Stock market opinions concerning the "Transelectrica" oferring

• Valentin Ionescu: A discount of approximately 15% is welcome

Valentin Ionescu, the former managing director of the Bucharest Stock Exchange (BVB), considers that, in the case of the secondary offering of "Transelectrica", a discount of 15% compared to the market price is welcome.

In his opinion there absolutely should exist a retail chunk of shares, of approximately 20-30% of the total number of shares in the offering, which would provide their buyers with clear financial benefits.

"I would go with two types of allocation of the subscribed shares. The first for institutional investors, should be a discretionary allocation, and the second one should be pro-rated for retail investors", Valentin Ionescu said.

In his opinion, in order to align with the international standards, the pre-financing of the offering should be eliminated for investors using custodians.

Mr. Ionescu also said that starting last year, the Stock Exchange waived any listing fee and, in his opinion it might also waive the 0.13% fee levied off the sale, in order to make the offering more attractive. "The Bucharest will earn commissions after the listing from the trading in those shares", said Valentin Ionescu.

He also feels that there is a need for a more aggressive promotion of the offering, both domestically and internationally. In his opinion, the BSE should clearly explain why the offering of "Transelectrica" is different from the one in "Petrom" (ed. note: which failed in summer last year), namely that it goes exclusively through the BSE, that it uses nominee accounts, and the offering is far smaller than the one in Petrom. (A.A.)

• Ionel Blănculescu: The years 2015-2016 would be a far more auspicious period for the sale of the block of shares

Unlike the people on the market, which are trying to outdo each other when it comes to asking for increasing discounts, said analyst Ionel Blănculescu, feels that March is definitely not a good time for the offering of "Transelectrica", not if the governments wants to get a good price for its shares, anyway.

He argues: "For the moment, it's a buyers', rather than a seller's market, following the global economic crisis, with all its effects. If it's other goals that are being pursued, such as providing a shot in the arm to the Bucharest Stock Exchange, or the bringing of private investors in the shareholder structure and implicitly on the Board of Directors of the company, with the benefits this brings, then the block of shares can be sold, and the profits will have to come from somewhere else, rather than from the sale price".

Ionel Blănculescu said: "It would be advisable to conduct a real analysis of the impact the sale would have, in order to see whether the gain from the sale would exceed the loss from the price likely to be obtained.

Considering the liberalization of the electricity market, with the beneficial effects it will have for the monopoly of the state in that area, I personally feel that it would be better if the sale took place in 2015-2016".

According to Ionel Blănculescu, the market would be interested in a discount of 10-20% off the market price.

Even though the IMF has forced the Romanian state to sell part of its shares in various important companies, especially in the country's energy infrastructure, Ionel Blănculescu says that the following factors should be considered: "a. When you sell a minority stake, you need to consider the long term, and to think of a possible sale of the majority stake, to put yourself in the shoes of the future owner and to see whether, if you were them, you would like it having a shareholder like the one buying the minority stake now in the company. There is the possibility of affecting the long term future of the company, through the sale of a less important, minority stake; b. When selling a minority stake, special attention should be paid to the buyer, who many times is a disguised competitor, who once inside the company can severely harm it, being present in the executive and administrative leading bodies of the company, and it's easy to understand what happens after that; c. If the state wants to keep these companies for itself, due to the strategic importance they have for it, it should avoid venturing into partial stock sales, which it would most definitely regret later; d. If the state desperately needs money now, and it is an emergency, it has to do it without regrets, < < can't be helped! > >, like a friend of mine says." (C.S.)

• Ovidiu Fer, "Wood&Company": "The tariffs set by the ANRE are illogical most of the time"

Ovidiu Fer, financial analyst at "Wood&Company", considers that what is important for the success of the offering of "Transelectrica" is the market context. "Indeed, during the summer months it is a bit harder to conduct public offerings, due to the holidays, but even then, they are not impossible if the terms and the preparation of the offering are OK", he said.

Ovidiu Fer considers that, there are two components which the market will take into account in the offering of "Transelectrica", - the price and the state's attitude towards the company.

He said that, first of all, we need to see a change of attitude when it comes to the regulation of both the energy and natural gas prices.

