Petre Pavel Szel: "Restructuring the portfolio remains the guideline"

Petre Pavel Szel, the president of "SAI Muntenia", the company which manages SIF4 "Muntenia", says he is relatively pleased with the results achieved by SIF4 last year, given the state of the economy.

"2011 was a decent year. We concluded most of the transaction for the sale of the shares we owned in BCR, which has represented our main goal, which had been established in the general shareholder meeting".

The net profit recorded by SIF "Muntenia" last year, was 65.33 million lei, down 10.09% over 2010, and the assets of the investment company amounted to 1.322 billion lei, down 14.4% over the beginning of the year, a drop which was smaller than that of the stock market indexes.

Two weeks from now, the financial investment company will publish its operating schedule, its objectives for this year and the schedule of the revenue and expenses budget. Even though he was unable to provide details on the future investments which SIF4 plans to make, Mr. Szel told us that this year's activity will be characterized by continuity.

"Restructuring the portfolio remains the guideline. Approximately 80% of the shares of SIF "Muntenia" come from the initial portfolio of the FPP (ed. note: the former Private Property Fund), and so far, given the market conditions, we were unable to perform restructuring as extensive as we would have liked. This does not mean that SIF4 did not initiate or support, including financially, significant restructuring activities in the companies in its portfolio. This year, one of the main goals is to complete the transactions involving the shares of BCR and their exchange for Erste stock, and with money, respectively", the president of "SAI Muntenia" said.

In mid September 2011, Austrian group "Erste" concluded a principle agreement with SIF "Muntenia" (ed. note: together with three other SIFs) for buying a stake of 24.12% of the shares of BCR. Part of the transactions pertaining to that deal were concluded last year.

In the beginning of February, SIF4 received 0.38% of the shares of "Erste" (symbol: EBS) in exchange for a block of BCR shares, after exercising the right of option to participate in the share capital increase of "Erste Group Bank".

Following the exercising of that right, SIF "Muntenia" received 1.486 million shares representing 1.02% of the total shares of "Erste" in exchange for his contribution represented the 190.233 million shares of the Romanian Commercial Bank (BCR). Following this exchange, SIF "Muntenia" was left with a block of BCR shares for which it will be paid approximately 53.5 million lei in the coming weeks.

Mr. Szel mentioned that following the transaction concluded with "Erste", SIF "Muntenia" has a significant presence on the international markets. He said that, in relation to the transaction concluded with "Erste", SIF4 received offers from several banks and international funds to increase its presence on the international markets. "We are in no rush for the moment. We do not rule out future investments on these markets", Petre Pavel Szel told us.

• The amount of the dividends, affected by the crisis

This year, the management of SIF4 is proposing the payment of a dividend per share of 0.081 lei, which basically amounts to paying out the entire net profit as dividends. Mr. Szel told us that, even though the net profit wasn't that big compared to the net assets, the company was still able to pay dividends to its shareholders, even though they amount to less than what they were in the years before the financial crisis.

Also, the representative of SIF "Muntenia", said that, even though he acknowledges the shareholders' right to earn dividends, he feels it is inappropriate for an institutional investor, who is basically an entity which is similar or even identical to a SIF to pressure the company into paying a greater dividend than the one proposed by the company's management.

"Through its articles of incorporation, SIF4 has been established as a balanced fund, meaning it lies somewhere between a growth fund, which does not pay dividends to shareholders, but reinvests its profits instead, and whose shareholders earn from the appreciation of the stock, and an income fund, which does not reinvest its earnings, but instead rewards its investors through periodic dividend payments", he said.

An issue which has sparked numerous controversies is the existence of residual shareholders, those who were awarded a very small number of shares following the mass privatization program, who never vote in the General Shareholder Meetings and never collect their dividends, which after three years get capitalized by the SIFs.

Mr. Szel said: "The dividend is at the shareholders' disposal, but we need to take into consideration the fact that the SIFs have millions of investors, and some of them never did anything to pick up their dividends since they have been paid out. Therefore, it is natural and legal for it to remain the property of all the shareholders".

This year, the shareholders of SIF4 are called to vote on the prescription of the uncollected dividends, amounting to 23 million lei, for the 2008 fiscal year.

Mr. Szel said that simply put, this is not a prescription of the shareholders' rights to earn dividends, but of the company's debt towards them, as the right to earn dividends remains in effect.

• "If you are a bit noisier, more active in promoting yourself, the market likes it"

Petre Pavel Szel said that the shares of SIF4 had a normal evolution in 2011, in correlation with the other four SIFs, as well as with the overall evolution of the market, even though they are trading at a higher discount than the others.

