PRIVATIZATION OF COMPANIES AND THE RAISING OF THE THRESHOLD IN THE SIFS Investor solutions for saving the Stock Exchange

• Florin Vlădan, OPSPI: The largest commercial banks are interested in offerings from state owned companies

The development of the stock market depends on the privatization of companies through IPOs and on the raising of the holding threshold in the SIFs from 1% to 5%, several investors said yesterday, in a press conference.

Adrian Tănase, Managing Director of "ING Investment Management", considers that the stock market, even though it plays a very important role, suffers from certain limitations. He considers that at this moment, there are few companies one can invest in, as all the management communities are waiting for the government to complete the listing of the stakes in certain companies, as agreed with the IMF. "The privatization of companies on the stock exchange represents a first step towards creating a higher number of instruments in which to invest", said Adrian Tănase.

Florin Laurenţiu Vlădan, the head of the "Office for the Participation of the State and for Privatization in the Industry" (OPSPI), said that, by the end of 2012, the OPSPI will put up for sale stakes of 10% to 15% in companies owned by the Ministry of the Economy.

He said that the OPSPI already has a legal consultant, an intermediary and the sale contract has already been signed for the sale of 15% of the shares of "Transelectrica" (TEL). The subscription will take place in February.

For "Transgaz" (TGN), only one bid was submitted last week for intermediating the sale of a stake of 15% of the shares of the company, by the consortium made up of "Raiffeisen Capital & Investment" (RCI), "BT Securities" and Czech brokerage firm "Wood&Co".

Florin Laurenţiu Vlădan said that the state in the first half of 2012 will repeat the SPO by which it wants to sell 9.84% of the shares of OMV Petrom (SNP), after, in July, on the first attempt, the secondary offer in "Petrom" failed due to being undersubscribed.

He blamed the failure on the unfavorable international context, referring to the period of uncertainty that Greece was going through. Another important aspect emphasized by the representative of he OPSPI was that the state failed to sell the shares of "Petrom" at the desired price.

Florin Vlădan said that, for "Romgaz", the deadline for submitting bids for intermediating the offer is December 29th, and the contract will be signed between January 15-January 20th. He said: "Considering the high interest of investors in the 15% stake in Romgaz, the window for submitting the bids was set at a month, much longer than in the case of the other companies".

The representative of the OPSPI mentioned that the proposals for the privatization of "Hidroelectrica" (10%) and "Nuclearelectrica" (10%) have received the approval of the Ministry of Finance, and they are now being reviewed by the Ministry of Justice.

• The state may grant a discount for the sale of stakes conducted through the stock market

When asked whether the state will grant a discount to investors which show interest in the stakes put up for sale, Florin Laurenţiu Vlădan said that "generally, all the transactions are made at a certain discount, but we shouldn't start off with this idea, what is important for us is for the sale to be successful". He said: "In the case of «Petrom», a 3% discount was granted, but the government wanted a specific price, but the market was skeptical".

Florin Laurenţiu Vlădan also said that at this moment, there is no difference between small and big investors but, depending on recommendations, the OPSPI will grant certain discounts. "For example, we have received no recommendations to offer a discount for Transelectrica", he said.

Concerning the amount which the government expects to raise following the privatization of these companies through the stock market, Mr. Florin Vlădan said: "The development of the Romanian capital market can only ensure that we will get a fair price for these stakes and maximize the revenues of the state budget", concluding: "Some of the largest banks in the world are interested in these blocks of shares, which makes these deals successful, and the price will be fair for the government as the seller, as well as for the buyer".

In turn, Dumitru Beze, the president of "The Association of Investors on the Capital Market" (AIPC), considers that the state could earn one billion Euros from the sale of the shares put up for sale.

Radu Hanga, General Manager of "BT Asset Management" said that the amount which the state will receive after the sale of the blocks of shares will depend on the outlook that investors have on the market. "If investors have confidence in the market, they will be willing to buy at a higher price", he said.

• Investors are waiting for the vote of deputies on the threshold on the SIFs

The project concerning the raising of the holding threshold in the SIFs, from 1% to 5%, is included on the agenda of the Chamber of Deputies.

In this context, several investors consider that the passing of the law concerning the raising of the holding limit has direct implications on the financing of Romanian companies through the stock market, as well as on the expansion of foreign investments and of the private pension system.

Adrian Tănase said that the passing of the project to raise the holding limit to 5% will result in a change in investors' perception. He said: "What matters is the message which the state needs to convey, a message of openness to the investor community".

Dan Paul, the president of the Brokers Association, considers that the approval of this project will bring many benefits. "Institutional investors would not buy 1%, but 5%, which, will, first of all lead to higher liquidity in the market, and then to increased visibility and dividends", and he went on to say: "The state budget also stands to gain, because all the trades will be taxed".

Investors feel that a positive vote granted to the draft bill, will directly influence the process for the privatization of companies.

Dumitru Beze considers that the raising of the threshold will directly contribute to raising the confidence of foreign investors, which lead to an increase in the price of companies, which will lead to an increase in the price of state owned companies included in the privatization agreement. "In this manner, this state could earn a higher amount from the sale of companies such as Petrom, Transelectrica or Transgaz", he said.

Dumitru Beze mentioned that compared to Poland, companies on the Romanian market are 50% undervalued. "This will result in a loss of over 300 million Euros from the sales of companies announced by the state", he said.

Another sector which stands to gain if the project to raise the holding limit in the SIFs passes the vote in the Chamber of Deputies is that of the investment funds, investors say.

In this context, Adrian Tănase said that the holding limit has important implications on the mechanisms of pension funds. "For some funds this has become a limitation on their investments on the Romanian market, because they have reached their maximum exposure", he said.

The draft bill for raising the holding limit in the SIFs has received the approval of the Budget and Finance Commission of the Chamber of Deputies last month and was postponed three times in the plenum of the Chamber.