The listing of the Property Fund on the Bucharest Stock Exchange, which has been repeatedly postponed over the past few years, now appears imminent. However, there remain several issues to be resolved before the project is given the green light, like whether the listing should be done before signing the contract with the new fund’s administrator, who will be in charge of the evaluation and what the best price per share would be.
By Dana Ciuraru
The listing of the Property Fund on the Bucharest Stock Exchange (BSE) is top of the list of priorities for the fund’s board for 2010. At the beginning of this month, Sebastian Vladescu, the finance minister, announced, “There is a strong chance that the fund will be listed on the BSE in 2010.” Moreover, Ionut Popescu, the fund’s GM, revealed without commenting on the possible timing of the listing that there are guarantees both from politicians and fund management that the fund will be listed this year.
According to Popescu, the plan is to start listing procedures before signing the administration contract with the American investment company Franklin Templeton, as the current legislation permits such a move. Financial specialists counter that a much more realistic scenario would be listing the fund in 2011, after which Franklin Templeton would take charge of its operations. “The signing of the contact with Franklin Templeton would result in an additional year’s delay in the listing, due to the procedures that need to be initiated for admission to trading, thereby giving us good reason to expect the fund’s listing in 2011,” Andreea Gheorghe, head of the research and analysis department at Intercapital Invest, told Business Review.
What has delayed the listing?
The Property Fund was set up at the end of 2005 with the purpose of raising the necessary financial resources to compensate people whose properties were seized by the communist regime. So, why has it not been listed on the BSE before now? A good question, to which there is no straight answer.
Specialists highlight several reasons why the fund has been kept outside the Romanian capital market. “The need to change the regulatory framework, the process of selecting an administrator and afterwards the advent of the financial crisis are just a few of the main reasons for the delay in the fund’s listing,” Marius Pandele, head of research at Tradeville, told BR. Moreover, last year, the political uncertainly put the issue of the fund on the backburner, as it was unclear what stance the new government would take on the topic. “As the administrator has already been chosen and the fund is now in a clear and transparent situation, everything depends on the decision of the management and major shareholder, the Finance Ministry, regarding the listing,” he said.
Listing price remains a mystery
According to Intercapital Invest’s evaluation, the listing of the fund would raise the capitalization of the BSE by 13 percent. Moreover, according to Gheorghe, if Erste Bank were to be excluded from these calculations (as the only international issuer on the BSE), it would increase the BSE’s capitalization by 26 percent. So the listing is in the interests of both state institutions and the fund’s 3,000 shareholders.
The listing price is another important unknown quantity. The fund’s titles have been traded on a non-transparent market for over two years now, priced at much lower levels than the market value. The listing on the Vienna Stock Exchange of some of the fund’s contracts in January this year offered the first official prices for the fund’s titles, between RON 0.3 and 0.32 per share. “Uncertainty over the exact timing of the listing explains the high difference between the fair value based on fundamentals and the price of current OTC trades. In my opinion, investments in the Property Fund need to be considered on a longer term of two-three years or more,” said Gheorghe. A first step in the direction of listing the fund on the BSE was taken recently by the fund’s directorate, which consulted the top five brokers, BRD-SocGen, ING Bank, Raiffeisen Capital Investment, BT Securities and KBC Securities, who will be in charge of the procedure.
The financial and banking sector accounts for the majority of the current capitalization of the BSE, whereas investment in the Property Fund’s shares would provide exposure on the utilities, oil and gas sectors. According to Intercapital Invest’s analysis, investments in utility companies represent 46.91 percent of the fund’s portfolio, whereas oil and gas companies account for 44.22 percent. “Strangely, the fund’s financial evolution has been a pretty good one, with the 2007 and 2008 results reaching a satisfactory level, considering the market conditions: the lack of an administrator, uncertainties over the fund’s future, and many management, portfolio and regulatory changes,” said Pandele.
In 2007 and 2008 the net profit reached RON 313 million and RON 467 million respectively, pretty much based on the dividends obtained for the companies from the fund’s portfolio and bank deposit interest rates.
Furthermore, last year the fund sold several important participations. The most recent transaction has been the sale of its 17.36 percent stake in Centrofarm, for RON 6.83 million, which generated RON 4.08 million in profit.
“The most substantial transactions were the sale of the stakes in electricity service providers and distributors CEZ Vanzare (30 percent of issued shares) and CEZ Distributie (30 percent of shares), from which the fund cashed EUR 229.5 million. The figure is 2.3 times higher than their value recorded in the fund’s assets. In October last year, the fund also sold CEZ Servicii (12 percent of issued shares) for EUR 1.6 million, almost eight times higher than the initial investment,” said the head of research at Intercapital Invest.
But despite the positive trend, the Tradeville representative emphasized that the fund’s capital profitability reached 2.16 percent in 2007 and 4.28 percent in 2008, below the bank interest rates from that time. Financial specialists estimate that closing the deal with an administrator would most likely mean the end of the period when the Property Fund was more a dividend and interest rate charger and would lead to an administration oriented towards searching for investment opportunities.