Romanian energy companies face dual listing dilemma

Romania is planning to sell minority stakes in four state-owned energy companies on the Bucharest Stock Exchange (BSE) this year, but is also considering London or Vienna as potential destinations for a secondary listing, in a move to increase the investor base and raise awareness of the Romanian story. However, some fear this will only drain liquidity from the domestic market.

Ovidiu Posirca  

Transelectrica, the grid operator, was the road opener for the listing seasons agreed with the IMF, gaining EUR 37.6 million from an oversubscribed secondary public offering. Transgaz, the gas transmission operators, will carry out an SPO estimated to raise around EUR 100 million on the BSE. However, the government is considering dual listings in Romgaz, the natural gas producer, Hidroelectrica, the hydro-power producer, and Nuclearelectrica, the nuclear power producer, in September, October and December. The government will sell minority stakes of 10 and 15 percent in these companies and should cash in around EUR 875 million, according to estimates by the Property Fund (FP).

Dual listings too soon?

Lucian Isar, delegate minister for the business environment, told Reuters last month he was pushing for dual listings as this would be good for the state and the results of the IPO. Isar said the government would stick to the privatization plan and was also pondering a dual listing in London or Vienna. This March, the BSE signed an agreement with the London Stock Exchange (LSE), in order to promote Romanian companies to London-based investors.  The dual listing process of a Romanian company on another EU stock exchange is quite straightforward, according to Madalina Rachieru, counsel at law firm Clifford Chance Badea.

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“The CNVM (securities commission) approves the prospectus in Romania and then ‘passports’ the prospectus to its peer in the other EU country. For example, in my experience, passporting the prospectus into Austria or Poland takes one or two days, followed by a few more days for the listing application to be approved by the relevant stock exchange,” explained Rachieru. She added that the Romanian Central Depositary has to establish direct or indirect interconnections with its peers in other states, in order to ensure the fungibility of shares. The dual listing topic was discussed last week during a seminar organized by the Bucharest Stock Exchange and law firm Musat & Asociatii, attended by investment bank representatives and local capital market specialists. The Romanian capital market has the possibility to absorb the largest offers, including Romgaz and Hidroelectrica, according to Bogdan Chetreanu, commissioner at the National Securities Commission (CNVM).

“Personally I don’t see the feasibility and the purpose of a dual listing for these companies. I assume this is desired as there is not thought to be enough money on the Romanian capital markets,” said Chetreanu.  The commissioner pointed to the cases of Ukraine and Azerbaijan, where the domestic markets were deprived of liquidity which moved to Warsaw or London, adding that this is more of a political issue in Romania than a market one.

Implementing the global accounts system on the BSE, further improving the access of investors to Romanian-listed companies, would also prevent the drain of liquidity, at the same time making external financing available to domestic companies, suggested Miruna Suciu, partner at law firm Musat & Asociatii.

Adrian Lupsan, deputy director at Intercapital brokerage and BSE vice-president, said Romania would not get a better price by dual listing the power generators, although he is a fan of this transaction type.

“Maybe today we need to sell the minority stakes on the domestic market and develop the capital, build a positive history, and then in two or three years we could list another 10 to 15 percent in London or Vienna,” said Lupsan. Choosing the BSE as the sole listing destination is also supported by Nicolae Moroianu, executive director at BT Securities. “As long as we only list companies and sell small stakes and keep control of these companies it is better to list them in Bucharest,” he said. BT Securities is part of the investment consortium involved in the Transgaz SPO.

“The Romgaz listing is worth several hundred million Euros. We have to carefully analyze an eventual double listing. This is not necessarily the option I favor, but I don’t rule it out,” said Dan Weiler, executive director of corporate finance and investment banking at BCR. Austrian Erste Bank and BCR are part of the Romgaz listing consortium.

Tom Attenborough, managing director at CSEE Banking Citibank London, said that Greece, Hungary and the Czech Republic had chosen to add a London listing to their privatization program, which brought more familiarity in terms of currency and regulation for investors. On the long term, the domestic stock exchanges will see a natural flow-back of liquidity. Citi is part of the Hidroelectrica IPO consortium.

Linking options

Vienna, Warsaw and London are the dual listing candidates, but the Central Depositary in Romania is currently linked only to the Austrian one. This is also giving headaches to the Property Fund manager, who wants a secondary listing of the EUR 3.5 billion closed-end fund in Poland by year end, although no link between the two markets has been set up yet. However, the FP could carry out the secondary listing through a custodian bank, if the depositary link remains only on paper.

“Warsaw is an attractive option; London is always going to be a strong competitor. They’ve been supporting a lot of emerging market IPOs over the years and forged an alliance with the BSE. Both of them offer the best alternatives for issuers,” Attenborough told BR. He added that Vienna offers fewer advantages apart from the existing depositaries link. In May the BSE had a market capitalization of EUR 16.8 billion and a daily average turnover of EUR 9.76 million, with 81 listed companies. Meanwhile, the Warsaw Stock Exchange had a market capitalization of EUR 148 billion, with total turnover value of around EUR 20 billion, from 435 listed companies.

Listing profiles

The government will sell a 15 percent stake in Transgaz through an SPO this summer, but the rating agency S&P put the long-term foreign and local currency ratings at BB+ with negative outlook. The company may be downgraded in the near term due to gas volumes lost in the last five years on the existing tariff-setting mechanism. In addition, the government set a 90 percent distribution level for all state-owned enterprises to support the national budget. The rating agency said Transgaz had to cut capital expenditure on the medium term to offset the higher dividends. However, this stifles investments in the Romanian gas transmission network, which needs upgrading.

Transgaz reported a net profit of around EUR 40 million in the first quarter of this year. Romgaz will list a 15 percent stake on the Bucharest Stock Exchange and should cash in around EUR 277 million, according to FP estimates. The company is currently undergoing an audit of its gas deposits and is due to carry out the IPO by September. The gas producer reported a net profit of around EUR 180 million in 2011.

Nuclearelectrica will be listed on the BSE through a 10 percent stake and is poised to raise around EUR 118 million by FP estimates which will be used to increase the share capital. The nuclear power producer has just restarted the intermediary consortium selection process and is expected to complete the deal by December. The company estimates a EUR 20.5 million profit for 2012.

Hidroelectrica, which produces one third of Romania’s electricity, should get EUR 381 from listing a 10 percent stake, which will be used to increase share capital. The company hired a new general director earlier this month, and is among the SOEs awaiting the appointment of private management. However, Hidroelectrica is also grappling with the energy “smart guys”. These are companies that secured long-term electricity supply contracts with Hidroelectrica at advantageous fixed prices.

The Competition Council is currently investigating the volume and duration of contracts closed with these companies, while the European Commission is looking at the contract pricing.

The private management and the preferential power supply contracts may not impact Hidroelectrica’s listing if they are dealt with in the right way, according to Attenborough. “Those are issues that are clear to everyone and as long as they are disclosed in the right way, I don’t think in themselves they create an obstacle to completing a successful transaction,” he told BR.

Hidroelectrica’s net profit fell to EUR 1.5 million last year due to drought conditions in 2011. Rating agency Moody’s changed the outlook on the firm to negative but kept the rating at Ba1. The decision was triggered by the company’s growing operating costs and limited ability to renegotiate bilateral supply contracts.

ovidiu.posirca @business-review.ro