U.S. company Franklin Templeton on Thursday looks back at the first year of the most awaited management mandate of the last decade: managing EUR3.6 billion worth of assets of Fondul Proprietatea.
A year ago, at the dinner organized by Franklin Templeton to celebrate the appointment as a portfolio manager and administrator of Fondul Proprietatea, Mark Mobius anticipated: “Our work will be successful if we benefit from the support and cooperation of the Romanian state.”
A year later Mark Mobius addresses the government, saying the future of the fund looks promising, especially at a time when the government intends to boost the efficiency and transparence of state-controlled companies through primary or secondary offerings, and through the appointment of professional managers.
He says the government’s commitment to carry these plans through will help increase the value of companies in the portfolio and will give the economy a boost.
As it had expected, Franklin Templeton found in the Romanian state a rather difficult partner for discussions. It chose to go to court to defend the interests of the fund and of the shareholders, and the results were not the best.
Proprietatea’s manager chose to bring a court case against the donation of Romgaz, it challenged in court the plan to create the two “energy champions”, it summoned general meetings of shareholders at Hidroelectrica and Nuclearelectrica to request that the listing of the two companies on the Bucharest Stock Exchange (BVB) be approved, it resorted to public pressure to speed up the listing proceedings of companies in the fund portfolio.
These approaches were praised on the market, but did not manage to prevent Romgaz from donating 400 million lei to the state budget, or to bring Hidroelectrica and Nuclearelectrica to the stock exchange.
The listing of companies in the fund’s portfolio is the main priority of the manager, but since the Romanian state is the majority shareholder in these firms, while the fund only has minority stakes, