THE FIRST TRANSPARENCY EXAM, FAILED The announcement concerning the intention to take DIGI public is confusing

Dutch company "Digi Communications N.V.", the majority shareholder of "RCS&RDS" SA which holds 95.79% of the shares, yesterday announced that it intends to get listed on the BSE. The details of the offer will be published in a prospectus, following the approval by the Financial Markets Authority of Netherlands (Stichting Autoriteit Financiële Markten).

The listing of "RCS&RDS" has been awaited for years, meaning that the players in the Romanian stock market, led by the BSE, have rushed to pop open the champagne, before reviewing what is included in the offer, in which part of the shareholders are putting up for sale a stake of 25% of the company, and to "translate" the Digi press release.

It is true, a new private IPO, following the MedLife model in December, represents a good PR event for the Romanian market, which is in the process of being monitored for moving up to the emerging market status.

Beyond the PR exercise however, the Digi ad provides no clear information about the company that is going to be listed, in fact it actually leaves room for confusions.

• "DIGI" and "RCS&RDS"?

First of all, the name of the company making the offer - "Digi Communications N.V." - only appears in the title of the press release, while it is afterwards simply referred to as "DIGI".

About "DIGI" we find out that it is a "significant provider of telecommunications services in Romania and Hungary". Still, throughout the press release, the key aspects presented about "DIGI" seem to be referring to "RCS&RDS": "The diversified portfolio of complementary media and telecommunications services, its advanced infrastructure and latest generation fiber optic networks on the core markets allow the company to provide reliable coverage to its customers, solid financial performance, very reliable management team, attractive dynamic of the local industry, with a structural stable growth".

The announcement features no direct mention of "RCS&RDS", it just presents a statement by Serghei Bulgac, CEO of RCS & RDS SA, the biggest operational company of the group and future CEO of DIGI: "Today marks a historic day for DIGI Communications NV and for the Romanian economy, in general. As one of the biggest providers of telecommunications services in Romania and Hungary, the intention to get listed on the Bucharest Stock Exchange is an important opportunity for the Romanian public and will represent an achievement that we are very proud of.

By investing in DIGI, investors get access to an attractive leader in the industry, with a stable structural growth. Investors will benefit from the expertise of our management team and from a brand with strong recognition on the markets that we are active on and on our customer segments. The Board of Directors of the Company proudly supports this stage of our development and eagerly awaits to work with future shareholders, as a company listed on the stock exchange".

Digi Communications NV is the parent company of the "RCS& RDS" group, the representatives of "RCS&RDS" SA said, upon an enquiry from "BURSA".

They have stated that "Cable Communications Systems", the parent company of "RCS&RDS" is being changed into Digi Communications NV. According to the Office of the Trade Registry, "Cable Communications Systems" owns 95.79% of "RCS&RDS".

The company also wants to suggest that it has remarkable earnings.

According to the announcement sent yesterday, DIGI has constantly generated strong revenue flows and a robust adjusted EBITDA since 2014: "In 2016, DIGI generated revenues of 842.8 million Euros, and the adjusted EBITDA and the relevant margin have amounted to 263.3 million Euros and 31.2% respectively, representing an annual compounded growth rate of 8%, between 2014 and 2016".

The representatives of the company have declined to explain what "adjusted EBITDA" means or if they have already submitted the request for the approval of the prospectus with the Oversight Authority of Holland.

The fact that a company that wants to get listed, meaning it is willing to become transparent, doesn't provide answers to some simple questions, based on its own press release, raises suspicions, especially since the uncertainties concerned a mere definition. Behind the pompous phrases, there is clear no economic information, which would allow investors to make a decision on whether to participate in the offer, like some voices in the market claim.

Furthermore, the company does not recommend to investors to rely on its own data presented in the announcement: "The content of this communication has been drawn up by DIGI at its own responsibility.

The information included in this press release and they do not make any claims of completeness. No individual may rely, for any purpose, o the information included in this press release, or on the accuracy, impartiality or exhaustiveness thereof".

