REPORT BY BCR:  The listing of state owned companies will not solve the issues of the Bucharest Stock Exchange

Even though the capitalization of the Bucharest Stock Exchange (BVB) would be increased by almost 50%, to 25.4 billion Euros, after the listing of minority stakes in the state owned energy companies, as well as through the exhaustion of the holding of the state in the "Proprietatea Fund", that would still not solve the issue of the BSE"s underdevelopment, BCR analysts claim, in a report presented to institutional investors early this month. Among other things, the report is considering the listing of 36% of "Hidroelectrica" and of 43% of "Nuclearelectrica" by early 2013, and the distribution of the state"s stake in the Proprietatea Fund to the former asset owners by Q2 2013.

"According to an estimate, the capitalization of the Exchange would increase by up to 50%, and the capitalization of the BSE"s free-float would double, at best, but, in terms of the size that the BSE could reach, the impact would not be spectacular", BCR analysts said in a press conference, and he added: "These listings would not solve the fundamental issue of the BSE, namely its underdevelopment compared to the size of the Romanian economy. This means that only the listing of some important companies could make the Bucharest Stock Exchange an important market that could catch up to those of Hungary and Czech Republic".

According to the quoted analysts, the BSE has an average turnover of 10 million Euros/day, which is less than the average turnover of one single issuer, on the exchanges of countries such as Czech Republic, Hungary or Poland.

Furthermore, BCR analysts say that foreign institutional investors are unable to diversify their exposure on the Bucharest Stock Exchange, because over 90% of the free-float of the BSE comes from the energy and banking sector (including both companies listed in the sectors in question, as well as investment funds such as the Proprietatea Fund and the five Financial Investment Companies which have stakes in the two sectors).

"The pharmaceutical sector accounts for less than 5% of the free-float of the exchange, and other sectors outside of banking, energy and pharma, account for less than 10% of the capitalization of the free-float, which illustrates the lack of alternatives for big investors looking to build portfolios diversified across sectors due to the lack of adequate liquidity", BCR analysts said, who added: "In this respect, we can see the lack of alternatives for investing in agriculture and the food industry, as well as the low representation of processing industries, and the complete absence of the telecom industry".