Marius Murgu: "We will demand that the state contribute additional assets to the Proprietatea Fund"

(Interview with Mr. Marius Murgu, the president of the Association of Former Asset Owners)

Reporter: Mr. Murgu, you had recent talks with those who handle the listing of the Fund. What were those discussions about?

Marius Murgu: I requested that the intermediary of the listing take me with them on their road-show, to let me participate in their press conferences to see how the Proprietatea Fund is being advertised because it is also in the interest of the Association of Former Asset Owners to make sure the Fund gets the best promotion.

For us, the former asset owners, the listing of the Fund is an "all or nothing" situation. We went through so much to get to this stage, which is why we want to be sure that the Fund has been adequately promoted before the listing.

I am strongly convinced that the shares of the Proprietatea Fund will grow over time, as they are extremely valuable, but I"m afraid in the first few months, their price will be way below 1 leu. I"ve seen that most estimates revolve around 0.6-0.7 lei/share, which would be disappointing for former asset owners, who are precisely the ones that the Fund was created for. They will want to sell in the first months. We have to tell them not to sell in the first two-three months and when they do decide to sell to do so gradually, not to sell it all at once. We will continue to educate our members, so they can get higher returns than the average investors.

Reporter: How much do you think the first-hand shareholders of the Fund still hold?

Marius Murgu: I think they still account for 40%, whereas the Romanian state still holds about 38%. Former owners still hold the biggest weight among the private shareholders of the Fund. Even though last year Franklin Templeton promised us a successful listing, we are bit disappointed now, because at the last meeting with the shareholders we received information that wasn"t satisfying for us.

Eventually, Mark Mobius admitted that the price of the shares will fluctuate in the first three months, in other words the upward trend of the shares of the Proprietatea Fund will only begin to take shape three months after the listing.

Reporter: What would make the listing a success, from the point of view of the former owners?

Marius Murgu: For the price to be +/- 10% compared to the face value of the stock (1 leu). And a medium term stability around that price would be desirable. We will be more than happy if the market price goes above the NAV. We have one of the most well reputed fund management companies in the world and the most spectacular and valuable fund in this region of the world.

As a result, we have big expectations.

Reporter: Don"t you think that it is a problem if the price of the shares falls far below 1 leu, or, conversely, above 1 leu, considering that former owners each received shares at 1 leu each? If the price goes above that figure, doesn"t that mean that they would get more money than they were entitled to receive as compensation?

Marius Murgu: Yes. I have information that there are lawyers specializing in finance that are waiting for the price of the shares to go far below 1 leu and then approach the former owners and propose them to sue...

What"s more, if the price remains below 1 leu, the government will find it hard to find new resources for honoring the following debt-to-equity swaps, resulting from the new calculation formula.

Reporter: Were you contacted by lawyers for this purpose?

Marius Murgu: Yes. I was contacted by lawyers who announced me that if we have members of the Association who would be interested in going to court, they would like to represent them. It"s definitely a problem, because if the government hadn"t blundered into suspending payments in cash, leaving former owners with the option to choose between receiving stock or cash, it could have at least argued in court that it didn"t force anyone to choose being compensated in shares. They can"t use that excuse now that they issued an Emergency Ordinance which stopped the granting of compensation in cash, basically forcing them to take shares of the Fund. It would have been enough to lift the interdiction to change the compensation choice. This is where the state is at risk, if the price of the shares were to fall far below 1 leu.

Reporter: How do you fell about the decision of the Fund to drop the lawsuit against the state over the 160 million Euros that it considered it should have received from the privatization of the BCR?

Marius Murgu: This is one decision that raises a few doubts over the management of the Fund.

In our opinion, a request to postpone the hearing would have been better, until after the listing of the Fund on the BSE. We will propose an audit on this matter to the Board of Representatives of the Fund.

Reporter: How do you feel about the decision of the Ministry of Finance to no longer give the Fund the money collected from Romania"s foreign claims? The management of the Fund did not protest against this decision, even though a few days before the Fund had just received a few tens of millions of lei from the recovery of such claims...

Marius Murgu: In a conversation I had with him last year, Ionuţ Popescu (ed. note: the managing director of the Fund) said that recovering those claims may require far more effort than it was worth, and that he preferred to focus on other things instead. But, concerning the lawsuit against BCR, I know that Ionuţ Popescu was working hard to recover that money. Giving up on the money from BCR is a matter that needs to be investigated, especially since the stake of the state in the Proprietatea Fund will be exhausted long before the Fund meets the goal for which it was created, namely the compensation of the former owners. Simply by solving the options to convert cash into stock, at this stage, the stake of the state will fall below 30%.

Reporter: Do you think the state will accept quietly losing control over the Proprietatea Fund?

Marius Murgu: In spite of all the trouble that the state has caused us so far when it comes to the Fund, for me, its presence as a shareholder is a guarantee that nothing disastrous will happen to it. I wish the state would reduce its involvement to a minimum, to stop appointing people on the board, but to guarantee to me that any risk of fully changing the destination of the fund is out of the question. My role is to take into consideration even the most pessimistic scenarios because current and future shareholders ask me if the papers that I get from the National Agency for the Restitution of Properties(ANRP) have any value. The Proprietatea Fund has a strong social function, even though sometimes people seem to forget the purpose for which he was created. The Fund was created to compensate the former owners. If its intended purpose had been different it would have had another name... the Fund for Privatization maybe...

Reporter: How will the former owners who are now waiting in lines at the ANRP be compensated once the state will no longer have shares in the Proprietatea Fund?

Marius Murgu: Immediately after the listing of the Proprietatea Fund, we will take officials steps to have the state increase the assets in the Fund"s portfolio.

Reporter: But what other assets should the state contribute to the Fund?

