STARS SHINE BRIGHTER BEFORE THEY GO OUT "The Proprietatea Fund", from one high to the next

The shares of the Proprietatea Fund, the star stock that accounts for approximately half of the turnover of the Bucharest Stock Exchange, have impressed investors, by posting one new high after the next, especially after the Fund began its second stock buyback program.

Franklin Templeton, the manager of the Proprietatea Fund, has upped the ante and has shone an even brighter light on the shares of the Fund, after summoning the General Shareholder meeting to decide on reducing the share capital and returning the resulting amount to the shareholders.

Thus, the possibility of a reduction of the share capital is also contributing to the rise of the stock price.

Yesterday, six deals with shares of the Proprietatea Fund were made, for a total amount of 113,267,500 shares (0.82% of the Proprietatea Fund), at an average price of 0.7700 lei.

This year, the shares of the Proprietatea Fund have risen 38.5%. The trades involving its shares have often accounted for more than half of the daily turnover of the BSE, FP being one of the few liquid stocks on the Bucharest Stock Exchange.

Marcel Murgoci, trading director at Estinvest, believes that these deals come as a result of the announcement concerning the proposals made to the shareholders in the General Shareholder Meeting of November 22nd.

Shares of the Proprietatea Fund yesterday closed down for the day, at 0.76 lei/share.

Manager Franklin Templeton (FT) is proposing to the shareholders of the Proprietatea Fund the reduction of the share capital, from 13,538,087,407 lei to 12,861,183,036 lei, by cutting the face value of a share by 0.05 lei, according to a notice recently sent to the Bucharest Stock Exchange. Currently, the face value of a share of the Proprietatea Fund is 1 leu, and following the cut, it would be 0.95 lei.

FT considers that the cut is justified by the optimization of the share capital of the Proprietatea Fund, which involves the repayment to the shareholders of a share of their contributions, in proportion with their paid-in capital.

Grigore Chiş, the CEO of "SSIF Broker", considers that the distribution of the 0.05 lei, resulting from the reduction of the face value of the shares of the Proprietatea Fund, is the equivalent of a dividend, for which no taxes are due, and he said that the practice is legal, and is "commonly used in the West". In his opinion, by doing this, Franklin Templeton is attempting to satisfy its shareholders, who are unhappy with the fact that shares of the Fund are still trading at a discount compared to the NAV. Grigore Chiş: "Still, Franklin Templeton has remarkable results, especially under the current crisis circumstances and considering that the Fund is a minority shareholder in companies in which the Romanian government holds the majority stakes".

Marcel Murgoci, trading head at brokerage firm "Estinvest", considers: "First of all the decision of Franklin Templeton is made to please all the shareholders. They will receive well the intention of Franklin Templeton because they will receive additional money on top of the dividend". The broker thinks the odds are high that the proposals of FT would be approved by the shareholders.

Simion Tihon, a broker at "Prime Transaction", is anticipating that the shareholders will vote in favor of the proposal at the General Shareholder Meeting: "I think that there is a real chance of the proposal to cut the face value of the shares of the Proprietatea Fund being approved. The effect would be a decapitalization of the company as a result of this measure, but I don't think that it would affect the good operation of the company".

On the other hand, Marcel Murgoci considers that through this decision, FT is trying to gain the shareholders' votes for a new term as the manager of the Fund.

Simion Tihon considers that, if the proposal for cutting the face value of the shares gets approved, the shareholders will get their money according to the decisions made at the General Shareholder Meeting, as the method will probably be similar to the one by which the dividends were paid.

The approval of the reduction of the share capital of the company and of the payout to the shareholder by 0.05 lei/share are set to be voted in the General Shareholder Meeting of Shareholders (AGEA), set for November 22nd, 2013.

The notice to attend also mentions that as part of the Extraordinary General Shareholder Meeting it will be decided to approve the authorization of Franklin Templeton to buy back shares of the Proprietatea Fund, for a maximum number of 252,858,056 shares or 10% of the subscribed capital on the relevant date, whichever is lowest. The goal of the program is to cut the share capital of the Proprietatea Fund. The buyback will be done at a price ranging from 0.2 lei and 1.5 lei for a share.

Grigore Chiş considers that the initiative of the buyback is also a measure intended to please the shareholders: "The buyback of the shares is part of the same set of measures intended to please the shareholders and to increase the value of the shares. The shareholders will definitely vote in favor, as these measures are beneficial to them".

For Simion Tihon, the continuation of the buyback program is not a surprise: "As the current buyback program has run into the liquidity problem, meaning that so far the Fund has only succeeded in buying back less than 30% of the number of shares it intended to, it comes as no surprise that FT will pursue the program".

According to the notice to attend issued by the Bucharest Stock Exchange, on the same day, the shareholders of the Proprietatea Fund are being summoned to attend an Ordinary General Shareholder Meeting (AGOA), which will have on its agenda the approval of the Budget for 2014, and the appointment of Deloitte Audit, as auditor of the Fund, with the audit contract set to begin on the date the decision gets approved and last until August 31st, 2014.

Also at the Ordinary General Shareholder Meeting, the shareholders will have to decide on principle to extend the term of FT, as sole manager of the Fund and of the Investment Management Company (SAI) of the Proprietatea Fund, a term which expires on September 29th, 2014. If this item is not approved, a new selection should begin for the appointment of the sole manager and of the Investment Management Company (SAI) of the Proprietatea Fund, starting on September 30th, 2014.