"The effect of the Electrica IPO on the liquidity of the BSE will be anemic"

Reporter: How do you think the IPO of Electrica will influence the Romanian stock market, as, even after the listing of Romgaz and Nuclearelectrica, the liquidity of the BSE has remained low?

Nicolae Gherguş: Given that the representatives of the State have used the same pattern for the allocation of shares between the retail investors and the institutional ones, the effect of liquidity all will be rather anemic, just like in last year's listings.

Unfortunately, at the General Shareholder Meeting of the Bucharest Stock Exchange I listened to a "lecture" held by one of the members of the Board, who mistook the liquidity for the total traded volume, two concepts which are similar only to the uninitiated. Of course, the BSE will report, like last year, trades of hundreds of millions of Euros, but with an insignificant liquidity, because most of the shares sold in IPOs end up in the portfolios of institutional investors, but also because it shot itself in the foot, by reducing the minimum required amount for trades executed on the "deal" tier to ridiculous values, and causing many trades to shift to that tier from the "regular" tier, which serves as the benchmark for most of the liquidity parameters.

Reporter: Why are we not using the population's savings of 30 billion Euros for the IPOs of the state, including Electrica, considering that the interest rates are constantly decreasing?

Nicolae Gherguş: I don't think that in the mind of Romanian prime-ministers we've had in the last ten years the notion of Stock Exchange means anything more than something "cool", something that it pays to talk about to look sophisticated to the masses. I don't even know if it is a good thing to insist on this topic, for fear someone changes their mind and abandons the IPO/SPOs of the state conducted through the Stock Exchange. I have no hope that any of the current or future government members, as long as they come from the same stock of politicians, will understand the advantages that a strong capital market, with a number of a few tens or hundreds of thousands of stock market investors, would have for them or for the state itself.

Regardless of how useless Lucian Anghel and Ludwik Sobolewski have been at lobby-ing for the Romanian stock market and the BSE so far, and regardless of how much I would like to criticize them for this, I am tempted to grant them some extenuating circumstances, because I doubt that even Warren Buffet could have explained to the Ponta government and to the OPSPI why, after what happened with the Romgaz IPO, they could have at least tried to increase the size of the retail tranche to 30%, if not perhaps 50-60%. What was the worst that could happen? That some of the shares allocated to that tranche would have remained unsold, and if that happened, that would have allowed them to silence their critics, and confirm their claim that the Romanian retail investors segment is not capable of absorbing investments of that scale. But of course, in any IPO, price is the most important factor, and that kind of talks are only relevant when it comes to a fair price.

Reporter: What steps should the BSE have taken to convince the Romanian government to target the population with these IPOs, in order to increase the liquidity in the market?

Nicolae Gherguş: The BSE can't do much, it does not have the mechanisms of the BSE available. I doubt that even Mugur Isărescu can convince them to implement certain economic and fiscal policies, but he has monetary policies he can use as leverage to force the Government to take certain measures, leverage which the BSE does not have. I don't know anything about the potential meetings with the new minister of Finance, who allegedly understands the benefits of the stock market, but I think that, if the BSE had achieved any results, no matter how small, we would have found out about it, considering how eager its managers are to improve their public image. That is unless they're still stuck somewhere between the "Eight barriers" - a text which hardly above the quality of an essay written by a 3rd year student of the Romanian Academy of Economic Studies, which does have a few valid claims, but lost among minor front-office and back-office matters - which last year was promoted to the rank of "strategy of the BSE".

Reporter: Why is the intermediation consortium targeting foreigners for these IPOs rather than the Romanian citizens? How would you comment on the fact that the intermediary has not yet begun the campaign for promoting the listing of Electrica SA to Romanian investors?

Nicolae Gherguş: The intermediation consortium is doing what it has been ordered. If the Government has elected to have most of the shares be distributed to the institutional investors, the consortium has to direct its activity towards that. I don't think that there are many criticisms that can be levied against them, unless they were the ones that advised the OPSPI in setting the percentages allocated for every tranche. If the tier allocated to domestic investors will be similar in size to what it was in the IPO of Romgaz, then advertising to them is actually pointless, because they would rush to buy in this IPO as well, without the need for any promotion. It remains to be seen now what that "guaranteed subscription" means and how the process will work, because regardless of how bad it comes out, Victor Ponta and Gabriel Dumitraşcu will tell people, just like they did with Romgaz, that the IPO has been a great success.

Reporter: Thank you!