English
Reporter: The trades of Friday, September 13th, 2013, and Monday, September 16th, with shares of SIF1 Banat Crişana have raised suspicions of market manipulation, at the ASF, as well as among some shareholders of SIF1. There are some voices that claim you are connected to those trades. How would you comment?
Dragoş Bîlteanu: I am not going to comment. It is not a prudent thing to do for us, the ones involved in the management of the company, to make statements about the stock trades made on the stock exchange.
Reporter: How would you respond to those who accuse you of being part of a group that wants to "pillage" the SIF, to the detriment of the other shareholders?
Dragoş Bîlteanu: First of all, I wouldn't know how to respond, as I take it that the question is not coming from you directly. Maybe you could actually tell us who those people are, so we can see whether they are shareholders of our company or they are people who can have a different interest than the company.
What I can say is that, since I began my term, in less than a year, SIF1 has become the most valuable in terms of the net assets, and in the coming years we will be able to assess together how things will evolve.
Reporter: Some of the shareholders have been unhappy with the actions of the management of SIF1 this year - the acquisition of Romenergo bonds, the fact that SIF1 paid 4.56 million Euros for the majority stake in Azuga Turism, as well as the fact that SIF1 has registered its real estate division in Cyprus. How would you respond to the critics? What were the reasons for each individual decision?
Dragoş Bîlteanu: Over the same period, we have acquired bonds issued by Romenergo as well as other issuers. Romenergo is a company which has in its portfolio important general contractor contracts in the energy sector, as well as significant assets: capital assets, non-current assets, financial assets which do not raise any problems when it comes to guaranteeing the amount of the bonds issue. Furthermore, the bonds were intended exclusively to replace some existing bank loans. The company in question never had any problems in repaying its debts coming due.
As long as the SIF gets a better return on investment than it would on other similar financial investments, there is no obstacle in financing an affiliated company, as long as the obligations of transparency and keeping investors informed are honored.
In an attempt to respond to the "grumps", as you call them, it would mean that banks or financial groups should never finance an affiliated company or employees or people involved. On the contrary - this approach is completely wrong - business is done with people whom you trust, as long as there is compliance with all the legal or moral norms.
Concerning Azuga Turism - this acquisition was completed during the term of the previous board of directors, after I took over the position of CEO. It is an acquisition which has been worked on for several months, was thoroughly documented through due-diligence by the internal experts, as well as by the outside consultants, and we think that the price of the deal was extremely good for the SIF (a significant discount of approximately 50% compared to the valuation of the company's net assets). Azuga Turism owns significant assets in the resort of Azuga, namely the modern gondola lift (the most important asset, which was valued at a low price compared to the other similar investments in the area), some important plots of land in the best available areas of the resort, a hotel with all the amenities, as well as some public catering facilities. The company has no problems in repaying the outstanding loan, which is insignificant compared to the value of its assets.
Reporter: Can you tell us whether the shares of SIF Imobiliare are registered or bearer shares? How were the share premiums calculated upon the creation of SIF Imobiliare - a contribution in assets of 22 million Euros for a share capital of 1 million Euros? Did SIF Banat Crişana subscribe shares in the 500,000 Euros share capital increase of SIF Imobiliare Limited? Did you submit to the ASF the documentation needed to allow SIF Imobiliare to begin trading on the ATS of the BSE?
Dragoş Bîlteanu: Concerning SIF Imobiliare - starting with the date when I took over the position of chairman of the old Board of Directors and then going on with the new Board of Directors - I have presented a new approach when it comes to the management of the companies controlled by the SIF, an approach which was also included in the activity plan presented in the General Shareholder Meeting of April 2013.
Concretely, at the time, the SIF controlled 29 companies, of which 5 industrial companies, 6 hotels and 18 which owned mostly real-estate assets. For that reason, I have proposed to the Board of Directors and I have then presented in the General Shareholder Meeting, through the activity plan for that year, the idea of creating two holding companies, in which we would bundle those companies based on their specific activities. The goal of such a structure is better management, through activities coordinated in a unified manner, which would lead to higher revenues, the streamlining of the costs and the improvement of these companies.
