Anghel aims to give BSE wings

Newsroom 26/03/2012 | 08:51

Lucian Anghel, the new president of the Bucharest Stock Exchange (BSE), wants to turn the institution into a real financing pillar of the economy, allowing SMEs to tap into the market. He says the public offerings for state-owned enterprises (SOEs) planned this year are crucial to make the BSE a regional financial hub. Anghel told BR about his ongoing battle to make the local stock market more appealing to Romanian and international investors.

Ovidiu Posirca

What are your plans for the BSE?

We want to transform the stock exchange into a platform to finance the economy. In the first stage we are talking about state-owned companies, and after successfully showing, even to the state, that the stock exchange can finance the economy, we hope to convince private companies to seek finance for development on the stock exchange to create jobs and contribute to economic growth.

All the board members have been busy trying to transform the capital market into an alternative financing platform for the economy, and we have set up eight pillars to do this. This includes the successful closing of public offerings and attracting new companies onto the stock exchange (52 eligible companies).

What is the status regarding the BSE CEO?

It is important to say that the board is non-executive. We signed the contract with an executive search firm following a tender to bring in the right CEO for the BSE, who will implement the eight development pillars we have proposed and we expect this to happen fast.

The CEO will bring more eligible companies, improve corporate governance, streamline regulation, reduce bureaucracy and implement international standards for trading. Strengthening companies in the BSE group will also be a priority.

How is the BSE supporting the public offerings of SOEs?

We want to implement turnaround as fast as possible so international investors can trade through brokerages in Romania. We have approved a special package for every public offering launched by the state. The BSE will offer a package of visibility, including conferences and support in roadshows. For Transelectrica the crucial factor will be the price and this listing is the first challenge.

We want to create a financial hub in Romania for SMEs that can seek finance through the stock exchange. The financial market in Romania is dominated by banks, which including leasing make up around 92 percent, and 85 percent is owned by banks with foreign capital.

Large companies will secure financing from mother companies or from banks, while smaller companies need an alternative so it is crucial they have one. This is something the Polish did 15 years ago. They had a vision and focused on it, and the development of the capital market was a national priority.

How should the BSE look by 2015?

By then it is essential that we successfully close public offerings in SOEs that will create a critical mass, increasing the trading volume and establishing trust. When you see that you can finance EUR 40, 80, 300 million through the capital market, it is clear that you can finance between EUR 5 and 10 million for an SME wanting to extend, develop or make an acquisition. At present, investors are saying they’re going out in the capital market and can’t raise EUR 5 million.

Will the government seek to list more SOEs if the current offers are successful?

Of course, and this is a market opener. The last IPO of an SOE on the BSE took place in 2007, so the Transelectrica offer will be a road opener. Once you are successful with the next ones you can prove to the local and international markets that Romania is attractive for international investors and can bring other companies onto the BSE, ensuring financing.

SOEs in different sectors can find additional capital by issuing shares and investing in their own business. Instead of the state owning 100 percent of a company worth 100 units, maybe it is better it holds 75 percent in a company worth 200 units.

The growth alternatives for the economy are EU funds and the capital market, which needs to become a strategic priority in the next 10 years.

Foreign investors say it is hard to buy shares on the BSE. How can you solve this?

If you are an investment fund and you don’t have an account opened in Bucharest, there are Romanian laws and investors say this account opening lasts several weeks, because you need consultancy and lawyers. We want to implement the turnaround, meaning there are large international brokers with accounts in Bucharest that buy shares in the name of international clients and move them into their clients’ sub-account, avoiding this procedure. This is an international standard that we are trying to implement to reduce bureaucracy. We are hoping to implement it by the end of the Transelectrica offer.

The Property Fund (FP) wants a secondary listing in Warsaw, and is also considering London. How will this impact the BSE?

