Wednesday, January 26, 2011

Boost for Romania as fund lists

The Financial Times
January 25, 2011

by Chris Bryant

Fondul Proprietatea’s shares rose after listing on the Bucharest Stock Exchange amid high hopes that one of eastern Europe’s largest property restitution funds will draw new foreign institutional investors to cash-strapped Romania.

Shares in the €3.6bn fund which holds stakes in 83 companies – most of them unlisted and weighted heavily towards the energy sector – traded at 0.62 lei, well above the previous over-the-counter price of about 0.5 lei.

For Romanians who lost property under communism and who resisted the temptation of selling their FP entitlements at a much lower price on the grey market, Tuesday’s listing was a moment to celebrate after years of delay.

The price is of course far below FP’s estimated net asset value per share of 1.11 lei. But with emerging markets guru Mark Mobius’ fund management company on board to bash heads together in Romania’s corporate sector, analysts believe there is still plenty of value to unlock in FP’s shareholdings.

The most immediate benefit of the listing is likely to be a significant increase in the volume of shares traded on the Bucharest exchange – a relative minnow in the region, with a market capitalization of €25bn.

FP is now the second biggest company listed on the exchange is expected to raise the market’s overall free-float by about 80 per cent.

In anticipation of this, the BSE was in December the best performer by capital returns among members of the FTSE Mondo Visione Exchanges Index, with 18.2 per cent increase in share price.

The prospect of new capital flows is particularly welcome at a time when Romanian companies and consumers are struggling to obtain bank finance and the state remains on the hook to the IMF and EU for a €20bn credit line.

Whether foreign institutional investors are prepared to take the plunge by investing in the shares of FP or other Romanian companies will depend on how Romania’s long-suffering government behaves in the coming weeks.

Mobius’ Franklin Templeton Investment Management has already squared up to the government over its decision to request a Lei 400m donation from Romgaz, the natural gas producer in which FP holds a 15 per cent stake.

But ministers are also planning further privatisation in the energy sector over the next couple of years, which could provide an attractive opportuntiy for emerging market investors, as well as a much-needed boost to Romania’s battered public finances.

As Mobius told Tuesday’s Financial Times, FP could be a “shot of adrenaline” into the system. Recession-hit Romania should feel the benefit, so long as the government plays its part.

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