Since after all this time, Romania does not have a legislation that is favorable to holding companies, the consultants who studied several jurisdictions recommended Cyprus to us, as being the most favorable, due to several considerations. Why would it be "bad" for the SIF to use the most effective holding structures to create a real-estate investment vehicle, when the major investors in this sector are doing the same?
SIF Imobiliare issued registered shares, of which 99.99% are owned by the SIF, and the remaining 0.01% will be owned by six other companies controlled by the SIF (SIF Imobiliare was required to have a minimum of seven shareholders to allow us to register it as a PLC - in other words a public company, so that we would have the ability to take it public), until the date when trading will begin on the BSE.
The formalities of the Central Depository were completed, we have the preliminary on-principle approval from the BSE, and once the shares are registered with the ASF, we will complete everything with the BSE and begin trading. For the moment, the company will be listed on the ATS-CAN, and the moment we meet the remaining requirements, will be transferable to one of the tiers of the BSE. The reporting rules and information rules will be complied with, just like in the case of any other listed companies.
Upon the creation of the company, the share premium (of 21.5 million Euros) represents the balance between the value of the assets contributed in kind to the company's share capital at the time of its creation (of 22.5 million Euros) and the value of the share capital (worth 1 million Euros). Upon its creation, the company issued 1,000,000 shares with a face value of 1 Euro and a NAV per share of 22.5 Euros/share.
In order to ensure capital for the potential developments of the real estate assets of the companies owned and for potential new investments, the company SIF Imobiliare PLC decided to increase the share capital by issuing 500,000 new shares with a face value of 1 Euro and a cash subscription price of 20 euros.
Up until this moment, SIF1 did not subscribe nor pay any of the shares from the share capital increase, according to the legislation in Cyprus, (which is based in fact on the English law), as there is no deadline for that. Of course, the moment the shares begin trading and the annual results are presented, the company will be interested in attracting other minority investors to increase the value of its managed assets.
Reporter: What other surprises are you preparing to the shareholders this year?
Dragoş Bîlteanu: We are not preparing "surprises" for the shareholders. We manage the company the way we think is best for it, according to the activity plan presented and approved by the General Shareholder Meeting, and, if at the end of our term the shareholders are not pleased, they will no longer give us their trust for another term.
Reporter: Will SIF1 participate in the IPO of Romgaz? Do you think that splitting the offer of Romgaz in shares on the BSE and GDRs in London is the best option for the domestic stock market?
Dragoş Bîlteanu: So far, we have not made any decision on the IPO of Romgaz.
Reporter: What are the measures which you feel should be taken by the new CEO of the BSE, Ludwik Sobolewski, to help the stock market grow?
Dragoş Bîlteanu: I do not have the expertise of Mr. Sobolewski in leading a stock exchange to tell him what actions to take.
Also, I feel that a proactive approach is welcome, which is what he has actually been doing: bringing new companies to the stock exchange, convincing private companies to get listed or lobbying for the privatization of state owned companies to be listed on the stock market. Even though there may sometimes be failed IPOs, that doesn't mean that successful ones will not follow.
Reporter: Do you intend to cooperate with SIF Moldova in other projects as well, aside from SAI Muntenia? What about the other SIFs?
Dragoş Bîlteanu: As you probably well know, all the SIFs (in fact, all the collective investment bodies) have certain limits when it comes to their investments. What it means is that in order to participate in major projects, we need partners. We are open to participating in new projects, both with the SIFs, as well as with other institutional partners in Romania or abroad.
Reporter: What is the current relationship that you have with Banca Transilvania, considering that you have somewhat of a history of conflict with TLV?
Dragoş Bîlteanu: We own shares and bonds issued by BT. So we have faith that it is a bank which has a good future ahead of it.
In the companies where we have operated in the past, we have done every possible thing to end the conflicts initiated by my predecessors based on a negotiated deal together with the lawyers and the consultants so that both parties would be pleased.
And at the SIF we have the same view, we do not believe in conflicts, but in collaboration and in developing durable partnerships.
Concretely, the relationship is good and we are hoping it would continue to improve.
Reporter: What is the current relation with shareholder Alin Tatu?
Dragoş Bîlteanu: A normal business relationship.
We know each other, we respect each other.
Reporter: The Financial Supervision Authority (ASF) has denied the request of the Board of Directors of SIF Banat-Crişana (SIF1) to reduce the quorum requirement for the Extraordinary General Shareholder Meetings. Are you considering additional measures for reaching this objective?