"The tariffs set by the ANRE are illogical most of the time and they make the "business models" of TEL and TGN (ed. note: Transgaz) hard to predict, which shouldn't be the case for utilities companies of such caliber - said Ovidiu Fer. "That is why the risk involved by the current regulation method makes a higher discount necessary".

In his opinion, the size of the discount would have to be greater than its current level of 10%, compared to the current price.

Mr. Fer considers that the interest will mostly come from domestic investors, because considering the way the company is currently regulated, there are many similar (better) alternatives on the other markets in the region.

• Radu Hanga, "BT Asset Management": "At the current price the government might succeed in selling the entire block of shares"

Radu Hanga, managing director of "BT Asset Management SAI", said that at first glance, TEL is trading at a current discount compared to other utilities (electricity) companies in Europe (Price/Book Value of 0.5 vs 1, Price/sales per share 0.4 vs 0.6, EV/EBITDA 4.5 vs 7.9; the only multiple for which TEL is trading at a premium is P/E 13.8 vs 9.8) so it would seem that at the current price the government could sell the entire block of shares.

"The company becomes less attractive if we factor in the profitability ratios. For instance, the Return on Equity (ROE) of TEL is 3.7%, compared to 12.3% on the aforementioned companies", he said. "Therefore, investors are only willing to pay a lower book value multiple for TEL than they are for other companies in the business, since the capital invested in TEL has a lower return on equity".

The same reasoning applies when it comes to comparing the net profit margins, Mr. Hanga said.

The profitability of TEL is extremely volatile (ROE ranged between 0.3% and 12.6% between 2006 and 2011) which means a higher risk (and implicitly a greater discount requested by investors), Radu Hanga considers.

Most of the volatility, in his opinion, comes from the company's high level of debt, mostly denominated in foreign currencies.

Mr. Hanga said that, "if we look at the investment in the company strictly in terms of dividends, as an alternative to government bonds, - after all, the government remains the majority shareholder, based on the estimated dividend for 2011 (1.05 lei) and on the return of 10-year government bonds (~7%) an attractive price for TEL would be 15 lei (we do believe that the profit for 2011 is sustainable, it even has room for growth, which offers a chance of a bigger yield in the future) - this means a discount of 10%-15% compared to the current market price".

Radu Hanga considers that foreign investors will make up the bulk of the subscriptions (65-80%), and the local retail investors could make up a maximum of 5%. "The calculations are based on the average estimate of the daily retail volume of trades and assume that an investor allocates about 20% of their portfolio for TEL on average", he said.

• Tudor Ciurezu, SIF "Oltenia": The outcome of the offering will depend exclusively on the price at which it will be launched

Tudor Ciurezu, the president of SIF5 "Oltenia", considers that the current period is a good moment for the listing of the block of 15% of the shares of "Transelectrica". Mr. Ciurezu said that the outcome of the offering will depend exclusively on the price at which it will be launched.

Also, in his opinion, a discount of 15-20% compared to the market price would be attractive to investors. "As shown by the previous experiences - we are talking here about the IPOs of C.N.T.E.E. Transelectrica SA Bucharest and S.N.T.G.N. Transgaz SA Mediaş - when the price was attractive, the domestic investors had no problems in finding the cash needed to subscribe", the president of SIF "Oltenia" said, who went on to say: "We have to remember that those two offerings were oversubscribed, both by institutional investors and by the retail investors".

In closing, he said: "What is important for the success of the offering is the creation of a flexible structure, which would allow for the stock in the offering to be subscribed in full".

• Victor Cionga, "AZ Capital Advisors": "A positive resolution to the situation of Greece will cause the markets to remain calm and will allow the offering to proceed under normal circumstances"

Victor Cionga, managing partner at "AZ Capital Advisors", thinks that so far at least, this period seems to be quieter than in the third and fourth quarters of 2011. He said that the mood of the international markets will most definitely be influenced by the developments of the Greek crisis over the next few days, but there can be other factors which would cause the markets to become volatile again.

Mr. Cionga considers that the coming days are decisive to find out whether the month of March is favorable or not for the sale of the TEL block of shares.

"A positive resolution to the situation of Greece will cause the markets to remain calm and will allow the offering to proceed under normal circumstances", said Victor Cionga.

