Crisis has surprise effect on BVB issuer numbers

The Bucharest Stock Exchange (BVB) has never boasted large numbers of issuers. BVB officials have always preached the benefits of getting listed, but companies and even the state have shown moderate interest in testing their claims.
Since markets worldwide have taken a nosedive, the media has reported on several companies that decided to put off their listings until better times.
The delays of the initial public offerings (IPO) of Amarad, a company handling the execution of metallic structures, and the brokerage company IFB Finwest and the hold-ups in the listing of metering systems producer Contor Group and investment fund STK Emergent have been listed as reasons to pity the BVB for its lack of sex appeal with issuers.
“In the case of most companies that had the intention to finance their development using the capital market, the decision to put off the listing is definitely the best one under the current market conditions. This is especially true for companies that had plans to get listed six months or even a year ago and expected to acquire much larger sums of money than they would be able to attain right now,” said Marius Pandele, head of research with Vanguard.
“The evaluation of an issuer during an IPO is also based on how the company compares against similar companies already floating on the stock exchange. When these latter companies post big drops in their quotations, the price of shares for the new issuer will also drop significantly even though the long-term prospects of the business remain the same. Under these circumstances, most of the delays are fully justified,” Pandele added.
However, things are worth looking at from a different perspective as well.
Last year, several companies announced their intentions to float on the BVB, but for various reasons only one actually did – Transgaz. Still, the general sentiment was positive and people were confident that things were going in the right direction.
This year, things are reversed.
“Right now, the Pomponio IPO is underway, this being an integrated company in the construction sector. The offer is interesting both as regards its future potential and multiples valuation. Other companies have also made public their intentions to get listed, in higher numbers than last year,” said Andreea Ciobanu, chief researcher with Intercapital Invest.
The public perception is that issuers are running away from the BVB, when in fact, there have been more IPOs in the first months of this year on the BVB than during the whole of 2007, and a few more are sure to come.
While it may be true that the values of IPOs this year were not spectacular and neither were their subscription rates compared with the previous years, they do prove that the BVB has managed to attract some issuers in the worst of times and there is little reason for alarm.
One of the things it had working for it was the cost of bank lending.
“Bank loans have gotten more and more expensive in the last period, which is why liquidities resulted from listings on the capital market have become a more attractive alternative for companies,” said Ciobanu.
Five companies have hit the local capital market so far: PVC producer Teraplast, hotel company Casa de Bucovina, and Austria-based Erste Bank have been listed, while already mentioned STK Emergent and Contor Group went out with IPOs, but delayed their actual listings.
Aside from these five new additions to the BVB's portfolio, several more are sure to follow and a few others are definitely-maybes.
The Transportation Ministry announced at the end of last year that it would list eight commercial companies under its authority. They include four airports and four maritime administrations.
State company Nuclearelectrica also said it would propose to its main shareholder, the Economy and Finance Ministry, to have 15 to 20 percent of the company listed on the BVB. The money will be used to partially finance the building of Cernavoda nuclear reactors 3 and 4, estimated to cost some EUR 2.2 billion, said Nuclearelectrica GM Teodor Chirica.
Aside from state-owned companies, private players are also on a quest for capital. Clothing retailer Tina R announced it planned to get 30 percent of the company listed in the fall of this year. Shareholders need the money to finance Tina R's territorial expansion and open at least ten new stores within six months of the listing.
Home appliance and IT equipment retailer Domo has also made public its intention to get listed this year, possibly on three capital markets simultaneously: BVB and the London and Sofia stock exchanges.
The listing of the Property Fund is long overdue and might occur by December according to the most optimistic estimates.
Transportation company Cefin Holding is considering floating on the BVB, while telecom player Romtelecom is also supposed to hit the stock exchange market by the end of this year.
Not considering other potential listings, numbers already add up to about 14 companies that might float this year. 2008 might be the year when BVB adds almost 20 new issuers to its portfolio, many more than in any of the recent years: there was merely one IPO in 2007, three in 2006 and five listings in 2005.
Some companies could change their minds about the listing as others have before them, but other players might decide to go ahead with it to avoid additional costs.
“The cost of hold-ups varies from one case to the next. In some cases we may be talking about insignificant amounts of money. In others, companies may have to pay consultants and IPO intermediaries once again. It also depends on each company's need for capital: they might have to solicit bank loans to compensate for the lack of capital from the BVB, or they might have to give up on important business opportunities, which can also be viewed as a cost of the delay,” said Pandele.
Whether all of the twenty or so companies actually go through with the listing or not, whether they use it as a means to get free publicity or are genuine about their intentions, this is still an optimistic outlook for the BVB.

By Ana-Maria David