Marius Murgu: The state still has significant stakes in energy companies, others than the ones it plans to sell on the Bucharest Stock Exchange. The state could easily double its current contribution to the Proprietatea Fund. Let"s not forget that the valuable stakes of the Fund are in the energy sector, where the state is still a majority shareholder. The state could bring another 5-10% of the companies in which it is a majority shareholder to the Proprietatea Fund.

Such a move would seem reasonable to me, as it would ensure the privatization of those companies, would increase the size of the Fund"s stake in these companies that are managed in a secretive and negligent manner, something that even "Franklin Templeton" complained about, and would also provide a signal to the stock market. If the state were to increase the assets of the Proprietatea Fund, this would raise confidence in the potential of the Fund"s shares, it would raise their prices, which would mean that the state would have to give less shares to former owners, since, after the listing, the conversion of the compensation certificates into shares would be done at the average price of the stock of the past 60 trading days.

Reporter: Do you think that the supplementation of the assets of the Proprietatea Fund would solve the compensation process?

Marius Murgu: If the price of the stock reaches 0.5 lei after the listing, the state will need to create three more funds like the Proprietatea Fund. If the state plays its cards right and helps the price of the stock to rise, than a simple supplementation of the Fund"s assets could solve the dilemma of the compensation process.

Reporter: What the compensation process handled in other former communist countries, in Hungary, for instance? I know there were some caps on the amounts paid as compensation...

Marius Murgu: Hungary paid a fixed amount in cash, somewhere around USD 100,000, but in addition to that, it offered vouchers which allowed their owner to participate in the privatization process. The idea was rather good because the capital would basically remain inside the country. But what really makes them better was the fact that they solved the issue in a maximum of two years.

Reporter: Compared to what happened in Romania, where just the listing of the Fund took five years to happen...

Marius Murgu: Well, I have a question of my own: what prevented the liberals from listing the Fund while they still had the government? Especially since it was them who launched the project...

Reporter: But why do you think the Fund is only getting listed now? Why not one year ago, two years ago etc?

Marius Murgu: The main reason that the Fund is getting listed now, that not many people are aware of, is the fact that former owners exerted a lot of pressure with the aid of the European institutions. We also profited from the change of the political team and we constantly reminded PM Emil Boc that he could make the listing of the Proprietatea Fund a success story that takes place during his tenure ...

Reporter: I"ve never heard PM Emil Boc speak about the Proprietatea Fund ...

Marius Murgu: I don"t think this is a subject that the PM is familiar with. We had numerous talks with Ionuţ Popescu on this subject. The PM is not an amateur when it comes to politics and there is a lot of foreign and domestic pressure for these reparations to be completed. Including from within his own government.

Reporter: What pressure from within the government are you referring to?

Marius Murgu: I"ll give you an example: The Ministry of the Economy was and still is interested, first of all, in the creation of the two energy companies. The Proprietatea Fund meant an obstacle towards creating these companies. I am convinced that for the Ministry of the Economy, it would have been more convenient if the listing of the Fund had been postponed. So it could set up the energy mammoth.

Reporter: Do you know if Mr. Videanu owns shares in the Proprietatea Fund? Several readers left comments along those lines on our website ...

Marius Murgu: I don"t know. Besides, it"s possible a lot of dignitaries bought shares in the Fund, either directly or indirectly. Verestoy Attila is one of those who stated that publicly. He is probably not the only one.

Reporter: Do you think that the trading of the shares of the Fund shouldn"t have been allowed prior to the listing of the Fund?

Marius Murgu: Mr. Varujan Vosganian played a major, if not decisive part in this, by allowing the selling of the shares. It"s true, however, that you can always find pros and cons to any decision in life. But I am not as much accusing them for allowing the selling of the shares, as I am of the fact that they did not create a more transparent platform for, regardless of whether it was Over-the-Counter (OTC) or not. In doing that they could have also offered some financial education to those who don"t know how the stock market works. The Fund should have been listed at most after six months of trading on the OTC at least. My major complaint against the liberals is that they did not get the Fund listed, even though they had the possibility to do it, they had the full power.

Reporter: And this resulted in the creation of a "gray" market for trading the stock of the Proprietatea Fund, with very little information about prices or volumes...

Marius Murgu: Perhaps liberals have more speculators among their buddies, operating outside the regulated stock market. Other than that, I can"t see no reason why they wouldn"t list the Fund, when they were the ones who came up with the idea in the first place. We asked to be compensated in government bonds, but the liberals put the draft for the creation of the Proprietatea Fund on the table and said "it"s either this or nothing".

Reporter: Who was the initiator of the Proprietatea Fund?

Marius Murgu: I know it was Mr. Nicolae Ivan, who, at the time (2004-2005), was a secretary of state in the Ministry of Finance and was involved in this plan. Ivan was also the first chairman of the Fund, but was dismissed after four months. Before his dismissal, I had a meeting with him and he told me that other colleagues of his in the party did not like the idea of getting the Fund listed quickly.

Ivan told me: "Mr. Murgu, if you don"t push for the Fund to get listed within four months, then four years from now it still won"t be listed".

Unfortunately, he was later proven right.

After five years of waiting, I thinks it would be only natural to ensure a price of 1 leu/share for former owners. Most of the people in the market, all the great experts and analysts tell me that the state can"t guarantee this. But I say that it can be an essential help in keeping the value of 1 leu/share minimum. The Proprietatea Fund is valuable. If the listing of the Proprietatea fund were advertised more heavily on the foreign markets and if the state supplemented the assets of the Fund by adding 2-3% of "Transgaz" and "Transelectrica", it would send a very strong signal to the market that it supports the Fund. This would stimulate foreign funds to invest in it. And after all, this is what everybody wants. Massive investments in Romania.