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Few of the investors in the Digi Communications offer got scared off by the prosecution of two of the RCS&RDS executives and withdrawn their subscriptions, after the amendment of the prospectus of the IPO.
The subscription rate had reached 2783% (approximately 75.92 million Digi shares), on the unguaranteed retail segment, by May 9th, 18:00 hours, up from 2796% (76.28 million shares) the day before. In other words, the subscriptions fell in total, by approximately 350,000 shares, even as new investors came in yesterday.
Digi Communications has amended the listing process, after the National AntiCorruption Department announced, on Friday, the beginning of the prosecution against Ioan Bendei, vicepresident and Executive Administrator of RCS&RDS, for money laundering and offering bribes.
Under these circumstances, the company has notified its investors that they can withdraw their subscriptions until May 10th, 17:00. The offer will end at 12.
Aside from the matter of the DNA investigation, which came about just as the IPO was under way, other complaints about the listing of Digi have appeared in the market. Some brokers are wondering whether the fact that some brokerage firms have extended loans to their customers, as the oversubscription rate was rising, in order to guarantee them higher allocation ratios, caused demand to be skewed. They feel that the criteria for the granting of those loans should be analyzed. Those instruments have also been used in the previous offers, such as Romgaz, but not on this scale. Currently, the retail subscriptions in the Digi IPO amount to approximately one billion Euros, as they have been made at a top price of 56 lei/share. The final price will be set following the subscriptions on the institutional investors tier, in the 38-56 lei/share range.
As Digi Communications, the majority shareholder of RCS&RDS, is a Dutch company, the prospectus of the IPO has been submitted for approval with the Dutch Authority, and not with the Romanian Financial Oversight Authority.
The ASF shirks any responsibility over this IPO and concerning the clarification of its aspects to investors, as the names of Digi and RCS&RDS have been used interchangeably, in a confusing manner, including in the notifications sent by brokers.
The ASF told us: "The prospectus concerning the initial secondary public offering for the sale of class B shares issued by Digi Communications NV, for the purpose of the admission to trading of class B shares issued by the company on the regulated market managed by the Bucharest Stock Exchange, was approved on April 26th, 2017 by the Authority for Financial Markets in Holland (AFM), as it was drawn up in compliance with its national legislation which transposes Directive 2003/71/CE concerning the prospectus which must be published in the event of a public securities offering or for the admission of securities for trading. On April 27th, 2017 the AFM has sent to the ASF the notification of the decision for the approval of the prospectus pertaining to DIGI COMMUNICATIONS N.V., together with a copy of it and of the synopsis in Romanian. Following the notification, the ASF has ensured the posting on its website of the documents that were received.
According to provisions of art.17 of the 2003/71/CE Directive (transposed into regulation no. 1/2006 concerning issuers and securities operations, in art. 49), in the case of a cross-border public offer, the prospectus approved by the member state of origin, as well as any amendment to that are valid for the public offer or for the admission for trading in a member state, provided the competent authority of the host member state is notified concerning the approval of the documents in question.
The authority of the host member (ASF) does not conduct any approval or administrative procedure as far as the prospectus is concerned.
According to the provisions of art. 51 of the Regulation no. 1/2006, as the ASF, as competent host authority, finds that irregularities have been committed by the issuer or by the financial institutions in charge of the public offering or that the issuer has violated their obligations that derive from the fact that the securities are admitted for trading on a regulated market, it informs the competent authority of the country of origin and the ESMA (The European Securities and Markets Authority) concerning these findings. If, in violation of the measures taken by the competent authority of the member state of origin or if these measures prove inadequate, the issuer or the intermediary in charge of the initial public offer continue to violate the applicable legal provisions, the ASF, after having informed the competent authority of the member state of origin and the ESMA, will take all the required measures for the protection of investors and inform the European Commission and the ESMA concerning the measures taken".
