The privatization of Petrom. Between economic interests, politics and personal jealousies

The sale of another 10% of Petrom should theoretically make Romania, the Bucharest Stock Exchange and the players of the capital market rejoice. The Romanian capital market will become a bit more visible and will be able to benefit from higher trading volume in the future, the budget will earn significant amounts, and brokers will find it less difficult to explain to investors what is happening with the Romanian stock market...

But, since we are living in Romania, things aren"t so simple! Any type of decision, be it economic, social or of any other kind causes a lot of ardently contradictory opinions and irreconcilable contradictions between the parties involved or even between the observers of the phenomenon. Having worked many years on the capital and financial markets, I can clearly remember the manifestations of egos of the major players and I understand the whole storm in a teacup that began over this new event of the capital market. I"ll make it clear from the start that I will not discuss the technical inconsistencies of the offering. All I am going to say about that is the fact that I wish that operation had been performed as transparently and with as much simplicity as possible. It is obvious that all the unclear aspects of the prospectus were going to be exploited by the opponents of the sale, by those who didn"t win the call for tenders to become the intermediaries of the offering, by the political opponents of the government etc. Which is why any legal or technical oversight in the case of an offering with such a domestic and international impact should have been avoided; unfortunately it wasn"t. However, statements made by politicians or analysts the likes of "a never before seen method for setting the price" (this is a method that is frequently used in Europe, one recent example being the offering of OMV) or "the amount that the state will earn per share could be recouped in three years out of the company"s profits" (Petrom stock currently has a PER of 12.28, according to the latest price in the market...) are untrue and obviously ill-intentioned.

From an economic point of view, the offering is important for Romania. The Romanian state no longer owned the majority stake in Petrom anyway and regardless of how much we wanted to believe different, "the country"s energy independence" is an outdated topic, instead of a delicate one. The fact that the governments resort to manipulating the price of gas, and electricity to "subsidize" their voters and to place their own companies at a competitive advantage over their foreign competitors is a custom that is both harmful and harmful in the long run (but so beneficial politically in the short term!). In this context, using Petrom as a means of pressure to control the price of gas and natural gas was ineffective and unrealistic in Romania. At any rate, if we are to discuss this project, the decision on whether not Petrom should have been well thought-out in 2004, when the Romanian state decided to give up on its majority stake (even thought it actually happened a little later) instead of now. And the important factor was the negotiation of the royalties and of the privatization contract, which were drawn up in a shady and non-transparent manner. Today, the Romanian government simply admits that it can no longer handle the investments that Petrom needs and that it needs money in the short term to cover its budget deficit or (this is me naively hoping!) to continue the investment projects for the ongoing infrastructure projects and to consolidate the country"s finance. Thus, the only element that needs debating is how successful the state is going to be in raising as much money as possible, given the circumstances. Which are as follows: a minority stake in Petrom (meaning it can no longer hope to get the same price per share it did when it sold the majority stake), at a time when crude has a high price, without knowing which way they"re going to go, and the natural gas market in Romania hasn"t yet been liberalized ... Determining the "optimal" sale price needs to be done by taking these factors into account. Moreover, the optimal sale price, (we could call it "the maximum price") needs to be close to the market price. More specifically: if the free-float and the liquidity of the shares of Petrom in the market, were sufficient, the price of the offering would have been lower than the last closing price. Given the specific conditions of Petrom and of the Romanian market, the offering is aimed particularly at institutional investors, which are buying a significant stake and would therefore be willing to pay a price closer or higher than the one in the market. Still, the recent offering of OMV (made using the same technical method of "maximum high price") was concluded at a discount of approximately 15% compared to the market price, meaning there is a potential downward pressure for the stock of Petrom as well.

In conclusion, given the current state of things in Romania, with a capital market like ours and with a rather moderate interest from foreign investors, the offering of Petrom should be looked at hopefully, rather than with ill-intention.