Property Fund drags feet on road from paper to paper money

The Property Fund (FP) was set up in 2005 to offer compensation to people whose assets were confiscated by the Communist regime. Its basic objective was to give those people shares for the money or properties they had lost and a means to sell those shares in exchange for money if they wanted to.
The first item on the agenda – the share distribution – got done. The second part – the listing of the fund – has already taken years and continues to be indefinitely postponed, for various reasons.
The most recent delay came as recently as last week. It came in the form of a draft law issued by the administration attempting to set up a commission responsible for the selection of a fund administrator for FP and the content of the contract between that company and FP. Should the draft become law, the commission would be granted full power in handling this entire pre-listing process, leaving out the fund's management almost entirely.
On hearing the news, investment fund managers and market analysts' first reaction was to wonder
whether this would not further put back the deadline for the listing.
For some shareholders the considerable wait for cash has already been too long.
“The long delays in implementing and listing the fund have resulted in big losses for many of its shareholders who have been forced to sell on the gray market at heavy discounts. These individuals have been, for the most part, unsophisticated, older and often in desperate economic circumstances, which leaves them open to exploitation. It continues to reflect the sham that the Romanian justice system has made of restitution,” said Matei Paun, managing partner of BAC Investment.
Aside from this rationale, why is the decision to set up a commission in charge of the bid for the fund administrator so contentious after all?
Firstly, because it contravenes existing national laws, said Dan Visoiu, partner at the Biris Goran Law Firm.
“Since the Property Fund is a company limited by shares (S.A.), under the Romanian Companies Law, it is the right of the shareholders and/or the board of directors to oversee the tender procedure and to make any and all decisions regarding the selection of the future investment manager. There is no legal basis or rationale whatsoever for a special commission usurping the rights granted by the Companies Law to the shareholders and/or the board of directors. Consequently, only the Property Fund's shareholders and/or its board should be making decisions about the tender process and the selection of the future investment manager,” said Visoiu.
“I believe that, first and foremost, non-political representatives of the beneficiaries of the fund should be represented and consulted on all key steps. Not only large stake holders, but also representatives of thousands of smaller stakeholders who presently lack a voice, and who will suffer the most from further delays and complications,” said Paun of BAC Investment.
He then questioned the proficiency of the current FP management. “The actual management of the fund needs to be replaced by a professional, independent and accountable firm with experience and
a reputation to uphold. The sooner this happens, the better,” Paun added.
The second reason why the suggestion to set up a commission is being frowned upon has to do with the administration's fast-changing state of mind. More precisely, analysts say the draft law is proof that the administration is once again thinking things through as it goes, not planning ahead.
“The question is why the last minute change of strategy? Why was this not thought of, and implemented, when the fund was initially set up? Any change in the rules or the strategy leads to questions and, inevitably, to delays. Normally, the best way to postpone a decision is to appoint a committee,” said Paun.
Indeed, analysts agreed that the FP's long-overdue listing is at risk of delays of one or two more years and could result in even more deprived investors selling their shares at meager prices. “If the draft legislation does not become law, then I reasonably foresee the fund finally being listed during the second half of 2009. Otherwise, due to the lawsuits which will surely be filed by existing shareholders, most likely in 2010 if not even 2011,” said Visoiu of Biris Goran.
“The long awaited listing is like a lost chapter in Waiting for Godot! The sooner the fund is listed, the sooner a real market for its shares will be created, thereby giving its beneficiaries access to liquidity. Of course, the longer this is delayed, the more time savvy investors and other assorted insiders have to accumulate such shares in the opaque and illiquid unofficial market at great discounts,” said Paun.
Consultant Bogdan Baltazar said he doubted the administration would this time stick to the mid-2009 listing date, as promised. “I have seen it being pushed back so many times that I have lost any interest in the subject,” he said.
“The listing of the fund should have been done according to the initial schedule, meaning within a very short period after the respective legislation came into effect in 2005, as the listing on an international exchange as well as the Bucharest Stock Exchange (BVB) would have ensured that a proper structure and management would have been in place years ago,” said Visoiu.
He continued by pointing out that the current mess-up is a direct consequence of errors in FP's game plan that have been there since its inception in 2005.
“The only ‘just compensation' which could be paid to former owners who cannot get their property back is cash, as has been confirmed by various decisions from the European Court of Human Rights, and not risk-bearing instruments such as shares. This means that from the very beginning, or shortly after the listing, the Property Fund should have issued bonds in order to be able to pay cash to the former owners,” said Visoiu.
As regards the FP's take on the events, its representatives said they cannot comment on a government decision before it goes from a mere draft law to actual legislation. They added that the FP has no information as to when that might actually happen and declined to express their view on the administration's plan.
The FP holds shares in more than 80 local companies – majority or minority state-owned – including all the top firms in the energy field. It also boasts participations in big oil & gas companies such as Petrom and major economic players such as Alro Slatina, Romgaz, the Romanian Post Office and all major international airports among others.
The fund posted a EUR 93 million net profit at the end of last year and revenues amounting to EUR 122 million.
The Romanian government currently controls about 85 percent of the fund, with the rest being held by Romanian citizens.
By Ana-Maria David