Local stock exchange on track to emerging status

The prospect of the Romanian stock exchange moving from the status of frontier to emerging market in 2016 is “realistic”, provided that trading barriers are removed, said Ludwik Sobolewski, CEO of the Bucharest Stock Exchange (BVB), last week.

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He tipped Romania to make the watch list of the MSCI Emerging Markets Index in the middle of 2015, and join the elite club the following year. Romania would rank alongside other CEE-based emerging countries such as Poland and Hungary.

Sobolewski said that in order to make it onto the list, the local market needs three companies with a market capitalization above USD 1 billion and a free float of around USD 500 million. In addition, their shares would have to be very liquid – the sole criterion where Romania is falling behind. He mentioned oil major Petrom, gas producer Romgaz and lenders Banca Transilvania and BRD Groupe Societe Generale as the listed companies that could secure Romania emerging status.

The initial public offering in Electrica, the state-owned electricity supplier and distributor, would also help the country in this regard. The government aims to raise over EUR 400 billion from this listing.

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“With respect to market cap and free float, we will meet requirements after the Electrica IPO, and for liquidity we have to eliminate the barriers to clear a highway through this jungle for investors with money, so international guys,” Sobolewski told reporters.

He warned that Romania may face a one-year gap in the listing of state-owned companies after Electrica, because hydroelectricity producer Hidroelectrica will be ready for an IPO sometime in 2015. The company, which is currently in insolvency, is part of the privatization program agreed with international lenders.

Bill to streamline trading

The government is set to approve an emergency government ordinance this month designed to cut red tape and ease investors’ access to the market, according to Sobolewski. The bill was written by the Financial Supervision Authority (ASF) with contributions from the BVB, Ministry of Justice and Ministry of Finance.

Separately, the BVB is also trying to fix some of the legal and fiscal obstacles to the development of the market.

“We want to change some regulations related to withholding tax in order to facilitate the issuance of bonds, and one of the changes in which we are interested relates to lending and borrowing on securities, so this is connected to short selling,” said Sobolewski.

Wooing private companies

The CEO said that convincing private companies to go public on the BVB remains a priority, predicting that listings will come once the legislation is streamlined and more investors enter the market.

“Access to the market must be easier, so we will have a more liquid market and better secondary trading, which will lead to better valuation. This will be another incentive for private businesspeople to come to the market,” said the CEO.

He added that the BVB is working on turning its Alternative Trading System (ATS) into a market for small firms in the second half of this year.

Sobolewski did a similar thing during his tenure as head of the Warsaw Stock Exchange, where he set up the new Connect Platform. More than 400 small companies were listed here, some of which even listed on the main market.

He outlined some of the changes he has made since coming to Romania in late 2013, such as the pilot program for extending trading hours and the restructuring of BVB indices.

According to BVB data, the value of trading for the regulated market, public offers included, rose in the first months of this year by 25.8 percent compared to the same period of last year to EUR 1.1 billion. The market capitalization on the regulated market amounted to EUR 29.7 billion last month.

Ovidiu Posirca

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