Dragoş Bîlteanu: Following the requests and the recommendations coming from first class institutional investors, as well as from some shareholders, to look for solutions to begin a stock buyback (similar to a procedure successfully conducted by other closed-end funds), in order to lower the trading discount and to raise the price of the stock, requests which we have considered as opportune, together with the legal department and with the outside lawyers we have realized that we have two possibilities to begin such a procedure: the first - through a decision of the Board of Directors based on the power granted by the Extraordinary General Shareholder Meeting to decide the reduction of the share capital; the second - after a decision of the Board of Directors to update the articles of incorporation to comply with the corroborated laws which have been published in the last few years, so that the quorum requirement for the Extraordinary General Shareholder Meeting, can be updated to match the new provisions of Law 31/1990 - through a decision of the Extraordinary General Shareholder Meeting which would be summoned afterwards.
It was decided that we would begin with the second option. But the ASF decided not to approve the amending of the articles of incorporation, so this option is no longer viable.
Reporter: There are suspicions that you are lobbying the ASF to reduce the quorum requirements for the SIFs, through a law, and for allowing the SIFs to hold stakes in other SIFs. What is your comment?
Dragoş Bîlteanu: I don't know what "lobbying the ASF" is supposed to mean.
On the other hand, I have asked on every opportunity, at the various meetings with the CNVM and the ASF, as well as on various other meetings, held by the other SIFs, by the press or by Advisory Councils, the revision of several regulations, by, for example: updating the entire legislative framework, especially the coordination of the regulations, the measures and decisions with the legislation of the stock market; there are numerous cases where the documents issued by the CNVM (secondary legislation) take the form of excessive regulation, or are different or the opposite of the law they are referring to; then, the transposition of the European legislation; the regulation of new instruments on the monetary and/or financial markets... I could go into further detail, but I don't know how much space you have available for this article.
This is where we run into the issue of reducing the share capital by buying back our own stock. Because the second option that we had, namely to amend the articles of incorporation so we can hold the Extraordinary General Shareholder Meeting was a dead-end, we went back to our first option. A decision of the Board of Directors was made to reduce the share capital, in compliance with the provisions of the bylaws. Following the request of the ASF to present the argumentation of the decision of the Board of Directors, we have filed every information and consideration, as well as a legal opinion from a law firm which is among those with the greatest experience when it comes to the stock market, which explains in detail the mandate given to the Board of Direction to decide the reduction of the share capital according to the articles of incorporation and according to the Extraordinary General Shareholder Meeting of 1999, a decision which is valid and still in effect.
Reporter: What other amendments of the regulations/norms do you think the stock market needs, which the ASF should adopt?
Dragoş Bîlteanu: For the SIFs, what is needed is first and foremost an update of the secondary legislation of the of the CNVM/ASF and then an update of the stock market law, so that there would no longer exist a discrimination of these companies compared to other investment companies and/or closed funds in Romania or in Europe.
Reporter: How would you comment on the evolution of the shares of SIF1 Banat Crişana, considering that they are trading at the biggest discount of all the SIFs?
Dragoş Bîlteanu: It is a good thing to know that in general, closed-end funds trade at a discount.
It is a well known fact that other companies/closed investment funds have made and are still making efforts to lower the discount even if they have no restrictions at all in doing so (similar to the SIFs).
When it comes to the SIFs, add in all those restrictions they have to deal with, such as: the holding limit per investor, the inability to make decisions in the Extraordinary General Shareholder Meeting, other restrictions through the law of the stock market and especially through the secondary legislation, restrictions which, looking retroactively, have no logical explanation from the shareholders' point of view - and the discount increases.
In the end, in the case of SIF1, it may be that today the shares are trading at the highest discount of the five SIFs because we are the only SIF that did not pay dividends this year. In the developed countries there are many funds that never pay any dividends, and the shareholders see that as a good thing. From the moment I took over the position of president, I said that I would propose to the shareholders and I would support the idea of not paying dividends, to stop the spiral of paying out dividends by liquidating the assets of the company.
Reporter: What is your opinion on the idea of the vice-president of the ASF Mircea Ursache on allowing the SIFs to buy shares in each other?
