The government throws the order of awarding compensations for shareholders of the Proprietatea Fund out of whack

Under the pretense of avoiding potential abuse of the procedure to compensate former asset owners, the Government recently snuck by a Decision which actually leaves the door wide open for further abuse, by stipulating that the National Authority for the Restitution of Properties (ANRP) will be able to prioritize the issuing of certain payment and/or conversion deeds, whenever "a distortion of the market will occur in the trading of the shares of the Proprietatea Fund, by causing their price to fall, distortion which could endanger the compensation process".

Up to now, the ANRP was only allowed to prioritize the conversion of conversion deeds in exceptional circumstances, with solid justifications, such as due to medical or social reasons.

The wording used in the Government Decision is ambiguous, and is interpretable precisely for that reason.

The document does not define the notion of market distortion (or what the Government means through this notion) now how low the price of the shares would have to be on the exchange for the market to be considered distorted. (Especially since distortion implies an artificial intervention, outside the mechanism of supply and demand which sets the price of a stock).

With these aspects left unclear, the Government, through the ANRP, basically has the possibility to compensate at his own discretion, some of the former asset owners before others, depending on the number of shares that they are set to receive and on the percentage by which the stake of the state in the Fund would be reduced.

The order of the registration of the cases in the ANRP, the only criterion used up to now (at least theoretically) for issuing conversion deeds, would no longer have any relevance.

It is possible that the Government Ordinance was conceived as a way of pushing the stock up, after it dropped in the first half of the previous week, based on rumors that over 1.5 billion shares would pour into the market; as a result, the Decision will slow down the exhaustion of the state"s stake in the Fund (the ANRP announced that for all the deed conversions occurring after May 9th, it would use the average weighted price of the shares over the last 60 trading days, meaning that, the more the stock falls, the more shares the State would be forced to offer as compensation.

Contacted by BURSA, Gabriela Anghelache, the president of the Romanian National Security Commission (CNVM), which countersigned the aforementioned Government Decision, said that she was consulted on the impact of the 1.5 billion shares coming onto the market.

The president of the Romanian National Securities Commission said: "The ANRP was supposed to issue 1.5 billion shares. You can imagine that if it had done that, the stock would have most likely gone down, due to the extremely high volume. We were only consulted on this specific situation, not on what could happen a few months or a few years from nows".

She declined to comment on the possibility of the state using this Government Decision to indirectly intervene on the stock market if it considers that the price of the FP stock is too low.

The signing by the president of the Romanian National Securities Commission of the Government Decision which seems to instate arbitrariness in the compensation of the former owners and provides the state with the possibility of the controlling the price of a stock on the stock market, raises major concerns.

Some voices claim that the president of the Romanian National Securities Commission was caught between the proverbial rock and the hard place, and was actually forced to sign the document.

However, Nicolae Ivan, former president of the Proprietatea Fund, considers that the awarding of the 1.5 billion shares to the former asset owners would not have necessarily led to the drop in the price of the Proprietatea Fund.

He said:

"I don"t agree with the claim that the state issuing the 1.5 billion shares would have caused the price of the stock to plummet. Who is to say that those who got their shares would have sold them right away, causing the price to drop? Quite the opposite, I think that the release of those shares would have actually boosted the market because it would have increased the free-float of the Proprietatea Fund, as it currently is rather low. I feel that involving the CNVM in this action was a mistake. The expression "market distortion" is unfortunate to say the least, and runs the risk of opening a real Pandora"s box. In terms of language, it can be construed in several ways, which is dangerous".

The assumption that the state is trying to stall for time in issuing the compensations is further confirmed by the actions of the ANRP, which asked the Government to reschedule the emission of conversion deeds, hiding behind the same risk of distorting the capital market. According to the ANRP, the purpose of this rescheduling would be to prevent the price of the Proprietatea Fund from sliding further in order to protect the rights of the asset owner, as well the rights of the Romanian state as shareholder of the Fund.