If I put myself in the shoes of Greg Konieczny (the FP manager), I understand there are captive investors in Poland, the pension funds, which can invest in an entity listed in Poland or in other OECD entities that have an investment grade rating. We are not in the OECD, so they have a limit of 5 percent outside. There were 203 IPOs on the Warsaw Stock Exchange last year, so it is hard to consider something outside the country. From this point of view it is important for the FP and I understand this. Moreover, I have started thinking how Poland designed the system; how it developed the pension funds and how it increased contributions in the second private pillar to create a local critical mass.

Our role is to protect the interests of the BSE shareholders and we don’t have any instruments to stop this, but we can implement the turnaround, the best international practices, maximizing the success of SOEs’ public offerings. We are trying to reduce bureaucracy as fast as possible to attract international investors. We don’t have another solution from this point of view for the FP.

How do investment banks of the likes of JP Morgan and Goldman Sachs view the BSE?

The fact they were recently present on a panel during a conference organized by the BSE and the Central Depositary denotes interest in Romania.

They say that if the state chooses a consultant for a public offering, it should fully trust that consultant. Say we want to bring teams to the National Arena stadium, and only two teams can play, and we invite Barcelona, Real Madrid, Chelsea and Manchester United, but each has to come up with a 200-page PowerPoint presentation to show us they can play football, and then we decide which of the four teams play – this is not how things should be done. Do we need to be convinced by JP Morgan, Goldman Sachs and Citi they can carry out public offerings when they do so at an international level?

There are certain things that need to be surpassed. The selected consultant wants a big price for the offer so their commission is bound to value, so they don’t want only to sell.

These banks also say that the best practice models, including Poland, which makes offers, listen to the market. In a public offering, the consortium selected by the state says the market wants a certain price for the company, and the respective governments or Poland accept this price. There isn’t a more transparent and correct instrument than capital markets, so if the market gathers offers and comes up with a fair price, it means that’s it and the state accepts the word of the market. In Romania, we will see this with the Translectrica offering.

What is BCR’s outlook on the economy this year?

We believe Romania’s economy could grow by 1 percent and this would be a good performance compared to the Euro zone which could post a negative performance. A modest growth would be honorable. But we need to absorb EU funds. In FDI, it is essential for Ford to start production to fill part of the void left by Nokia. FDI flows will not be large so EU funds will play a bigger role. The 1 percent growth assumes an agricultural year that will not be too good, creating a negative basis effect. I am confident in construction, as infrastructure has been developed by EU funds, and a surprise element is commerce and services, including domestic consumption. From negative levels of consumption registered in the last three years, we should see gains of 2 to 3 percent in this area compensating for losses in other areas. Electoral periods across the world increase consumer trust but we have to see if this boosts the capacity to buy services. Trust can support property investment such as making home improvements or taking out a mortgage.

How do you combine the positions of president of the BSE and chief economist at BCR?

It is a non-executive position to which I allocated a lot of time at the beginning; I haven’t talked to my children in five weeks. I sleep six hours a night and I have expanded my work and sacrificed my family.

For what?

I don’t think we should stay as witnesses and make value judgments. It is simpler to hang back rather than do something. I believe we have a chance to develop the capital market and Transelectrica is critical.

I want to build a country for my children where they will want to stay, not to see them twice a year. I have the chance to develop something here and after a four-year mandate I will be able to look back and survey my accomplishment.

After the new CEO is appointed my involvement will be reduced and I will return to normal duties. We have Schroll Matjaz of Franklin Templeton, who is highly experienced, and we welcome his presence on the board, because he can explain the role of a non-executive board. We have a strategy, a vision, and we will have a new CEO, so we will establish the targets, and the CEO will work around the clock. So I can start seeing my children again.

What is your relationship with Stere Farmache, a symbol of the BSE?

We on the board had a very good relationship with him and we are all in the same boat, pulling in the same direction, hoping to turn it into a battleship. We are protecting shareholders and developing the BSE.

ovidiu.posirca@business-review.ro

CV Lucian Anghel

May 2007 – date chief economist at BCR

January 2012 – date president of the administration board at BSE

May 2009 – December 2010 administration board member at Erste Asset Management

1997 – 2002 PhD in Economics from ASE

2005 – 2006 Executive Development Program at HEC Montreal Canada

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