In other words, the avenue the ASF can use to intervene, even if it notices irregularities, is very long, and the institution doesn't seem to eager to set off on said path. As a matter of fact, the ASF took no stance on Friday, when the DNA announced an investigation on the heads of RCS&RDS.
In the amendment to the prospectus, the Company says that it was notified about the investigation on May 8th.
The amendment of the prospectus states: "On May 5th, 2017, certain individuals, including two that currently hold executive positions in the main branch of the Company, RCS & RDS, Ioan Bendei and Mihai Dinei, as well as former RCS & RDS CEO, Alexandru Oprea, have been officially notified by the DNA that they are being investigated on charges of giving bribes and money laundering. On May 8th, 2017, RCS&RDS was officially notified by the DNA that it is a suspect in the ongoing investigation concerning those same deeds.
In the same investigation, Dumitru Dragomir was indicted on charges of being paid a bribe through the partnership agreement for contracts concluded between RCS&RDS and the Romanian Professional Football League (LPF) concerning the broadcast rights for football matches of the 1st League and that he was an accomplice in the money laundering which is suspected to have been performed through the acquisition by RCS&RDS of the events package.
It is not out of the question for other executives of the company or of RCS&RDS to become suspects in the investigation as it progresses. The company continues to fully cooperate as part of the investigation and it thinks that RCS&RDS and the former and current members of its management have acted correctly and in compliance with the law. So far no individuals have been indicted following the investigation, with the exception of Mr. Dragomir. The company can't anticipate whether and when new indictments may appear, or if such an indictment may result in preventative measurer or in a conviction".
Also, the company cannot anticipate if and when these individuals could become suspects, when the investigation could be over or the extent of the potential liability of the company or of RCS&RDS following the findings in the investigation. The prospectus stipulates: "Possible sanctions can include, among other things, criminal fines levied on RCS & RDS and individuals, seizure of assets, the exclusion of RCS & RDS from certain public or private auctions or prison sentences for the individuals being investigated. The fines or asset seizures smay be significant.
The DNA has separately investigated certain payments of commissions which the LPP made upon orders from Mr. Dumitru Dragomir to a certain intermediary, using funds which they had previously received from us in exchange for the exclusive rights to broadcast the games from the 1st League. That investigation led to the indictment of Dumitru Dragomir for embezzlement, money laundering and tax evasion. In June 2016, the Court of Bucharest convicted (with the possibility of appeal) Mr. Dragomir to seven years in prison. Our broadcasting contract concluded with the LPF is not being investigated. Also, we have not had nor do we have a commercial relationship with the intermediary that was allegedly involved in the alleged money laundering scheme. The DNA has not brought any charges against us on the aforementioned matter.
If we get accused or if it is proven that we have committed acts of corruption or money laundering, including as a result of the aforementioned investigations, any such accusations or violations can cause financial, commercial and reputation related damages, and any of them may have negative effects on the activity, financial situation and the results of our operations".
Digi Communications will continue to fully cooperate in the investigation and thinks that RCS & RDS and the former or current members of its management have acted correctly and in compliance with the law, according to the prospectus.
A group of shareholders in Digi Communications, the majority shareholder of RCS&RDS, launched, on April 28th, an offer by which they were going to sell a block of 21,744,108 shares, for an amount ranging between 826.27 million lei and 1.21 billion lei.
The offer will last until May 10th/ The shares on sale are class B shares, with limited voting rights (a class B share has one voting right, and a class A share has 10 voting rights), but grant the same dividend rights as class A shares.
The tier for retail investors includes 15% of the shares, while the remaining 85% is allocated for institutional investors.
Retail investors are granted a guaranteed allocation of 100% for the maximum number of 267 shares offered per retail investor, on "first come first served basis", up to a total number of 534,000 shares offered.
Retail investors can get a 7% discount from the offer price for the valid subscriptions made in the first five working days of the offer, until May 5th, and a 3% discount off the offer price for subscriptions made between May8th - May 10th.
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