Top 10 Events On The Stock Exchange In 2011

12.23.2011 By Andrei Chirileasa

One step forward, one step back. This is as good of a summation as any when it comes to the evolution of the Bucharest Stock Exchange in 2011. The market witnessed quite a few big events throughout the year, but the results were not always as satisfactory as expected.

The beginning of the year was marked by the listing of investment fund Fondul Proprietatea (FP.RO) and the end of the year by the raising of the holding cap of regional investment funds, or SIFs. But in between the two events with positive implications on the market, there were the failure of Petrom's offering, the failure to list BCR, as well as the sovereign debt crisis of European countries, which brought the stock exchanges into the red once again, after two years of recovery. After a year when investors lost more than they won, everyone's hopes are pinned to 2012.

1. The listing of Fondul Proprietatea saved the stock exchange from another very weak year

2011 started off on the Bucharest bourse with the listing of Fondul Proprietatea, an event that investors had been waiting for in the last five years since the fund was established.

Expectations surrounding this listing were very high, with many people even talking about a second beginning for the Romanian capital market. But after almost a year, expectations have only partly been fulfilled.

By listing the fund, the bourse won a very important issuer. Fondul Proprietatea is the third largest listed company on the local market by capitalization, worth EUR1.36 billion and the largest by liquidity, with daily average transactions of over EUR million (since listing).

So, for brokers, the listing of the fund amounted to a breath of fresh air, while the other shares on the stock exchange continued to record low volumes. The listing of the fund was intermediated by the brokers at Raiffeisen Capital & Investment, ING, and BRD, but the largest transactions involving the fund's shares were brokered this year by Swiss Capital, UniCredit CA IB Securities and the Czech Republic's Wood.

At the time of the listing there was talk that Fondul Proprietatea would attract the interest of large foreign investment funds and will put Romania on the map of large investors.

This happened only in part. Foreign funds bought FP shares massively, coming to own 40% of the fund's capital, but most are speculative funds, not the long-term investors that the stock exchange was expecting. The biggest investor was a fund controlled by American group Elliot, which ended up holding almost 10% of the fund's shares, after investing around EUR150 million.

The evolution of the fund share prices disappointed, however, especially shareholders who received the shares in compensation for being stripped off their properties by the communist regime. The biggest price of the fund's shares was recorded in the first day of trading. Since then the shares lost a third of their value on the stock exchange, currently trading at 40% of the fund's net asset value.

Apart from those who received the shares before the listing, who received only part of the compensations to which they were entitled, the state also lost as it provided compensations at the stock exchange price starting in May. So the Finance Ministry had to part with more shares in its compensation drive, and ran out of shares faster. At the end of November the state had 1.5% of the fund's shares left, which compares with 36% at the beginning of the year, prior to the listing.

2. Transaction of the year at BRD

The exit of the EBRD from BRD by selling a 5% stake of the second-largest bank on the local market was the transaction of the year on the Bucharest stock exchange (BVB). It was worth EUR107 million and was the largest transaction in the history of BVB. More importantly, the stake was taken over by several investment funds (Fondul Proprietatea, Franklin Templeton and Artio), although France's Societe Generale, the majority shareholder of BRD, fought until the last moment to get this stake.

3. Petrom's offering, a failure of the market or of the markets?

The offering whereby the state intended to sell 9.84% in Petrom (SNP:RO) was at least as expected as the listing of Fondul Proprietatea. Firstly because it would have been the largest offering in the history of the Bucharest stock exchange, and major international players of the financial sector (JP Morgan, Goldman Sachs, Morgan Stanley, Citi, UBS, Nomura) were fighting over a mandate in Romania. Secondly because this was the first offering conducted by the state after Transgaz, and on its success depended future offerings of the state.

But the offering came with surprises. Firstly the auction to pick the brokerage was won by Renaissance Capital, a Russian investment bank, which managed to overtake Wall Street giants with a very low fee.

Renaissance partnered with EFG Eurobank Securities, BT Securities and Romcapital in order to sell the offering on the Romanian market, but the offering had a completely different structure than previous stock exchange offerings. Initially a maximum offering price was announced, of 0.46 lei/share, investors had to bid, and the shares would go to the highest bidder. So, it would have been possible for an investor who would have subscribed all shares at RON0.46 to take the entire offering. But this did not happen and a few days before the offering ended the state also announced a minimum offering price, of RON0.37/share, close to the stock exchange price. But ultimately not enough investors willing to pay this price were found and the offering failed. The failure was intensely debated, with some blaming the state for asking for too high a price, but clearly brokers also have their share of the blame, as does the stock exchange, which did not promote the offering sufficiently.

Now all hopes are pinned to next year and to the offerings announced by the state. (Transelectrica, Transgaz, Romgaz, Hidroelectrica, Nuclearelectrica).

