Government Does Not Support A Higher SIF Holding Ceiling, Fearing Liquidity Drop

The Government does not support the draft law stipulating an increasing in the maximum allowed stake in one of the five financial investment firms (SIFs), because a higher shareholder concentration would lead to a decrease in the liquidity of SIF shares on the Bucharest Stock Exchange, according to a note signed by Prime Minister Emil Boc and quoted by NewsIn. The document signed by Premier Boc was received and logged by the Senate yesterday.

Although Prime Minister Emil Boc"s document includes arguments both in favour and against increasing the holding cap, the conclusion seems based on the arguments against the proposal to increase the current 1 per cent cap on holdings in any given financial investment firm. Such arguments include shareholder concentration and the preservation of the current decision-making and control mechanisms.

The absence of a cap on SIF holdings can lead to shareholder concentrations and subsequently to a reduction of the volume of shares available as free-float on the Bucharest Stock Exchange. In turn, such volume limitation would have negative medium- and long-term effects on liquidity. Concurrently, a shareholder concentration could polarize decision-making and control mechanisms in favour of a group of persons and thus enable such group to favour its interests to the detriment of the general interests of the firm.

Another possible consequence of amending the existing legal framework, according to Premier Boc"s document, would be that interested investors could acquire control over the SIFs and thus secure the option to de-list SIF shares from the Bucharest Stock Exchange.

"Considering the aforementioned arguments, the Government does not support the adoption of the draft law with the submitted content," the document concludes.

However, the document does include several arguments in favour of removing the holding cap, one of them being that a quorum of shareholders would make important decisions in the General Meeting of Shareholders faster and easier.