The DIGI announcement, also shows that investors shouldn't buy any securities mentioned, unless they do that based on the information included in the prospectus, which will be published once it is approved.

• The offer, for a block of 25% class B shares

The DIGI announcement mentions an IPO, which will include an offer of class B ordinary shares originating from existing shareholders: "The company will not obtain any part of the amount obtained from the sale of the shares on offer".

Some brokers have noted, however, that in the case of DIGI, it is a secondary public offer, given that the securities are offered for sale to other shareholders.

The IPO represents the first public offer to sell shares in a closed company, following which the company in question becomes open.

The company intends to take public at least 25% of the share capital of the company, assuming the exercising of the over-allocation option of 10% of the shares is exercised immediately after approval".

Investors will need to take into consideration, when making the decision on whether to invest in the IPO, the difference between the company's stock classes.

The DIGI press release states: "The company has also issued ordinary class A shares, but which are not part of the Offer and which will not be listed.

Each class B share grants one vote and each class A share grants 10 votes. Class B shares grant the same rights to dividends as class A shares".

The company is also considering the fact that it will not perform the IPO: "The proposed offer, if it takes place, will consist of an offer: (i) aimed at the Romanian public and (ii) at certain institutional and professional investors and the admission of the Offered Shares on the Regulated Spot Market of the Bucharest Stock Exchange".

Citigroup and Deutsche Bank act as Joint Global Coordinators and together with BT Capital Partners S.A., BRD - Groupe Societe Generale S.A., Societe Generale S.A., Raiffeisen Bank S.A. and Wood & Company Financial Services, a.s. as Joint Holders of the Subscription Registry.

DIGI expects the stock to start trading in May 2017.

• Revenues of 612.7 million Euros, in Romania in 2016

"For the year which ended on December 31st, 2016, our operations in Romania have generated 612.7 million Euros, or 72.7%, of our total revenues; our operations in Hungary have generated 137.9 million Euros, or 16.4%, of our total revenues; our operations in Spain have generated 83.0 million Euros, or 9.9% of our total revenues; and our operations in Italy have generated 9.2 million Euros, or 1.1%, of our total revenues", the DIGI press release states.

The company's representatives further state: "Our activity has predominantly seen an organic growth of from approximately 0.7 million revenue generating units (UGV) on December 31st, 2002 to approximately 12.4 million UGVs on December 31st, 2016, during which time we have developed from a cable TV provider to a provider of «multiple play» services, including cable TV, internet and fixed data, mobile telecommunications, fixed telephone and DTH (direct to home) TV services. On December 31st, 2016, we had a total of approximately 12.4 million UGVs, of which approximately 3.3 million were UGVs for cable TV services, approximately 2.5 million were UGVs for internet and fixed data services, approximately 3.9 million were UGVs for mobile telecommunications units, approximately 1.7 million were UGVs for landline telephony and approximately 0.9 million were UGVs for DTH TV services".

The company provides 5 main services: "Cable TV is our initial line of business. On December 31st 2016, we had approximately 2.9 million UGVs in Romania and approximately 473,000 UGVs in Hungary, for the cable TV services. Cable TV services have generated 25.7% of our total revenues, in the year that ended on December 31st 2016. On that date, our cable TV services, together with our DTH services, had a market share of approximately 49.0% and approximately 25.1% of the markets for subscription TV in Romania and Hungary, respectively (Sources: Statements of the Group and of the companies operating on the same segment, the National Romanian Authority for the Management and Regulation of Communications ("ANCOM"), the National Hungarian Authority for Media and Infocommunications ("NMIAH")).