Dragoş Bîlteanu: I don't know if it's an idea of his for the SIFs.
I think, in fact I hope, that the ASF is working on getting the secondary legislation to match the base legislation and the discrepancies are beginning to show-up.
The law 297/2004 explicitly states that any collective investment fund (including the SIFs) can buy shares in another. But then, the CNVM issues Measure no. 11/2005, which stipulates that the SIFs are allowed to invest in the specified types of securities, with the exception of shares issued by other SIFs - without any kind of explanations concerning the reason for creating such a discrimination. So, the plethora of investment funds in Europe (some smaller and often times bigger than the SIFs), are allowed to invest in each other, but the SIFs aren't.
Furthermore, considering the holding limits in the SIFs, there can be no question of anyone gaining control - and even if there were, I see no problem as long as the shareholders are happy.
In the end, it is well-known that in the developed countries, the major financial and industrial groups have stakes in each other, and this only makes them more stable and strengthens them. Perhaps our market economy operates differently and we have better methods. Let's at least make them into laws instead of enforcing them through regulations which exceed the law or add to it.
Reporter: What kind of staff restructuring did you do at SIF1?
Dragoş Bîlteanu: We did. Both restructuring and staff cuts.
Maybe some of the criticisms towards the management of SIF1 are also coming from some former colleagues who are unhappy.
Immediately after the General Shareholder Meeting, the new Board of Directors has approved the new staff organization and has empowered the executive management of the company to change the number of employees and positions.
Six months ago, there were 79 colleagues at SIF1, today there are 50 of us.
Reporter: What are your plans concerning Biofarm, considering that you have applied for pa position on the Board of Directors?
Dragoş Bîlteanu: Getting a seat on the Board.
And, if I get elected, to contribute to at least getting some good results together with the future colleagues and with Mr. Dan Vasile, who, I hope, will help the good functioning of the company, as President and CEO.
Reporter: Is it true that the ASF is conducting an audit at SIF1? What does that audit concern?
Dragoş Bîlteanu: I see that you are well informed about the internal matters of SIF1.
Yes, we currently have under way an audit which the ASF conducts periodically and it concerns all of the activities and operations of the company over the last three years, which was the time of the last audit to date.
Reporter: Some of the small shareholders of SIF1 are displeased with the current management and would like to stage a mini-revolution. How would you comment on that?
Dragoş Bîlteanu: I am not familiar with these complaints of the small shareholders or of any such intention. All I can do is ask them to write to us at our headquarters about their complaints and if their requests and/or observations are pertinent, I can assure them that they will be taken under consideration.
As I have explained earlier, two of the "controversial decisions" made by us in the attempt to begin a program for the buyback of our own shares were begun as a result of the request of first rank institutional investors, as well as of other shareholders. We have attached copies of these requests to our approach to update the articles of incorporation which we have submitted to the ASF.
Reporter: How would you explain the differences between the profits that the SIFs are making?
Dragoş Bîlteanu: Each SIF has a management team which proposes to shareholders a certain vision, a certain strategy.
In some cases, an accelerated sale of the assets which generate profits is preferred (having been acquired at a very low historical cost) which generate significant historical costs, followed by the payout of hefty dividends. It is obvious that these dividends led to the significant drop of the net assets and of the financial ability to invest in new projects.
In our case, since we feel that certain holdings of liquid assets (which if sold, could generate significant accounting profits) are still at a price which can be much improved in the medium and long term, we prefer to resort to this kind of sales only in order to ensure cash for new projects. We are also trying to generate as much profit as possible from current transactions, without resorting to assets with a very low historic cost (even though it would be far easier for improving our public image).
Anyway, due to switching to the IFRS standards, the method for evaluating and calculating the annual profits and implicitly the earnings will change significantly.
In closing, concerning the valuation based on the accounting profit, I think that the press, as well as the market in general, should change the way the SIFs are perceived, as these companies are investment companies, closed-end investment funds, not simple corporations.
Which means that the important ratios are the NAV, the NAVPS and the price of the stock.
As for the NAV and the NAVPS, we want to persuade the investors of the effectiveness of its increase by capitalizing the profit and investing in new projects.
As for the price of the shares, we are also trying to reduce the discount compared to the NAV by beginning a stock buyback program, as I've said above.
Reporter: Thank you!
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