investing in any company that enjoys a monopoly position. But everything has its price and the

Romanian state could have unpleasant surprises when setting a sale price which corresponds to a large financial multiple, a financial

multiple related to financial results which vary too much in relation

to the privileged monopoly position.”

Banks lose their luster

Solid returns from investing in securities in the banking sector no longer look likely, as it is clear that the recent European changes involving the banking sector will affect profitability.

Brokers believe that the Romanian central authorities (government, Parliament and central bank) are refusing to recognize the national economic imbalances created by seven years of economic growth. Correcting these imbalances would cost political capital. Banks should be taking the measures required to survive this period and make the necessary adjustments rather than hoping that salvation will come from developed economies.

“Maintaining these imbalances increases the fiscal and social costs imposed on the real economy.

Unfortunately, this cost increases as time passes and the consequences are obvious: the final cost will

be higher and the moment of recovery will be delayed,” says Ciubotaru.

He adds: “This is reflected in bank stock prices. The vulnerabilities of the financial system in Romania were more obvious than elsewhere. But the Romanian authorities have preferred to play second fiddle to the European authorities rather than intervene to eliminate distortions in the banking system. Therefore, investors that have invested in stocks from the banking sector will have to suffer further because of those decisions by the monetary authority.”

Poor progress on the BSE

Market specialists say that Romanian companies are currently being traded on the BSE at lower values than the highs of 2007. “The negative domestic context and the difficulty in predicting an economic return worthy of an emerging economy have led to the anemic evolution of the Romanian stock market lately,” says Gheorghe.

Moreover, market specialists have said that net revenues of 20 to 30 percent per portfolio per year should satisfy even the most demanding investor during this period. Investors have been forced by the current environment to gradually drop their balancing strategies and portfolio diversification in different industries.

“They have had to focus on those areas where there is liquidity and try to identify average trends of growth in the BSE indices. The result in practice is an increase in index volatility, which makes it easy to identify the different harmful elements coming from the political environment,” said Ciubotaru.

The strategy for investing in shares on the BSE is a holding one. According to the Fairwind Securities GM, new players have appeared on the BSE, such as pension funds, which have invested insignificant sums due to the size constraints and liquidity of the Romanian capital market.

“In terms of volume the proportion is approximately 70 percent Romanians and the other 30 percent of investors are foreigners – mostly foreign investment funds,” said Simulescu.

As the stock exchange is a barometer of the economy, it is natural for it to be affected by political decisions which impact the economic field, but lately there has been more of a correlation with

international markets and not with the current economic realities of Romania. Although current estimates foresee global economic growth, this has been revised down from estimates made earlier this year.

As Gheorghe says, the Property Fund listing, the increase in the ownership threshold for SIFs and an improvement in the economic context could see enthusiasm return to the local stock market and consequently pique the interest of foreign investors.

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