IT DOESN'T HOLD ANY WEIGHT Has even oil stopped being attractive?!

Together with the Proprietatea Fund and the five SIFs, Petrom is considered among the most attractive companies on the BSE. Over the last few years, SNP had very good results, as the company paid out substantial dividends to shareholders, in spite of the huge volume of investments it made. Furthermore, the officials of SNP have announced the discovery of important gas reserves in the Black Sea, with the preliminary estimates of 42-84 billion cubic meters.Still, brokers claim that SNP will be affected by the important increase in oil royalties, starting next year.As for the reserves in the Black Sea, brokers claim that the shareholders will need to invest significant amounts to exploit them, and on the BSE there are no long term investors, that would be interested in the development of the company, only speculators, and not that many at that.

The failure of the Proprietatea Fund (FP) to fully sell the stake of 1.77% of the shares of "OMV Petrom" (SNP) raises a lot more questions about why the investors have only been interested in 1.11%.

Among other causes, brokers have enumerated the low size of the stake, the low degree of development of our stock market, the shrinking interest in the oil and gas sector, as well as the insufficient involvement of J.P. Morgan, the global sole coordinator.

The representatives of the American bank did not respond to our request for their opinion on the result of the deal.

On the other hand, the manager of the Proprietatea Fund, Franklin Templeton Investments, says that the offer was a success, because it was the biggest private investment conducted on the Romanian stock market.

"The main motivation of the Proprietatea Fund in conducting this trade was the creation of a liquidity event for the shares of < Petrom >, leading to greater trading volumes following the placement and possibly to a higher price of the company's shares", the press release of Franklin Templeton says.

Grzegorz Konieczny, the executive vice-president of Franklin Templeton, said: "We want to emphasize that the placement only represented 5.6% of the stake the Fund has in OMV Petrom and that it was planned to increase the value of the remaining stake, given the fact that this company remains an important asset of the Fund. The gains from this trade will now be used for buybacks of the Fund's shares and other operations for increasing the value for shareholders".

Regardless, it is clear that the Proprietatea Fund lowered the price of the shares of "Petrom" through its offers and that other funds managed by Franklin Templeton, foreign this time, bought shares of SNP (from the market, not through the offer of the Proprietatea Fund), at a price higher than the one in the offer, but lower than the previous market price.

On Tuesday, a few days after the offer, funds managed by Franklin Templeton (FT) showed a high interest in the shares of "Petrom", of which three bought over 20 million shares, at a price of 0.407 lei/share. The funds managed by Franklin Templeton were not allowed to participate in the placement conducted by Proprietatea Fund, because that would have represented a conflict of interest, according to the officials of the Proprietatea Fund.

Grzegorz Konieczny said: "Concerning the acquisitions of shares in OMV Petrom reported by other funds managed by the Franklin Templeton group, we want to emphasize the fact that the funds managed by Franklin Templeton were prohibited, through internal regulations concerning potential conflicts of interest among the clients, to trade shares in OMV Petrom during the placement of the Fund. When the placement ended, the restriction ended as well. We can not comment on the portfolio management decisions of the managers of those funds, but we want to stress that those funds have reported a series of acquisitions recently, before the acquisition, so the latest acquisitions can be seen as a continuation of this strategy."

Market sources started the theory that Franklin Templeton wanted to lower the price of the shares of SNP, to then buy more.

Starting in April 2011, several funds managed by Franklin Templeton have bought together shares representing 0.783% of the share capital of OMV Petrom, for which they paid almost 180 million lei (approximately 41 million Euros).

Last week's placement was made at 0.39 lei/share, 12.2% less than what the price was before the Proprietatea Fund announced its plans on May 15th, to sell shares in Petrom.

Brokers don't expect the price of the shares of Petrom to remain for long at 0.4 lei/share for long, since the shares of its majority shareholder "OMV" are trading near historic highs on the Vienna Stock Exchange. Yesterday, the shares of SNP were trading at a price of 0.4229 lei/share.

Had Franklin Templeton resorted to the strategy suggested by the rumors, that would have harmed the shareholders of the Proprietatea Fund, according to the naysayers, and we have to say that the largest shareholder of the Proprietatea Fund is American hedge fund "Elliott Associates", which owns 1bout 17.5% through Manchester Securities. In April, "Elliot" succeeded in getting the articles of incorporation of the Proprietatea Fund amended, which would allow for easier replacement of Franklin Templeton as asset manager in September 2014, when its mandate expires.

City of London Investment Group, the second largest shareholder of the Proprietatea Fund, has a positive view of the placement of shares of SNP. Mark Dwyer, in charge of the investment of City of London at the Proprietatea Fund, said: "I think that the placement had a positive result, because it contributes to attracting investors in Romania, and to improving the depth of the domestic capital market. Other placements, initial or secondary public offers of listed or unlisted, private or state owned companies would be beneficial for the success of the Romanian stock market and its economy".

It needs to be said that our question was whether the placement of 1.11% of the shares of SNP, by the Proprietatea Fund, represents a success or whether more could have been done, according to City of London.

• "Elliott", a "pain" for issuers

"Elliott Associates" has often been at odds with the managers of the listed companies it has bought shares in.

In 1996, it bought bonds of a bankrupt Peruvian bank, guaranteed by the government of the country, worth 20 million dollars, at a price of 11.4 million dollars, only to then refuse the canceling of part of the debts. Following lengthy trials, "Elliott" succeeded in getting a payment of 58 million dollars from the Peruvian government.

The fund is currently involved in legal battles with the Argentinean and Congolese authorities. A subsidiary of "Elliott", which did not participate in the restructuring of the debt of Argentina in the beginning of the previous decade, in October 2012, managed to get an Argentinean ship seized in a Ghanese port. The subsidiary had not initially been a creditor of the government of Buenos Aires, but it then bought bonds issued by it at a discounted price, and is now asking for the payment of a debt of 370 million dollars. In December, the Ghanese authorities have allowed the ship to leave for Argentina, following a decision of the International Maritime Court of the UN.

Following the bonds issued by the Republic of Congo, a British court ruled a few years ago, that the African country must pay 100 million dollars to "Elliott", for a debt of 32.6 million dollars, which the fund had bought at a price of approximately 2.3 million dollars. Part of that amount, 39 million dollars, was withheld out of an oil trade between Congo and Swiss company "Glencore", one of the biggest commodities traders in the world.

Paul Elliott Singer, the founder of "Elliott Associates", said that he only seeks the payment of debts by states that can afford to do so. In the past, he said that investing in "distressed debt" (debts with high risk of not being paid) offers greater guarantees of generating superior revenues for investors than investing in shares or bonds.

Aside from this investment approach, "Elliott" buys shares in companies that are going to be sold, and then attempts to get as high a price as possible from the deal.

In 2003, it has opposed the bid that "P&G" made for buying "Wella", as it thought that the American company wasn't offering a fair price to all the preferred shareholders of the German company. After several years of litigation and talks among the shareholders, "P&G" raised the price on the offer made to all the preferred shareholders of "Wella".

In 2005, it joined other hedge funds which did not agree to the bid of 1 billion dollars made by a private equity fund for the "ShopKo" chain. The funds viewed the price of 24 dollars a share, as well as the next offer of 25 dollars/share, as too low. Eventually, "Elliott" became part of the group of investors that bought the retailer.

In 2006, human resources company "Adecco" announced the acquisition of 35% of the shares of its German peer "DIS AG", at a price of 54.5 Euros per share, as well as the intention to take over the remaining shares, at the same price and to take the company private. "Elliott", once again was among those who opposed the decision, and convinced "Adecco" to offer 113 Euros per share, which the shareholders accepted.