He said that considering the overall circumstances, the way the major investors perceive the evolution of the European sovereign debt crisis, the reaction of the markets to the recent issue of the Romanian government bonds, the economic fundamentals of Transelectrica and the regulatory framework, it is likely that institutional investors view a discount of 15% - 20% off the starting price of the offering as reasonable.

Mr. Cionga said that more conservative investors may request an even bigger discount.

"If the discount becomes lower than that it could happen that foreign institutional investors would not even be interested in studying the offering more in-depth", Victor Cionga said, who went on to say: "Unfortunately, at this time, the Romanian stock market can only compete internationally through price".

He reminded that, for every issuer, the first moment of truth is the "book building" process, during which the intermediary and the issuer pay visits to investors, to find out the price which the market views as fair.

This will then be submitted to the OPSPI and then to the Government, who will then make the decision to accept the price which is essentially proposed by the market or not, he said.

"The offering is relatively small, and that is why the local investors may hold a greater weight than they would in the case of bigger offerings such as the one of Romgaz", Mr. Cionga said, who went on to say: "I dare to say that 60%-70% of the offering will be bought by foreign funds and the rest by domestic investors, especially if the price will be viewed as fair".

Retail will up buy somewhere between 6% and 12% of the entire offering, Victor Cionga said, especially if an additional discount off the price offered to institutional investors will be considered.

• Lucian Fulea, "Vienna Investment": "Transelectrica", interesting at any price

Lucian Fulea, head of trading at "Vienna Investment", considers that the offering of "Transelectrica" is interesting at any price. "The higher the discount, the greater the interest and the more likely the success", he said. "I think a price of 15.0 lei would be interesting for investors, even though the financial statements do not recommend it as a very attractive investment".

He thinks that up to 60% of the offer will be bought by foreign investors and 40% by domestic investors.

He also said that there is the possibility that institutional investors would account for 85% of the shares bought, and the remaining 15% would be acquired by retail investors.

Lucian Fulea considers that the month of March is generally characterized by market rises caused by the publication of the annual financial statements. He said he expects a favorable period this year as well, with price rises and significant volumes, which leads to a positive mood among investors and can therefore be considered a good moment for the launch of the TEL offering.

• Liviu George Avram, "NBG Securities": February would have been a good month

Liviu George Avram, the head of the sales department of "NBG Securities", considers that the government should grant a discount of at least 15% compared to the market price in order for the "Transelectrica" offering to succeed.

He said that, being a relatively small offering, if a bigger foreign investor were to be interested in it, it could subscribe all the shares without any significant effort.

Liviu George Avram said that February would have been a better month to launch the offering of "Transelectrica": "In fact, the SPO should have been launched prior to the offering of the Polish company PGE SA (the offering of 2.52 billion zlotys/USD 809 million)".

• Eugen Voicu, "Certinvest": Discount ranging from 15 to 20%

Eugen Voicu, the president of the Board of Directors of "Certinvest", considers that the government should offer a discount of 15 to 20%, for the sale of 15% of the shares of "Transelectrica".

He said: "Such a discount may seem big, but it also needs to be taken into account that the government needs a success, and also, the general manager of the company resigned just as the offering was being prepared, and the financial statements of the company aren't as attractive as those of Petrom or Romgaz".

• Tudor Mihai Cernica, BRD: The discount, the factor which the success of the offering will depend on

Tudor Mihai Cernica, Equity markets sales manager at BRD, said that the discount will be the factor which the success of the offering of "Transelectrica" will depend on: "I think that a discount of 10% would be sufficient for the offering to be fully subscribed".

In his opinion, the current period could be favorable for the successful conclusion of the offering to sell 15% of the shares of TEL. Mr. Cernica stressed that the difference between the market price and that of the offering is important for the success of the offering of "Transelectrica".

In his opinion, given the size of the market and the number of active investors, the offering will mostly be subscribed by Romanian and foreign institutional investors.

• Magda Sirghe, "Tradeville": "Investing in TEL shares involves specific risks"

Magda Sirghe, financial analyst at "Tradeville", told us that "Transelectrica" seems heavily overvalued in terms of its P/S (ed. note: price to sales), fairly valued when considering the P/E multiple (ed. note: price to earnings ratio) and heavily undervalued in terms of the P/BV (ed. note: price/book value), compared to the average of the European energy utility companies sector.