Our internet and fixed data services are mainly provided through our FTTB ("Fiber to the Building")/FTTH ("Fiber to the home") networks which use the GPON technology or a comparable technology in Romania and Hungary. On December 31st, 2016, we had approximately 2.1 million UGVs for the internet services and fixed data in Romania and approximately 428,000 UGV in Hungary. The internet and fixed data services have generated 23.9% of our revenues in the year that ended on December 31st, 2016. On that date, our internet and fixed data services had market shares of approximately 48.6% and approximately 15.8% in Romania and Hungary respectively (Sources: Statements of the Group and of the companies operating on the same segment, ANCOM, NMIAH).

We provide mobile telecommunications services using our 3G and 4G services in Romania, and as MVNO (mobile virtual network operator) focused on the Romanian communities in Spain and Italy. On December 31st, 2016, we had approximately 3.2 million UGVs for the mobile telecommunications services in Romania, approximately 14,000 UGVs in Hungary (where we provide internet and mobile data services as reseller through the Telenor network), approximately 609,000 UGVs in Spain and approximately 86,000 UGVs in Italy. The mobile telecommunications services have generated 25.5% of our revenues in the year that ended on December 31st, 2016. On that date, our mobile telecommunications services had a market share of approximately 11.6% in Romania and relatively small market shares in Hungary, Spain and Italy (Sources: Statements of the Group and of the companies operating on the same segment, ANCOM).

We provide landline telephony services through our networks in Romania and Hungary. On December 31st, 2016, we had approximately 1.3 million UGVs for landline telephony services in Romania and approximately 353,000 UGVs for the same service in Hungary. Landline telephony services have generated 3.8% of our revenues in the year that ended on December 31st, 2016. On that date, our landline telephony services had a market share of approximately 31.7% and approximately 11.6% in Romania, and respectively in Hungary (Sources: Statements of the Group and of the companies operating on the same segment, ANCOM, NMIAH).

Our satellite DTH TV services are provided in Romania and Hungary. On December 31st, 2016, we had approximately 641,000 UGV for the DTH services in Romania and approximately 307,000 UGVs for the DTH services in Hungary. The DTH services represented 8.3% of our revenues in the year that ended on December 31st, 2016".

The company operates in Romania, Hungary, Spain and Italy.

• RCS & RDS has completed the refinancing of the group, in October 2016, and has listed its bonds in Ireland

In October 2016, RCS&RDS SA and Cable Communications Systems NV have completed the refinancing of the group through a bonds issue of 350 million Euros and a syndicated loan of up to 1.687 billion lei.

The bonds issue of 350 million Euros by Cable Communications Systems NV (the parent company of RCS&RDS SA) has a 2023 maturity and an annual interest rate of 5%, according to the company, which further stated: "The bonds issue is guaranteed by RCS&RDS SA. The date of October 26th, 2016 is set as the maturity of the bonds, which will then be admitted for trading on the Irish Stock Exchange".

Another component of the transaction has consisted of the contracting by RCS&RDS SA of a syndicated loan with a total amount of up to 1.687 billion lei, made up of three credit facilities.

According to the company, the amounts raised following these two financing operations have been used for the early repayment of the bonds with a total amount of 450 million Euros with an annual interest rate of 7.5% issued by Cable Communications Systems in 2013, as well as of some facilities contracted by RCS&RDS SA in 2015 and 2016, respectively.

In 2007, "RCS&RDS" intended to get listed on the London Stock Exchange, through global depository receipts (GDR), but scrapped that plan and resorted to bank loans for financing.

In 2013, "RCS&RDS" succeeded in selling, on the foreign market, bonds with a total amount of 450 million Euros, 100 million Euros more than the initial offer, following significant demand, and the return achieved was 7.5%.

In 2015, the company posted a loss of 17.9 million lei, down from 71.04 million lei, in 2014, amid turnover of 2.69 billion lei, in 2015, compared to 2.31 billion lei, in 2014. The company's debts amounted to 4.42 billion lei on December 31st 2015.

The RCS&RDS shareholders are being summoned, on April 26th, to decide the allocation of the profit from the previous years. In 2013, 2014 and 2015, the company posted losses, and the 2016 data has not yet been submitted to the Finance Ministry.