The procedure for paying dividends from the 2011 profit has been blocked by Hidroelectrica’s insolvency, which lowered the value of the fund’s assets below that of its subscribed capital. The fund ended 2011 with a net profit of RON543 million and is due to pay to its shareholders dividends accounting for 90% of its profit, i.e. RON488 million or RON0.035 per share.
The law says the fund cannot pay dividends if its net asset value is lower than the value of its subscribed share capital on December 31, or if the net asset value falls below that of the share capital after dividend payment is approved by the shareholders.
In the wake of the insolvency of energy producer Hidroelectrica, in which Fondul Proprietatea holds 20%, the fund’s net asset value fell by RON3.28 billion to RON12.67 billion, compared to a subscribed share capital of RON13.778 billion.
“We are holding talks at the Justice Ministry in order to get a favorable interpretation of the law and pay dividends corresponding to this year. At worst, if the 2012 profit cannot be paid, we could use liquidity to buy back shares,” said Greg Konieczny, the manager of Fondul Proprietatea.
Konieczny hopes Hidroelectrica will come out of insolvency by the end of the year, which will make dividend payment possible.
The fund had its dividend payment blocked before in 2009 because of differences between the share capital and the subscribed capital. At stake were dividends of RON1.1 billion from 2008 and 2009 profits. The deadlock was broken in 2010 through a Government emergency ordinance which reduced the share capital by RON500 million from RON14.24 billion to RON13.75 billion.
By buying back shares from the stock exchange the manager hopes to boost the share price and reduce the trading discount. In the case of listed closed-end funds, such as Fondul Proprietatea, the difference between the net asset value per share and the share’s stock exchange price is the main means of evaluation. Currently the trading discount is 43% and is the difference between a net asset value per share of RON0.944 and the stock exchange price of Fondul Proprietatea shares of RON0.541. The trading discount has been cut from 60% last year to 45% this year, mainly because the net asset value declined after Hidroelectrica’s insolvency and because the share price increased following acquisitions made by the biggest shareholder, US fund Elliott. In the past year, the fund’s shares attracted investments of EUR700 million, mainly from foreign funds.
Franklin Templeton conducted the first buyback program last year, worth RON120 million, but its effects on the price were cancelled out by the turmoil on the financial markets and by the massive share sales made by the former owners and by speculators who bought succession rights. For this year the fund manager was given a go ahead from shareholders to buy back a further up to 7.9% of the shares for which it should spend up to RON500 million.
But the manager cannot start the buyback because the procedure has been deadlocked in court by minority shareholder Ioana Sfiriiala, who challenged all decisions taken in the General Meeting of Shareholders in April.
“The second buyback program has been blocked in court by a minority shareholder. We can start the buyback when we have a favorable court decision. (…) We have the necessary liquidity, have selected two brokerages through which we will conduct the operations,” Konieczny also said.
(English version by Daniela Stoican)