However, she also mentions that, since it is known that the P/BV multiple is more adequate for evaluating companies which own numerous liquid assets (such as banks, insurers etc), it is not the most relevant multiple in the case of TEL.

On a different note, Mrs. Sirghe said: "Considering a valuation model based on the updating of the future dividends which the company will pay out in 2013, based on the estimates of the company concerning the net profit made and considering that it will pay out 50% of that net profit as dividends, the shares of TEL appear expensive at their latest closing price (17.3 lei/share)".

She also mentioned that, on the other hand, investing in TEL shares poses specific risks, such as: the risk of ANRE (ed. note: National Authority for the Regulation of the Energy Market), fixing the price of energy, the company's high debt level due to the investments which it plans to make and the related currency risk, the major swings of the company's profitability, the instability of its management, the small size of the offering.

Because of these reasons Magda Sirghe considers that the offering should offer a discount of at least 5-10% in order to be attractive for investors.

• Simion Tihon, "Prime Transaction": "An idea would be for the government to divide the offering in two tranches: shares sold to institutional investors and to retail ones"

Simion Tihon, broker at "Prime Transaction", stressed that discussions about the discount invariably arise whenever the state wants to sell a block of shares in one of the companies it owns.

"When talking about a company which is not listed (Tarom, Hidroelectrica, Nuclearelectrica, etc.), since there is no price created by supply and demand, it is hard to establish a reference price based on which to calculate a discount", he said, and he went on to say: "In the case of Transelectrica we will inevitably refer to the price the stock is trading at".

Simion Tihon considers that one such reference price to be used for calculating the discount would be the average weighted price at which the stock traded over the last year (19.88 lei/share).

"Since that price is bigger than the current price of the stock, the mission becomes even more difficult when choosing a discount which would represent both the interests of investors and those of the state", the broker said, and he added: "An idea would be for the government to divide the offering in two tranches: shares sold to institutional investors and to retail ones".

In that scenario, Simion Tihon considers that the reference price should be different: "Institutional investors should be given a discount of a maximum of 10 to 15% of the average price over the last year, and in the case of retail investors, success can not occur if the offering will take place at a higher price than the one in the market".

Adrian Bărbulescu, deputy operations manager at "Prime Transaction", considers that, at first glance, March seems like a good time to launch the TEL offering, under the current market conditions. In his opinion, the penetration rate for foreign investors will take into account the method for the allocation of the offering in tranches and the price offered, but in the prior offerings, the majority of the subscriptions came from domestic investors (70%).

Mr. Bărbulescu says that, when judging by the previous offerings (ed. note: TEL and TGN) it is very likely that most of the subscribers would be institutionals (slightly more than 70%), with the rest being subscribed by the retail sector.

• Dumitru Beze, AIPC: "I hope that the representatives of the government will understand that failure is not an option this time"

Dumitru Beze, the president of the "The Association of Investors on the Capital Market" thinks that this moment is as good as any for launching the public offerings.

"We all know the extent of the inefficiency of the state owned companies, and the medium and long term gains are immeasurably bigger compared to a few percent which is only earned once". He said that, if the listings will be postponed, the results will immediately be felt, merely by comparing the Romanian unlisted companies and their Polish peers.

Dumitru Beze considers that it is important for the Romanian economy as well as for the stock market that this offering be successful: "I don't even want to think what a second consecutive failure would mean after four years of postponements. I hope that the representatives of the government will understand that failure is not an option this time".

The president of the AIPC also said that the expertise from the American market, where Romania sold government bonds at a price which investors liked, could be used as a model: "It was immediately visible that Romania was able to sell bonds again shortly, and the price improved on the second sale. Romania has already been put on the investors' map, we hope it will do the same for the equity market".

He said that even though he would want for the retail investors to account for at least 50% of any offering, he doubts this will happen this time.

"On any equity market, if the number of retail investors is below 10%, the consequences are very dire when significant capital flows leave the market" Mr. Beze said, and he went on to say: "I may seem pessimistic as I say this, but I can't see retail buyers accounting for more than 5% of the shares".

He said that the development of a middle class, which invests on the stock market, is Romania's number one economic priority.