PONTA AND BĂSESCU - LACK OF INTEREST FOR THE STOCK MARKET The government turning its back on the Stock Exchange

• Investors and brokers are outraged

The disinterest of the state towards the stock market hits the Bucharest Stock Exchange, where, lately, the daily trades have reached disaster levels.

The only thing authorities have given the stock exchange was the secondary offer of "Transelectrica", for the rest of the IPO and SPO schedules agreed with the IMF by applying the only successful strategy, postponement.

This year, the average daily turnover of the stock trading was 29.9 million lei, but recently, trading turnover barely exceeded 10 million lei per session.

Brokers and investors are severely criticizing the behavior of the government, which they hoped would bring new "goods" to the BSE.

What will be interested to see is what strategy the officials of the BSE will implement to stimulate the development of the stock market.

Prime Minister Victor Ponta and president Traian Băsescu, who usually don't agree over anything, ever, have agreed to postpone the privatizations through the stock market which the professionals active on the stock market players had placed so many hopes in.

Investors, through the voice of the AIPC (the Association for the Protection of Stock Market Investors), and several brokers contacted by BURSA expressed their outrage.

• Nicolae Gherguş, Confident Invest: "Where there is no trace of economic vision, postponement becomes the strategic measure"

In the 22 years of capitalism, the corruption of the political class and of the political cronies has not seen any refinement, so as to go beyond the rudimentary stage of leeching state-owned companies, and that is why the politicians are so opposed to their sale or even to giving away their control through management, Nicolae Gherguş, the president of "Confident Invest" says.

The broker went on to say: "If there were no privatizations after 8 years of "right-wing" government, my expectations from the «left-wing» are completely inexistent.

Where there is no trace of economic vision, postponement becomes the strategic measure. The stock market, the exchange rate and inflation represent the mirror and the expectation of good governance".

• Valentin Ionescu, SIF Moldova: "The real «surprise» would have been for the listings to actually take place"

The stock market still isn't fulfilling its role of financing the economy, considers Valentin Ionescu, board member at SIF Moldova and former CEO of the BSE.

He said: "I was watching what the international media had to say on this topic and I have found that throughout the year the only signals that Romania sent concerning these offers were negative. Domestically, it would seem that nobody is surprised that another offer has been postponed.

The real «surprise» would have been if the listings had actually taken place.

A consistent strategy with an accepted schedule, would have meant a lot for the government and a lot for these companies. Their listing on the stock exchange, for the unlisted ones, would have brought more transparency to their operations, and a more effective management, as well as resources for the state budget in the short term, and tax earnings over the long run, from the trading volumes and the earnings.

The Bucharest Stock Exchange was awaiting for these offers to finally be able to exit the frontier stock exchanges, said Valentin Ionescu, who went on to say: "The intermediaries on the stock market are closing down their doors one by one, major investment banks are withdrawing from Romania. In the end, nobody benefits from these postponements, and the effects are all negative and hard to quantify".

• Mihai Chişu, IFB Finwest: "Lack of interest and a total mockery"

The message that any investor gets when they notice the indecision of the state when it comes to these offers, is disinterest and mockery, said Mihai Chişu, broker at "IFB Finwest".

He said that he is one of the supporters of the idea that by selling stakes in its companies through the Stock Exchange, achieves several goals simultaneously: it gets financing for investing in these areas to get an increased profitability in the medium and long term (for example, the road infrastructure), it stops the financial bleeding at several state owned companies which are the slaves of a political cronyism system, and increases the profitability of these companies by allowing some European regulations of corporate governance, creates a financial ecosystem of the stock market which generates taxes and higher earnings over time, provides investment alternatives and stimulates the financial education of the population.

Mihai Chişu also said: "In finding however that there is a powerful propaganda according to which such listings (what's curious is that in 2007-2008 they were saying the same thing), I would have expected the government to at least stimulate this area in other ways, for example through tax breaks and education, so that it would benefit from the medium and long term, at least in terms of the taxation potential.

Since the elections are getting close, I am expecting talks will begin again about the essential role of the stock market, in a modern European country such as Romania, and later these flamboyant promoters would completely forget about their ephemeral interest in it".

• Simion Tihon, "Prime Transaction": "The local stock market is agonizing"

The local stock market is agonizing, and the lifeline which the listing of the Proprietatea Fund provided is close to losing its catalyzing effect, says Simion Tihon, broker at "Prime Transaction".

