The flotation of energy firm Hidroelectrica this year will restart Romania’s stalled privatisation programme and earn the country a place in emerging market stock indices, according to leading investors.
The Romanian government last week revived a mandate issued in 2014 to two banks — Morgan Stanley and Raiffeisen — for a public listing of 15% of the hydroelectric power company.
“Preparation for the listing has been happening but it has been relatively slow,” said Greg Konieczny, manager of Romanian fund Fondul Proprietatea. “Now the banks have a valid contract they will be able to start working at full speed.”
The deal could raise as much as $800m, making it the largest ever equity offering from Romania. Policymakers are reported to be targeting a dual listing in Bucharest and London for the government’s 15% stake.
Ludwik Sobolewski, chief executive of the Bucharest Stock Exchange, said the transaction would put the “final touch” on the bourse’s efforts to achieve emerging market status.
“After two years’ work, we have almost completed the modernisation and reform of Romania’s stock market,” he said. “All we need now is more companies that fulfil the criteria on market capitalisation, free float and liquidity. We hope the process will be greatly accelerated after the IPO.”
Romania’s privatisation programme has been stalled since June 2014, when an IPO of utility Electrica raised $600m. The listing of Hidroelectrica was due to follow by the end of that year but was delayed after the firm went into insolvency.
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Investor appetite for the IPO is expected to be strong. Romania is one of the fastest growing countries in Europe, with GDP expected to rise by 4.2% this year and 3.6% next year, according to the IMF.
“Hidroelectrica should attract good demand,” says Konieczny. “Not only does it have the Romania growth story but it is also a unique asset in the EU. We hope it will attract investors interested in energy and electricity stocks, as well as emerging and frontier market funds.”
Hopes are high that a successful listing could serve as a catalyst for further sales of state-owned assets. Potential candidates include Romania’s national postal service, Bucharest Airport, salt producer Salrom and Port of Constantza, according to Konieczny.
“All of these companies are good candidates today,” he says. “The IPO process should take around 12 months, so they should be ready to come to market next year.”
Konieczny said progress on further privatisations would be crucial to attract international investors. “It is really important to have a pipeline of propositions and for investors to see a commitment from the government to grow the market,” he said. “That is what has been missing. It is good to have a landmark deal but you also need follow up transactions.”
The mandate of Romania’s current technocratic administration, which was installed last autumn following a political crisis, expires in November. Elections are unlikely to derail the reform process.
“Romania is on a path of further European Union integration and more transparency in government, and that is unlikely to change under either of the main parties,” says Konieczny. “There is no risk of a change in direction similar to that in Hungary or Poland.”