The success of the Electrica IPO: faith in reform or just an interest in the discount?

The IPO of Electrica was the most successful among the small investors, as the tranche dedicated to them was oversubscribed 3.4 times. On the segment which guaranteed up to 1,000 shares per person, investors have subscribed 8.27 million shares, of the 10 million made available through the IPO. As a result, the remaining small investors, which did not have guaranteed a guaranteed number of subscribed shares had approximately 4.13 million shares available. Aside from the guaranteed shares, the subscriptions on the small tranche amounted to 33.99 million shares.

Small investors that would acquire shares in the first five would get 5% discount.

The allocation of the shares on the unguaranteed tier will done proportionally.

The tier of major retail investors was oversubscribed 8.4 times by the same time yesterday.

Given the high rate of oversubscription on the retail segment, stock market sources are saying that the underwriters will transfer 5% from the institutional investors to the retail tier, which will make the oversubscription rate on the latter drop to approximately 4.4 times, but will especially cause the oversubscription rate on the institutional investors tier to increase, thus allowing the present the IPO as a success on every tier.

By the time the newspaper went to print, the underwriters had not yet announced the subscription rate on the tranche for institutional investors, but stock market sources told us that it was less than 200%, which would have been the ideal level for a qualitative allocation by the authorities. "The fact that the EBRD placed 75 million in the IPO of Electrica was very important for its successful completion. This inspired confidence in the other investors, as the relations with the IMF had become tepid. The investment of the scale of the EBRD gives further hope that the structural reforms will continue in Romania's energy sector as well", our sources also told us.

In the beginning of the week, there were opinions in the market that the purpose of the rumor that the EBRD had bought shares in the Electrica IPO was intended to raise more money from the institutional investors that were interested and to foster interest in Electrica SA, because the government wasn't happy with the number of shares subscribed by the institutional investors.

The same sources are saying that a closing price in the lower third of the price range would indicate a predominantly speculative interest in the discount; but if the IPO were to close in the upper third of the price range, it would then be a veritable success that would indicate the desire for involvement from longer-term investors who are confident in the durability of Electrica's performance and which would also be interested in buying shares directly from the market once the IPO is over.