How does the FP portfolio look after the sale of Hidroelectrica and the payment of dividends

Bucharest Airports, Engie Romania, Portul Constanţa, Salrom and Alro Slatina are the main companies in which Fondul Proprietatea (FP) will still have holdings in a foreseeable time horizon, after the sale of the package to Hidroelectrica and the completion of the sale of holdings in Enel group companies. Brokers are of the opinion that the Fund will continue to sell its portfolio holdings through capital market mechanisms, which means new listings on the Bucharest Stock Exchange (BVB). On the other hand, this implies reductions in the FP asset, which means that the fund will probably liquidate at some point.

• Ovidiu Şerdean: "The money kept coming out of the company, which, until proven otherwise, shows me that the fund is being liquidated"

Ovidiu Şerdean, broker at IFB Finwest, says that in order for FP to list its holdings in companies, it depends, in some cases, on the political decision, given that certain companies in FP's portfolio are controlled by the state. The broker told us: "At least until now, Fondul Proprietatea had a strategy based on selling assets and using the money for dividend allocations and buybacks of own shares, to bring the price as close as possible to the net asset. The money kept coming out of the company, which, until proven otherwise, shows me that the fund is being liquidated. Under these conditions, although there may be opportunities in the short or medium term, I do not see Fondul Proprietatea as a long-term investment". Ovidiu Şerdean added: "In my opinion, FP still has holdings in valuable companies in its portfolio. For example, Salrom or Constanţa Port - whose importance and value has grown considerably, following the war in Ukraine. I believe that when the opportunity arises, the Fund will also sell these holdings. We see that they are unlisted companies, so for FP listing it depends on the political decision (in the case of state-controlled companies) or that of the majority shareholder. Just like in the case of Hidroelectrica".

• Marcel Murgoci: "The value of FP's net assets will be reduced, to largely reflect the new situation of the portfolio"

Marcel Murgoci, the director of operations of the brokerage company Estinvest, states that after the sale of Hidroelectrica, the dividends that FP will receive as a result of the remaining holdings in the portfolio will be considerably reduced.

The broker told us: "With the sale of Hidroelectrica, a holding representing 75% of the total assets and providing a significant amount of dividends came out of the Fondul Proprietatea's portfolio. The remaining holdings are in companies of much lower value, and the dividends the Fund will receive will be significantly reduced. But, it follows that the share price and the value of the net asset of FP will also be reduced, to largely reflect the new situation of the portfolio".

According to calculations made by Estinvest based on July data, without the dividends to be paid from the money collected on Hidroelectrica, amounting to 9.28 billion lei, the Net Assets of Fondului Proprietatea will decrease from 12.76 billion lei, to 3.48 billion lei.

Marcel Murgoci added: "Fondul Proprietatea focused on obtaining direct benefits in favor of shareholders, through asset liquidations followed by share buybacks and capital reductions, dividends, etc. We know that there is a resolution of the shareholders by which the duration of the Fund's operation has been established until 2031. It is only a milestone, but this implies the liquidation of the company. I think that every company will try to get out; the first candidate for listing is Salrom, for which steps have been taken in this regard".

In January 2021, the AGEA of Fondului Proprietatea approved that the period of operation of the FP should be until December 2031, but with the possibility of extending it by five years, depending on the will of the shareholders.

• Bucharest Airports - the most valuable share holding in the FP portfolio, in July

At the end of July, the 20% holding in Bucharest Airports was the largest holding of shares in the FP portfolio, being valued, according to our calculations based on data from the fund's latest reports, at 828 million lei. The company is profitable, and Franklin Templeton officials (the administrator of the Proprietatea Fund) have repeatedly stated that FP is considering listing the stake held in Bucharest Airports.

It's just that, at this moment, the approach seems blocked by the capital increase that the Ministry of Transport (which owns 80% of the company) wants to achieve through the contribution of land from Baneasa Airport. Fondul Proprietatea contested the decision of the AGM in which the increase was approved, claiming that the valuation of the land of 3.81 billion lei is eleven times higher than the previous one, of 336 million lei. The fund, through Franklin Templeton, requested the annulment of the AGM decision, which is currently suspended, the litigation being ongoing. If FP does not obtain the cancellation of the capital increase, it will have to come up with 953.7 million lei to maintain its 20% holding. If he does not subscribe to the shares, the Fund's holding in Bucharest Airports will decrease by 0.73%, according to FP's latest quarterly report.

• Listing of the package held in Engie Romania, blocked by the majority shareholder

The holding of 12% in the supplier of natural gas and electricity Engie Romania is equivalent to 490 million lei, according to calculations based on data from the latest FP reports. The fund wanted to list the package it owns a few years ago, but was hit by the refusal of the majority shareholder, Romania Gas Holding, an entity owned by Engie SA.

• Evaluation of 313 million lei for the Constanţa Maritime Ports Administration in July, according to our calculations

The third largest shareholding in FP's portfolio was represented, last month, by the 20% stake in Constanţa Maritime Port Administration, valued at 313 million lei, according to our calculations. The company is profitable, it pays dividends, but FP has a series of disputes with the company, in connection with a capital increase (according to a report of the Fund), the distribution of last year's profit (according to the Ziua de Constanţa publication) or the concession of some lands (Ziua de Constant). According to some opinions in the market, the importance of Constanţa Port has increased significantly recently.

• Salrom's listing was approved by the company's shareholders and the Government

Salrom is the company closest to the listing, from the Fondul Proprietatea portfolio. FP has 49% of the salt producer, holding valued at around 297 million lei, according to our calculations. The company is profitable, it distributes dividends of at least 90% of the profit, and the listing through the sale of the package owned by FP was approved by the company's shareholders (Ministry of Economy and Fondul Proprietatea) and by the Government (by memorandum). At the moment, there are no clear signals regarding the timing of the listing.

Currently, the Fund also has significant holdings in E-Distribuţie Muntenia (1.75% of Net Assets), E-Distribuţie Banat (1.67%) and E-Distribuţie Dobrogea (1.34%), packages for which it concluded a sales contract (including Enel Energie plus Enel Energie) with Public Power Corporation worth 650 million lei. The transaction is made as a result of Enel's exit from our country. At Alro Slatina, FP has a holding of about 10%, which at the end of July was equivalent to about 120 million lei.

• Next month, FP shareholders will have on the table the renewal of the mandate of administrator Franklin Templeton

On September 25, the shareholders of Fondul Proprietarea are summoned to approve the renewal of the mandate of administrator Franklin Templeton or the election of another administrator, for a period of four years.

"Franklin Templeton and Fondul Proprietatea is here for the long term. With the support of the shareholders, we are looking towards FP version 2.0., where we will have the flexibility to invest in new opportunities, to take advantage of the potential offered by the Romanian market. We look forward to an exciting future for FP. We cannot estimate today when the future transactions will be, but we are certainly working on this", said Johan Meyer, CEO of Franklin Templeton Romania and Portfolio Manager of FP, in mid-June, on the occasion of the Hidroelectrica listing event, at Bucharest Stock Exchange.

It remains to be seen what the shareholders will vote next month, and especially if FP will change its strategy on which it has relied so far.