Sunday, November 3, 2013

FT: Romania’s biggest IPO: a privatisation breakthrough?

Nov 1, 2013
by Andrew MacDowall

It was the biggest initial public offering in Romania’s history, and the latest of several big IPOs in eastern Europe. But will Friday’s part-privatisation of natural-gas utility Romgaz reinvigorate Romania’s stalled liberalisation programme?

The sale of 15 per cent of Romgaz was five times oversubscribed and raised 1.7bn lei ($517m), above the 1.38bn lei minimum, Bloomberg reported on November 1. The government sold 57.8m shares at 30 lei each through the Bucharest Stock Exchange (BVB), as well as global depository notes on the London Stock Exchange. Both will start trading on November 12. Some 60 per cent of shares went to foreign investors.

“The IPO shows the energy sector in Romania is seen by investors as an interesting market, with good potential to develop,” Romanian economic journalist Cristian Pantazi told beyondbrics. “For the BVB, it shows that there is money in the local market, but investors are afraid of risk and willing to go only to safe places. The success is moderate, given the fact that a few months ago some government officials said they were expecting to raise €600m ($800m).”

The sale was part of a package of measures put together to meet conditions set by the IMF, which agreed a much-needed $2.7bn standby loan to Romania in September to buttress the country from external shocks as it recovers from a savage recession in 2009 and a fiscal crunch that followed. Also in September Romania offered 10 per cent of nuclear power company Nuclearelectica in an IPO.

There have been a number of major offerings from both state-owned enterprises (SOEs) and private companies in eastern Europe in recent weeks. Last month, Poland raised 1.42n zloty from the sale of 50 per cent minus one share of its rail cargo operator in the biggest IPO for over a year, while Russian credit card companyTCS raised $1.1bn through an IPO on the LSE, and the Russian government earned $1.3bn for 16 per cent of Alrosa, one of the world’s largest diamond firms, on the Moscow Stock Exchange.

The Romgaz sale has been hailed as a success by the Romanian government. The country’s history of privatisation has not been an entirely happy one, with a number of poorly-planned and botched sell-offs since the fall of Communism. In the past two years, the sales of the country’s largest copper mine, a major chemical plant, its rail freight company, and its national airline have all hit snags at various stages, and there have been questions about successive governments’ commitment to privatisation. The process is regarded with some suspicion by many Romanians, perhaps after a number of dubious deals in the past. Pantazi argues that the Romgaz IPO is a step in the right direction – but plenty remains to be done, particularly where majority shares are due to be sold.

“The IPO is encouraging for the future,” Pantazi says. “Romgaz is gaining strength through this, as its future moves are going to be more transparent, and transparency will be good for Romanian SOEs. The process of privatisation is still too slow for the needs of the Romanian economy. The Romgaz IPO is a sign that the government must have confidence in the market, and must accelerate the process in order to make the economy more transparent. These IPOs are very important, but we have to see the commitment on big companies such as [chemicals company] Oltchim or [rail freight operator] CFR Marfa.”

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