The listing of the Proprietatea Fund won"t solve its major issues

Reporter: Will the listing of the Proprietatea Fund (FP) on the Stock Exchange truly solve all of the issues that have plagued it since the beginning? Such as for instance, the lawsuits filed by former owners against the Romanian state with the European Court for Human Rights?

Gheorghe Piperea: The European Court of Human Rights (CEDO) has been telling us for a long time that the Fund is not a concrete way of compensating former owners. This is a fact that won"t be changed by the listing of the Fund on the Stock Exchange. If the value of the shares listed on the stock exchange drops below the par value at which they were issued to shareholders in 2005 as compensation, then the shareholder can claim that he has not been reimbursed in full and can go to court. The opposite is true: if the price of shares goes above their par value, this could be considered an unjustified gain for the holders of those shares, which would occur at the expense of the Romanian taxpayers. Even if it were to become functional by being listed on the Bucharest Stock Exchange, the Proprietatea Fund will still have these two major issues.

Reporter: According to the articles of incorporation, the Proprietatea Fund will have a lifetime of 10 years, with an option to extend this duration. The General Shareholder Assembly of September 6th has received a proposal for the agenda to modify the articles of incorporation to allow the Fund to have an unlimited duration ...

Gheorghe Piperea: If this modification gets approved, this will completely violate the fundamental idea that the creation of the Fund was based on. It was conceived as a vehicle intended to compensate owners whose properties could not be returned in kind. What is that, turning it into a company with an unlimited duration?

Reporter: Is the Proprietatea Fund turning into something else after its management was taken over by Franklin Templeton?

Gheorghe Piperea: If the goal is to turn it from an association for the compensation of the former owners, then its legal nature needs to be changed completely. In other words turning it into an investment company. But in my opinion, we are going to have a very big problem once the Fund gets listed on the Stock Exchange because the value of its assets is far greater than that of the assets of the five Financial investment companies (SIFs). The listing of the Fund on the BSE will be similar to a meteorite crash on a small plot of land.

Reporter: So what would be the problem?

Gheorghe Piperea: Don"t you think it will create a gravitational pull that will cause everyone"s savings to converge towards this issuer? It could happen that some portfolio investors, who are lacking investment alternatives at the moment, would rush to buy shares in the Fund. On the other hand we"re counting our chickens before they"re hatched. How do we know it will get listed?

Reporter: What would be the reasons not to list it?

Gheorghe Piperea: Well, for example, there a few entities that hold stakes in the Fund which cannot identified, even though their holdings exceed 5%.

Until now, no one required them to say that they have these holdings, but they will need to reveal their identity before the Fund gets listed.

Another problem is that of free-float. A significant stake in the fund is held by the state, and I am absolutely convinced that the shares held by the state will not be listed. The intermediary that will handle the listing of the Fund will need to determine a free-float level, because in my opinion, the Fund currently has a free-float of less than 1%.

What tops it all off, even though the Romanian state is selling some of its shares, it will continue to control the Fund because it will keep a so-called "golden share".

Reporter: How do you feel about the intention of the Fund to buy back over one billion of its shares, that the shareholders of the Fund are called upon to decide next week?

Gheorghe Piperea: The buyback of the shares means that the company pays a certain amount to shareholders and it needs to sell those shares again in one year, this being one of the options that is has available. If the Fund goes through with this, this leads me to suspect marketr manipulation.

Reporter: But it could be a method for raising the free-float...

Gheorghe Piperea: We don"t know that for sure. It could be intended like that, but it could be intended for other purposes. I don"t understand where that proposal is coming from.

Reporter: What other factors that could impede the listing of the Fund do you see? You sound pessimistic, even though there people in the market that feel there is no going back now with the listing of the Fund ...

Gheorghe Piperea: I"ve noticed, but I don"t understand them. The issue of the share capital of the Proprietatea Fund has been around forever. The share capital/assets ratio of the Fund was never determined clearly. When the Law concerning the creation of the Fund was published, it said that the assets of the Fund were worth more than four billion Euros. They never said how they got this figure, how the evaluation was made, because when a company is created with contributions in kind, those contributions need to be evaluated in order to determine their value, but also the number of shares that need to be issued for that amount.

Not to mention the fact that it is forbidden that the law of commercial companies forbids the creation of any company without any cash contributions. This is exactly what happened. They have created a company that had no cash at all.

Reporter: They had receivables ...

Gheorghe Piperea: What receivables? Against the State of Kenya, Congo? The receivable in question can only be considered cash under certain conditions. There are a lot of impediments that could derail the listing of the Fund. I am still skeptical, but I said it as early as 2005 that the Proprietatea Fund was stillborn and I do not understand how it can be made viable. Either way, here we have now more than 40% of its shares in the hands of some private investors. if the Fund were to be dismantled, which I feel would the wise and fair decision, then another solution needs to be found to compensate the people who hold more than 40% of its shares because you have instilled them with a legitimate hope that they would be compensated, a hope which was then destroyed.

But the Proprietatea Fund is not the solution for compensating former owners.