INTERVIEW AFTER THE "ROAD-SHOW" Lucian Anghel: "Foreign investors want a discount of at least 10% on the offering of Transelectrica"

The success of the offering through which the Romanian state will sell 15% of "Transelectrica" on the Stock Market depends on the granting of a discount of 10-15%, Lucian Anghel, the president of the Bucharest Stock Exchange thinks.

Having returned on Tuesday, from the road-show for promoting the "Transelectrica" offering, scheduled to take place this month, Lucian Anghel granted us an exclusive interview, in which he talked about the reactions received from foreign investors and on the outlook of the offering.

He said: "During the roadshows we had for promoting the offering, we met with over 30 financial institutions which have sufficient financial strength to buy the entire Transelectrica stake. We are talking about approximately 40 million Euros. However, this offering would only present interest if a discount of about 10-15% were offered. Without that discount the offering will basically be a failure".

He said that this discount is being demanded by foreign investors, people who are very well informed, professionals who run their numbers and are obviously reviewing other possibilities: "Romania isn't the only one with public offerings, there are other similar companies in other countries which are getting listed".

The president of the BSE said: "After one hour, or one hour and a half of discussions with each company, in the end, the consortium asks for the opinions of investors, to then send price suggestions to the Government. Investors have told us in unison, that without a discount of at least 10%, they won't even look at the offering".

In order to promote the public offering, the representatives of the intermediation consortium, and those of the company have held several meetings with Romanian and foreign investors.

The first road-show was held in the beginning of last month, at the headquarters of the Bucharest Stock Exchange, and was attended by retail as well as institutional investors.

Last week, the offering of "Trans-electrica" was presented to investors in Warsaw, Frankfurt, Stockholm and Tallinn, and in the beginning of this week it a roadshow was held in London.

Mr. Anghel took the time to mention that all of the meetings of the road-show, with domestic and foreign investors, were also attended by Laurenţiu Vlădan, the head of the Office For The State's Interests and Industrial Privatization (OPSPI).

"The participation of Mr. Laurenţiu Vlădan was absolutely essential, even crucial. Many questions from investors concerned what will happen in the next five years".

Transelectrica depends on the price of transportation of electricity, this is basically the company's main business, that's where most of its revenue comes from", Lucian Anghel said, and he went on to say: "These tariffs are established by the ANRE (ed. note: the National Authority for the Regulation of the Energy Market) for a period of five years, and that deadline expires this year, so we do not know what will happen next year".

• The success of the offering will depend on the institutional investors

Also, Lucian Anghel considers that the success of the public offering of "Transelectrica" will largely depend on the institutional investors: "However, they have a lot of options, they are analyzing many other companies, and whatever means the absence of predictability is not to their liking".

The president of the BSE told us that, through the meetings, the foreign investors also found out about the other companies scheduled to be taken public, but he stressed that the success of "Transelectrica" is essential, being the first company put up for sale. He said: "It is the first offering and it is very small, 40 million Euros is not a large amount".

He mentioned that, considering the size of the offering, half of the subscriptions will come from domestic investors and half from foreign investors.

• What would the failure of the "Transelectrica" offering mean?

Lucian Anghel also told us that, if the state were to grant a discount of 5% instead of 15% on the sale of the 15% stake in "Transelectrica", this would mean a difference of about 4 million Euros.

"So between 5%, which basically means the failure of the offering, and 15%, where, in my opinion, there are real chances of the deal going through, there is a difference of just 4 million Euros", he said.

The president of the BSE told us that failure of the offering of "Petrom" (ed. note: August 2011), followed by a potential failure of the "Transelectrica" offering, would severely affect Romania's image.

"At a public debt of approximately 20 billion Euros, it is enough for the CDS (ed. note: risk premium) to go from 330 to 332, that is, two basis points. Two basis points on a debt of 20 billion Euros means a supplemental interest cost of 4 million Euros a year", he said. "Furthermore, I've only considered the public debt, but we also need to think of Romania's debt which is around 100 billion Euros".

In the opinion of Mr. Anghel, the cost of the debt is tied to the CDS, and the worsening of the CDS means higher interest paid by any entity which borrows in foreign currencies: "How much money would Romania have to pay to wash away the negative image of a failure of the Trans-electrica SPO? People still ask us questions about the donation of Romgaz".

• Lucian Anghel: Transelectrica is a stable company which offers shareholders an attractive dividend

Lucian Anghel considers that the moment chosen for the launch of the IPO is good: "This period seems relatively quiet, even though it is impossible to find the perfect moment. I am convinced that if the correct period is found, this transaction can be turned into a success story for Romania".

Mr. Anghel also says that "Transelectrica" has several advantages which could attract the attention of investors: "First of all it is a regulated monopoly, with a professional management team. It is a stable company which offers its shareholders an attractive dividend (almost 6%)".

He says that the national currency, which is relatively stable to that of other countries, could be a plus for the offering of "Transelectrica".

The president of the BSE also mentioned the macroeconomic context, the agreement signed with the IMF and the structural reforms, including those in the energy sector.

He ended the interview on an optimistic note: "We are bound to be successful! The Exchange, the company itself and the intermediation consortium have done everything in their power for the offering of < Transelectrica > to be successful".

Following the agreement signed with the International Monetary Fund, the state, through its Office For The State's Interests and Industrial Privatization (OPSPI), has made the commitment to sell blocks of shares of 10-15% in companies found in the portfolio of the Ministry of the Economy, by the end of the year.

The first sale offering, which is part of this agreement, is the one conducted by the Romanian National Power Grid Company - Transelectrica (symbol: TEL).

On October 12th, 2011, the consortium made up of the Romanian Commercial Bank (BCR), "SSIF Intercapital Invest" and "Swiss Capital" was designated as the winner of the auction for the intermediation of the secondary public offering for the sale of 10.99 million shares of "Transelectrica".