The Association of Capital Market Investors: The merger between Romtelecom and Cosmote Romania, disadvantageous for the Romanian state

The Association of Capital Market Investors (AIPC) expressed its disappointment over the recent statements of the Minister of Communication, who likes the proposal of OTE to merge Romtelecom and Cosmote Romania, and who wants to list the stake owned by the Romanian state in the newly created entity. The Association made the following statement in a press release: "We consider that this operation would not be beneficial for the Ministry of Communications, since the profitability of the new entity is arguable, given the sizeable losses posted by Cosmote Romania over the last few years. In order to make such a major decision, we strongly believe that a comprehensive analysis of the company that would be created through the merger should be undertaken".

The Ministry of Communications currently holds 45.99% of Romtelecom. "Obviously its stake in the new entity would be smaller in terms of percentage, but there is also the risk that it will be worth less", the AIPC states.

Investors are requesting the Ministry of Communications to review the opportunity of the merger between Romtelecom and Cosmote, and warn that the success of a potential listing on the Stock Exchange (either of Romtelecom or of the new company resulting from the merger) depends not only on the size of the company, but also on its future efficiency and profitability potential.

On Monday, the Minister of Communication said, quoted by Mediafax, that the Ministry likes OTE"s proposal of a merger between Romtelecom and mobile telephony operator Cosmote Romania and wants to list on the Stock Exchange the stake of the Romanian state in the future entity, an operation which is set to take place 12 months from now. He added that the final decision on the proposal of the Greek party lies with the Government.

According to financial statements based on the Romanian Accounting Standards (RAS), Cosmote Romania posted losses over the last three years, of 273.1 million lei (64.4 million Euros) in 2009, 383.7 million lei (104 million Euros) in 2008 and 395.5 million lei (118.5 million Euros) in 2007, respectively.

On the other hand, Romtelecom posted a profit of 158 million lei (37.3 million Euros) in 2009, 34.7 million lei (9.4 million Euros) in 2008 and 112 million lei (33.5 million Euros) in 2007, respectively. The shareholders of Romtelecom are the OTE Group - 54.01% of the shares and the Ministry of Communications - 45.99%. Cosmote Romania is controlled by the Cosmote Group - 70%, whereas Romtelecom owns 30%.