New year rings the bell of change at the BSE

Banker Lucian Anghel has been appointed the new president of the Bucharest Stock Exchange (BSE), replacing the most prominent figure on the local capital market, Stere Farmache. With several public offerings of state-owned enterprises in the pipeline, BR asks the experts if the new man can improve the performance of the stock exchange.

Ovidiu Posirca

BSE shareholders decided in January to change the board of administration, electing Lucian Anghel as president of the BSE board. The 39-year-old chief-economist of the BCR defeated Stere Farmache, who has been the figurehead of the stock exchange ever since it started operations back in 1995. However, Farmache will remain a member of the new structure. The new board includes representatives of several brokerage firms, banks, a law firm and the Property Fund.
 

Aiming for a modern BSE

Read more about

Creating Social Media Posts That Drive Traffic To Your Website

read more

“Stere Farmache has long been identified as the creator of a modern stock exchange in Romania. At the same time, a fresh spirit can help and Lucian Anghel is a professional with an impeccable reputation,” says Madalina Rachieru, counsel at Clifford Chance Badea law firm.  

The former BSE board has been busy over the last few months, sacking the general director of the stock exchange, Valentin Ionescu, for failing to sufficiently monitor operations involving structured products and a lack of attention to the Petrom SPO (secondary public offering), which failed due to insufficient subscriptions. Alin Barbu was named deputy general director, but the new administration board will have the appointment of a new director as priority.

“It is important for the new board of administration to ensure the integration and coagulation of approaches and actors, leading to the modernization and maturing of the capital market,” says Cristina Virtopeanu, capital markets practice coordinator at NNDKP.

The board is currently working on establishing several objectives, and investors are waiting to see the plan.

“Investors are confident. They have positive expectations on this change and are waiting for measures that will boost the attractiveness of the market,” says Miruna Suciu, partner at law firm Musat&Asociatii.

“This move will bring fresh air into the dusty lungs of the BSE. Lucian Anghel is a highly reputed economist and already the Romanian stock market has jumped following his successful election. Stere Farmache sailed the BSE ship through tough storms, with positive and negative results, but after 16 years it was time to hand over command of the BSE to a younger, ambitious economist. I see this change as a positive one for the stock market in general and await more details regarding Anghel’s plans for the BSE,” says Vasile Szakacs, private consultant on stock market investments and owner of www.consultantabursa.ro.

All the president’s roles

Although the general director handles the executive elements of the stock exchange, the president of the administration board is an informal leader, conveying the shareholders’ point of view, ensuring a functional relationship with public authorities, in a year that will be marked by the listing of several state-owned entities on the stock exchange.

“Functionally, the president is the shareholders’ representative, ‘controlling’ whether the executive completes the objectives in the mandate. It is a crucial position as the president represents the will of shareholders regarding the integration of the capital market in Romania or in partnerships with other bourses,” says Dragos Cabat, partner at eFin.ro. “Although the BSE president can’t influence the performance of listed companies on the capital market, it can impact its relationship with other market institutions, the BSE brand or even act indirectly to list the issued shares on the capital market.”

Official data reveal the BSE had a market capitalization of EUR 16.3 billion at end-December 2011, with more than 79 listed companies. The equities turnover was EUR 8 million/day.

Management changes have taken place in the Vienna Stock Exchange as well, the platform on which 15 Romanian blue chip stocks can be traded under the Romanian Trade Index (ROTX EUR), which has a capitalization of EUR 2.7 billion.

“The introduction of new instruments, the attraction of the high profile issuer, increasing market liquidity, and the coordination of technical trading conditions with those of regional performers are some of the expected measures with consequences on the local capital market,” says Virtopeanu.
 

Local equity market set to grow
The Romanian equity market remains the most attractive in the CEE region, along with the stock market in Poland. The Turkish market is also rated positively by Erste analysts in the 2012 CEE Equity Strategy report.

The equity market in Romania will be able to attract foreign investors provided that the government sticks to its plan of selling stakes in state-owned companies on the BSE. However, Erste analysts warn that the institutional investor base is low in Romania, which could reduce the subscription targets for offerings in utilities and energy producers.

At the beginning of 2011, the Property Fund was listed on the stock exchange which increased liquidity on the capital market and boosted the financial results of the stock exchange. The net asset value of the fund is EUR 3.3 billion, with 86 percent being shared by companies in the energy sector, such as Hidroelectrica, OMV Petrom, Romgaz and Nuclearelectrica.

However, Franklin Templeton, the sole manager of the fund, wants a second listing on the most dynamic market in Eastern Europe, the Warsaw Stock Exchange. This move is still under discussion, as the regulatory body, the Romanian National Securities Commission, fears liquidity will be drained from the BSE.

Busy season for public offerings

Austrian Erste Group, which gained a foothold in Romania through the acquisition of BCR, expects the Romanian equity market to enjoy increased visibility, as the government seeks to sell stakes in state-owned enterprises.

Romania will this year sell a 15 percent stake in Romgaz, the largest producer of natural gas, which is currently engulfed in a corruption scandal, for EUR 300 million. The government will also try to raise EUR 40 million from the Transelectrica SPO and another EUR 85 million from the Transgaz SPO, both utilities where the minority stakes will be sold at a discounted price.

Erste says that the IPOs of energy producers Hidroelectrica and Nuclearelectrica will be delayed until 2013, as the profitability of these companies hasn’t improved significantly. The same goes for telecom company Romtelecom and airline Tarom. The government failed to sell a 9.84 percent stake in Petrom on the BSE last year and no date has been set for resuming this offer.

Last week, the government approved the privatization strategies of Hidroelectrica and Nuclearelectrica. Both energy companies will issue a 10 percent share package by increasing the current share bloc, allowing private investors to bid for the minority stake. This latest decision comes under the agreement signed with the troika (International Monetary Fund, European Commission and World Bank), whereby Romania will sell minority stakes in state-owned firms, and reduce the level of arrears.

The Ministry of Economy holds an 80 percent stake in Hidroelectrica, while the Property Fund has the remaining 20 percent. In Nuclearelectrica, the Ministry of Economy holds a 90 percent stake and the Property Fund 8 percent.

Hot stocks in 2012
Analysts at Erste say the most visible stocks in 2011 were Petrom, the two utilities Transelectrica and Transgaz, the Property Fund and the SIFs (financial investment firms). The companies posted strong financial results last year, allowing yields for dividends to climb above the 6 percent threshold, in some cases reaching more than 10 percent, as in the case of Transgaz.

For 2012, Erste sees Transelectrica and Transgaz as good investments, despite a regulatory risk. The recent increase of the SIF ownership threshold from 1 to 5 percent should also raise interest. The deal closed between the SIFs and Erste Group Bank for BCR has changed the portfolio structure of the investment firms, which will raise the percentage of listed companies in their portfolio. Thus, trading will be done at lower discounts, less than 50 percent.

Analysts say oil and gas company Petrom is also a good stock option as the strong upstream profile makes it a cheap stock in the current oil market.

ovidiu.posirca@business-review.ro

New board of administration at BSE
Lucian Anghel – president, BCR
Stere Farmache – Alpha Bank
Dan Paul – Broker’s Association
Schroll Matjaz – Franklin Templeton
Valerina Ionescu – BCR
Adrian Lupsan – Intercapital Invest
Narcisa Oprea – Schoenherr & Associates
Cosmin Pana – Swiss Capital
Octavian Molnar – IFB Finwest