THE "ELECTRICA" IPO "The oversubscription and the pro-rated allocation will create disappointment for many investors"

Reporter: What should people who want to subscribe in this IPO know about "Electrica"?

Dan Paul: Any investor in an IPO should first of all read the prospectus very carefully, which includes all the essential information about the issuer, including the financial statements and the risks pertaining to its business. I would only mention at this time some information from the prospectus: Electrica SA is a holding company for the group, which is the largest distributor and supplier of energy in Romania, which has generated in 2013 consolidated revenues of approximately 5.2 billion RON and a consolidated EBITDA of approximately 749 million RON. At the same time, the group operates in a highly regulated sector, and the liberalization of the energy supply activity in Romania will lead to an increase in the competitive pressure felt by the Group. An accelerated increase of the regulated tariffs for electricity is scheduled to take place in 2015-2016, but a drop in the consumption of electricity is expected. An important aspect is the fact that the company will receive all the revenues from the subscriptions, save for the funds which would be used for the stabilization of the price, and will use them for its investment program, which concerns mostly the modernization of the distribution network. The conflict between Electrica and the Proprietatea Fund should not be ignored either. After the IPO, when the stake of the state will be reduced to 49%, all the decisions of the shareholders concerning the investment plan will be made with a qualified majority.

Thus, the state will no longer be the only decision maker in the company.

Reporter: How do you think the price of the "Electrica" stock will move after the listing? What are the factors that will influence it?

Dan Paul: It is hard to estimate the future evolution of a stock's price. There are many factors that can determine this evolution: the price at which the IPO will complete, the performance of the company, the evolution of prices in the energy sector both domestically and internationally, the evolution of the domestic and foreign stock market.

The successful completion of the IPO can create the premises for the price to remain constant for a while or even for it to increase, especially since the IPO of Electrica has a stabilization mechanism of 30 days.

Reporter: How do you think the liquidity of the BSE will evolve, after the IPO of Electrica?

Dan Paul: Considering that the listing of Electrica will be the biggest listing of a Romanian company, this should have a positive effect on the liquidity of the BSE. We are hoping that the listing of Electrica will increase Romania's weight in the MSCI Frontier Markets 100 index, which will also be reflected in the general liquidity of the market.

Reporter: What is your opinion on the division of the IPO into tiers and on the fact that the number of shares offered at a discount was very small?

Dan Paul: The existence of the minimum guaranteed number of shares is a good thing for retail investors. Its value is small, but it is nevertheless a first when it comes to the IPO that have been performed so far on the Romanian stock market. The problem however remains with the discount segment, given the high degree of oversubscription and the pro-rates allocation of the shares at the end of the IPO, which will create disappointment for many investors. Unfortunately, the practice of allowing banks to offer loans to buy shares in an IPO has been allowed again, and this leads to an extremely high rate of oversubscription. We are hoping that once the IPO closes, the company will reallocate 5% of the total number of shares put up for sale on the tier for institutional investors, to the tier for small investors, and/or the tier of big investors, a possibility which is stipulated in the prospectus, if the subscription rate is higher on the latter two than it is on the former.

Reporter: What is your take on the stocks in the utilities sector, in the current economic context?

Dan Paul: Stocks in the utilities sector are attractive to institutional and retail investors alike, and the decision of the Romanian government to float them is a decision that will bring benefits to listed companies, as well as to the Romanian stock market.

Reporter: What is your opinion on the development of the BSE, considering that there will be a period during which there will be no more new listings through privatizations?

Dan Paul: In order to succeed in the helping hand it has been offered through the latest listings of state owned companies, the BSE should step up its actions to attract investors, especially local investors, who showed an unexpected interest in the stock market, on the occasion of the IPOs of Romgaz and Electrica. An important component of this strategy is represented by the decrease of the trading fees charged by the BSE, which would complement the cut already introduced by the ASF, increasing the attractiveness of the market. Also, the BSE group should define its development strategy and implement all the measures for the modernization of the market. Not least of all, it should find ways to attract new private issuers, by listing stocks or corporate bonds, to ensure the future development of the stock market.

Reporter: What is your opinion on the fact that the government has decided once again to resort to the London stock market for this IPO?

Dan Paul: I think that the issuing of GDRs on the London market will make the shares of Electrica more attractive, first of all by making it easier for foreign investors to buy GDRs based on the shares of Electrica and secondly by promoting them on a market which has greater exposure to the international investors.

Reporter: What is your opinion on the wording of the prospectus, in terms of how easy to understand it is for small investors?

Dan Paul: The vocabulary of IPO prospectuses is not easily digestible by small investors, who are not familiar with the the terms used on the stock market, a market which is constantly becoming more and more complex. It is the role of the intermediaries, who have all the necessary knowledge, to explain that language to the small investors.

Reporter: Thank you!