"A greater discount raises issues over the efficiency of the market. If you are a bit noisier, more active in promoting yourself, the market likes it. We (ed. note: SIF4) are very scrupulous when it comes to reflecting our activity in our financial statements. We set up provisions and we book the depreciation of the securities we own in our profit and loss account. For the last three years we have been keeping a dual set of books, our internal books together with those using the IFRS regulations, even though this also involves higher costs".

The shares of SIF4 are trading at a discount of 0.77 lei compared to the value of the Net Asset Value Per Share - NAVPS which, at the end of January, was 1.182 billion lei.

Mr. Szel told us that the shareholder structure of the SIFs did not see any significant changes after the passing of the law which raised the allowed holding limit in the SIFs to 5%: "The coming into effect of the law generated a temporary agitation, at the time there were some powerful investors who bought shares, but things have calmed down since then".

He mentioned that before the coming into effect of the law concerning the holding limit, the five SIFs had a total market value of about 600 million Euros. "After the raising of the holding limit from 1% to 5%, their value increased by about 20-30%, following the increase in the volume of trades, but things returned to normal after a few weeks, as the volume of trading has been far lower than the fervent supporters of the higher holding limit expected, at least so far".

• The year 2011: Two failures and one partial failure

For the stock market, the year 2011 was average, Petre Pavel Szel says. He said: "Last year was better than 2010, with a slight improvement compared to the previous years, but it has also seen two failures and one partial failure. The market was affected after the state failed to sell part of the block of shares it owns in Petrom, last summer,. Also, even though many expected this, the shares of BCR were not listed on the BSE, as the SIFs chose to deal with that problem in a different manner".

In his opinion, the listing of the Proprietatea Fund was a success, considering that it was the first important listing on the Stock Exchange after almost two years, but, beyond that, the evolution of the stock was a disappointment. "Everyone expected those shares to rise spectacularly", he went on to say.

In his opinion, these failures have also been caused by the fact that Romania was significantly affected by foreign events.

"Romania is connected to the evolution of the European and global markets", Mr. Szel said, who went on to say: "The problems in Greece have caused restlessness in Europe. Also, last summer's rumors about the US's inability to honor its current debts have resulted in massive drops across all the markets and in a devaluation of stocks, especially those in the financial sector, affecting the return to growth of the world".

• Petre Pavel Szel: 80% of the important areas in the economy are not present on the Stock Exchange

Petre Pavel Szel said that he is watching the privatization process initiated by the state, and when the time comes, SIF "Muntenia" will decide whether to participate or not, depending on the price and on the cash it will have available.

In his opinion, the Romanian stock market is faced with two major issues. "The first is what domestic investors are buying. This problem was solved through the fact that the foreign markets have become accessible, anyone who is interested can invest directly on the foreign markets, or indirectly, through funds which are available to investors", the president of "SAI Muntenia" said. "It would be important for the BSE to come up with a solution to make sure that part of these investment flows through it".

Mr. Szel said that at the moment, the stock market does not reflect the Romanian economy. "80% of the important areas in the economy are not present on the Stock Exchange. The most active sectors in Romania are the automotive industry, retail trade and telecommunications, but none of them caught a significant foothold on the Stock Exchange", he said.

In his opinion, a solution would be to bring the companies which have great exposure to Romania on the Stock Exchange, such as Renault, E.On, Carrefour, Metro, Societe Generale, Ford, Bosch, Vodafone etc.

The second problem of the stock market, as viewed by the president of "SAI Muntenia", is where the domestic issuers are going to get funding, and how to attract investment funds to Romania.

In his opinion, the only solution would be to get the companies which need funding and could be interesting to investors listed on the BSE. "This mostly applies to state-owned companies. In order to get these companies listed we need the political will to do so, which was absent these last 15 years".

On the other hand, the president of "SAI Muntenia" warns that selling a company at a price lower than the acquisition cost or the drop of the price over time could affect the country's budget deficit.

Petre Pavel Szel said that the chances of seeing companies in the portfolio of SIF4 listed are slim to none. "SIF Muntenia does not own any major companies which would be attractive to investors. A potential listing also involves rather high costs, and we, just like the state, are forced to bear the difference between the company's value and the price of its shares on the market", he said. He added: "Moreover, in Romania we don't have a special category like they do in the developed countries, for companies with capitalizations ranging from a few hundred thousands Euros to a few million Euros and with lots of interest from investors and issuers alike. We only have the big, well known companies which every government so far promised to take public".