He said: "Unfortunately, private companies don't view the stock market as a financing option, meaning that the responsibility for its revival lies with the state. The Bucharest Stock Exchange could earn a lot out of these listings, but that would not be a goal in itself for the privatizations. The listing needs to be viewed as a means of improving economic efficiency. The stock market actually needs a lifeline, but in order to operate healthily it needs an environment where transparency is a virtue and not an impediment. Together with the benefits which stem from having an open company, the Bucharest Stock Exchange can also improve the image of the listed companies, which would normally provide economic benefits. As a result, the companies which are on the privatization list could benefit from being present on the stock market, and this is precisely the goal which the state needs to consider".

The long line of postponements has eroded the optimism when it comes to the presence of valuable companies on the stock market, Simion Tihon also says. "Even though the state has extenuating circumstances for extending these deadlines (the market context is difficult and important: as an example, see the difference between the SPO of Petrom and that of Transelectrica), it is increasingly hard to keep the investors' confidence in the ability of the domestic stock exchange to play a positive part in the economy in general".

• Ovidiu-George Dumitrescu, "Tradeville": "The message sent to investors is mixed"

"Tradeville" analyst Ovidiu-George Dumitrescu considers that the message sent to investors (especially foreign ones) is mixed: "The downsides are prevalent: the government avoids making these decisions by maintaining control over the important parts of the economy. In the context of an electoral year it is somewhat understandable and there have been other high-profile cases as well where that kind of decisions were postponed before the important elections. Still, these constant postponements tend to lead to doubts over the reliability of the politicians when it comes to the privatization process and especially to the one conducted through the Stock Exchange".

Ovidiu-George Dumitrescu also sees a bright side: "The presidency and the Government have found a way to reach an amicable agreement on an important matter, considering how the cohabitation went through between them so far".

However, for the domestic stock market, the local stock market pales in the face of the lack of new issuers (a problem which the state could solve relatively easily and with significant public benefits, in the medium as well as long term), Mr. Dumitrescu also said, and he went on to say: "Moreover, the pessimism generated by this situation also discourages the listings of private companies, cutting trading volumes even further and therefore, the feasibility of using the Stock Exchange as a form of funding the economy, which is something that should be its main goal".

• AIPC: By postponing the listings on the local stock market, the Romanian stock market delays surpassing its "fringe stock market" status

The postponing of the listings of the state-owned companies will keep the Romanian stock market a fringe market, and the authorities will need to set clear deadlines for the listings and abide by them, the representatives of the Association for the Protection of Stock Market investors (AIPC) said.

"The AIPC is disappointed to see that president Traian Băsescu and prime-minister Victor Ponta have agreed to postpone the privatization of CFR Marfă and the sale of the stake in Transgaz, claiming that the current moment is not auspicious for this kind of operations. We think that by postponing these listings, Romania indefinitely delays going beyond the status of «fringe stock market», once again failing to gain the attention of the investment funds specializing on emerging markets, which have a lot of cash available for investing, and Romanian stocks will continue trading at a significant discount. Considering that the stock market is the most credible benchmark of an economy, this discount affects all of the Romanian assets", a press release sent by the AIPC says.

"It is already unreasonable to compare our own Stock Exchange with the Polish Stock Exchange, but the example of Turkey, which Romania used to look contemptuously at just a few years ago, and now has trading volumes hundreds of times greater and has become an «investment grade» market, shows how easy it is to achieve economic development with just a little consistency and predictability, which is something that unfortunately the Romanian stock market is missing. We hereby ask the entitled authorities to show seriousness and professionalism in setting clear deadlines for listing the state owned companies and especially complying with these deadlines", the Association states.

The state has made a commitment to the IMF to sell on the stock market stakes in certain companies, including a 15% stake in Transgaz, Nuclerelectrica (10%), Hidroelectrica (10%), Romgaz (15%).

In the case of CFR Marfă, the government intends to sell through an open outcry auction a block of shares representing 100% of the share capital of the company, as well as the stake which will be owned by the state following the conversion of the state's debts into stock and the one which resulted following the settlement of the debts of CFR Marfă to CFR S.A.

The offer of Transelectrica, in the month of May, was the only one which was concluded successfully out of the two conducted in the last five years for a state-owned company. Following the deadlines which were initially set, which were initially postponed or assumed, even though the state has already selected the brokers which would mediate the offers.

The government has already succeeded selling 9.84% of the shares of OMV Petrom (SNP), but the offer failed because demand was lower than the minimum level for which the operation would have been concluded successfully.