Small turf sees BSE and Sibiu Exchange BMFMS markets overlap

“We cannot speak about competition between the Sibiu Monetary Financial and Commodities Exchange (BMFMS) and the BSE at this point. It would be like Brifcor [a local beverage brand] running against Coca-Cola,” said Paul Brendea, financial analyst with Prime Transaction.
“Nevertheless, our Brifcor has proved to be a dynamic player in the past few years. The people in Sibiu have done a lot in a very short time and the Polish exchange has clear chances of increasing the efficiency of BMFMS's efforts,” said Brendea.
Undoubtedly, the WSE's acquisition of a 1.8 percent share in the BMFMS will weigh significantly in the rivalry between the two local exchanges.
The head of the Sibiu Stock Exchange, Teodor Ancuta, has already announced that the BMFMS wants to become the leading exchange in Romania in the medium term and will have a solid spot market in Sibiu sometime next year. Both BMFMS and its Polish shareholder have announced plans to increase WSE's share in the Sibiu exchange, provided regulations regarding the five percent ownership cap are lifted.
Still, the effects of the Polish exchange's coming will not be limited to Sibiu, say analysts.
“The arrival on the market of a strong foreign exchange like the WSE will have a positive influence on the development of the Romanian capital market. Capital flows that might be brought in by the new shareholder will lead to an increase in the competition between the Sibiu and the Bucharest markets, which will eventually benefit the end-user, namely investors,” said Mihai Frunza, financial analyst with Vanguard.
The competition would also benefit intermediaries, which have shares both on the BSE and the BMFMS, said Brendea.
On top of it all, the WSE will bring in significant know-how, which it has accumulated over the years, and the experience of people who managed to attract an impressive number of new issuers in a small period of time, he added.
Issuers are something both the BSE and BMFMS could use, since the number of IPOs has always been limited on the local capital market and the BSE will have its first initial public offering in 2007 this month, when Transgaz is scheduled to hit the market.
Still, both exchanges will have to go to great lengths to convince local companies of the benefits of first getting listed, and secondly of floating on a local exchange rather than on the London Stock Exchange or other external markets.
“It is possible that given the logistical support from Warsaw, the BMFMS will be able to find new issuers, which is something the BSE has not managed to do in the past few years. If the people in Sibiu prove to be good sales people, then they will manage to have issuers,” said Brendea.
At the end of it, even though the BSE-BMFMS pair resembles David and Goliath in size, time will tell how feasible is the BMFMS plan to set up a spot market and compete directly against the BSE, agreed the analysts.
“Most likely, it might be a while until the number of new issuers is sufficiently big as to cover the costs of keeping up a regulated market and even bring in added value. However, one must not jump to conclusions and think that if there are not enough issuers at present then it is useless to set up a new market,” said Brendea.
Of course, as is often the case, some specialists are skeptical about BMFMS's bold plans.
“I think that the Romanian capital market is too small to have two exchanges, one in Bucharest and the other one in Sibiu. To have a stronger capital market, there need to be richer investment opportunities. This objective can first be attained if there exists the political will to bring more state-owned companies on the stock exchange and secondly if private companies gain a better understanding of the benefits behind a listing,” said Mihail Ion, president and CEO of Raiffeisen Asset Management.
The credit crunch, the lack of transparency on the market and several other factors have indeed added to the BSE's relative lack of appeal in recent weeks, which only adds to pre-existing capital market problems, including the fact that in August, the BSE averaged only 7,000 trades per day, transaction volumes have gone down since, and the BET “blue-chips” index is too small for the Romanian market, featuring only 10 companies.
Frunza warned of the consequences of overlapping focuses between the two exchanges.
“The plan to have a spot market in Sibiu seems feasible to me, but there will not be any spectacular results immediately after the launch of the new market. There is a similar situation at the BSE right now: the liquidity for the new futures segment of the market is very low,” said Frunza.
Speaking of the BSE, in the coming period its reports with external players will be limited to collaborations within international organizations and signing memorandums of understanding (MoU), said general manager Stere Farmache.
“So far, the BSE has signed MoUs with eight foreign exchanges with the main purpose of ensuring an efficient frame that will allow an exchange of information and know-how between them. In some cases, like the MoU signed with the Wiener Borse, the collaboration also had the purpose of helping with specific projects like the launch of the ROTX index or disseminating stock exchange information,” said BSE general manager Stere Farmache.
Analysts say this is generally the way to go for the BSE, as it would not be advisable for it to try to make a similar move to that of the BMFMS and try to attract an experienced foreign shareholder.
“The BSE's primary priority is to develop the market, increase the number of issuers, the capitalization, the transaction value, etc. All these are not the job of shareholders, but of the management,” said Brendea.
Besides, ideally the BSE would have to take over another exchange and not the other way around.
“It is clear that, if the law permitted any shareholder to have more than five percent of the exchange and this shareholder were a developed foreign exchange, there would be a greater chance of seeing more foreign companies on the BSE, more active intermediaries, more investors. However, I repeat, this is not the best development course. It would be best that the BSE grew through its own efforts,” said the Prime Transaction analyst.
The BSE's plans for the future are already laid out until 2010.
“By that time, the BSE wishes to get the most important local companies listed – both state-owned and private – and attract international companies which have developed successful businesses in Romania,” said Farmache.
The exchange will also reduce the timeframe between the moment when an IPO is closed and the time when shares start being traded, which would hopefully add to the number of IPOs on the Bucharest stock exchange, said Farmache.
Analysts remain skeptical about the BSE's chances of success.
“There are many news of future IPOs on the market. Once every week we hear about Hidroelectrica, Electrica, the Property Fund, sometimes even Constanta Port or the Henri Coanda Airport. Then there are also the private companies who announce that they might get listed. The news is encouraging, but so far there have only been stories,” said Brendea.
He added that it would be alright if the BSE managed to have at least five IPOs next year, even though they might not be state-owned monopoly companies.
“I hope that the number of companies listed next year is at least equal to that of the announcements by various companies and a lot higher than the two scheduled for the end of this year: Transgaz and Electrica. An important step in this direction would be to finally complete the listing of the Property Fund,” said Frunza of Vanguard.
The BSE's plans to up the number of firms floating on it are also hindered by some of the local companies' plans to get listed on external exchanges instead.
Romtelecom, RTC Holding and Rompetrol Group, for instance, are all big names on the Romanian corporate landscape, whose listings on the BSE would considerably increase the market's liquidity, capitalization and most of all its standing. Unfortunately, all these companies are looking over its shoulder, toward the London Stock Exchange, as did A&D Pharma last year.
In spite of that, the BSE's present and future are not as grim if one takes a look at year over year growth rates.
“We expect the total capitalization of BSE markets, including Rasdaq, to go over EUR 35 billion and close to EUR 40 billion by year-end, against EUR 25 billion at the end of 2006. As regards the annual value of transactions, it will go over EUR 5 billion this year, compared to merely EUR 3 billion in 2006,” said Farmache.

By Ana-Maria David