4. The sale of Intercontinental Hotel

One of the most interesting transactions of the year on the stock exchange was the sale of the majority stake in Intercontinental Bucuresti (RHIC) company, which owns the hotel of the same name in Bucharest. RHIC Holding, a company registered in Luxembourg which held the majority stake in Intercontinental sold its 49.1% stake in Intercontinental for EUR12.4 million in April. A 17% stake was bought by businessman Dan Adamescu, who held a further 15% in Intercontinental through The Nova Group. The remaining 32% ended up with an offshore in Cyprus, with links to the Adamescu family.

5. Fight over Oltchim

Oltchim Ramnicu Valcea (OLT:RO) chemical plant, which posted losses in the past three years, was at the center of attention on the stock exchange in the first half of the year, when its shares rose around ten times amid acquisitions by German group PCC and by UK fund Carlson Ventures, which together ended up controlling nearly 33% of the shares. The interest for Oltchim was also raised by the fact that the company was put on the privatization list by the IMF. Germany's PCC continued to fight Oltchim's management, and Constantin Roibu had to step down as president of the company, staying on as general manager.

6. The state, shareholder in Petromidia

The Finance Ministry in the summer lost the court case in which it challenged the conversion of bonds not repurchased by Kazakhstan's Rompetrol Rafinare (RRC.RO) into shares. The state converted Petromidia's debts to the budget into bonds, with the overall value being EUR571 million in 2003. In 2010, when the bonds matured, the Kazakh company redeemed bonds of just EUR55 million. The rest of the bonds were turned into shares, held by the state. The Finance Ministry has come to own around 45% in Rompetrol Rafinare ten years after selling the company to Dinu Patriciu. Now the state is looking for ways to capitalize on its shares.

7. The Argus scandal

It all started when controversial businessman Catalin Chelu bought around 40% in the shares of oil producer Argus Constanta (UARG) from former managers. By investing over EUR10 million, he considered it natural to take over management of the company. SIF Oltenia, the other significant shareholder, thought otherwise and started an absurd court battle, as well as at the company headquarters. So it came to the situation where SIF Oltenia managed to appoint the Board of Directors, but cannot manage the company because its headquarters and its stamp are controlled by Chelu and his people, an unprecedented situation on the capital market. Argus shares have been suspended from trading for over three months.

8. The Azomures surprise

At the end of October, chemical fertilizers producer Azomures Targu Mures (AZO:RO) announced on the stock exchange that its Turkish shareholders were negotiating the sale of the company to Swiss group Ameropa, one of the largest traders of farming products in Europe. The announcement caused AZO shares to rise 40% in one day, with the company's value climbing to over EUR160 million. At the end of November, the Swiss company sealed the transaction with the Turkish company, pending approval by the Competition Council.
Azomures has been one of the most profitable companies in Romania in the past two years.

9. SIFs exit BCR

Probably the largest and most complex transaction this year, the sale of stakes held by SIFs, or regional investment funds, in BCR, dashed the hopes of those who were still hoping to see the largest bank in Romania listed on the stock exchange. Talks over the listing of BCR are five years old. In 2006, when Austria's Erste took control of the bank, it committed under the privatization contract to list BCR on the Bucharest stock exchange within three years (i.e. by 2009). In 2009, amid the crisis, the SIFs agreed with Erste to postpone the listing by two years, while at the same time scrapping the clause forcing Erste to initiate the listing. Under the agreement, Erste was forced to list BCR only if all five SIFs requested it. But in the past two years, some of the SIFs negotiated with Erste the sale of their stake in BCR, so clearly they did not want the listing anymore.
Hopes were completely dashed when four of the SIFs announced the signing of an in principle agreement with Erste on the sale of their stakes in BCR. Each SIF was supposed to get around EUR25 million cash and 1% in Erste for 6% in BCR. After the negotiations the SIFs got EUR3.5 million each, with four of them already signing the transaction, while SIF Oltenia is still negotiating and has yet to sign.

10. Raising the SIF holding cap

Stock exchange investors were in for a major surprise at the end of the year, when the Chamber of Deputies voted in favor of raising the SIF holding cap from 1% to 5% after the draft had been stuck in the budget and finance committee of the Chamber of Deputies since the beginning of 2010.

On December 15, before voting on the 2012 budget, the Chamber of Deputies voted in favor of raising the SIF holding cap, fulfilling an over three year-old dream of stock exchange investors. This means that any investor will be able to buy up to 5% in a SIF, from a maximum of 1% at present. It will allow shareholder concentration and better control by the shareholders over how the SIFs are managed. The last step before the law becomes effective is promulgation by president Traian Basescu.

(English version by Daniela Stoican)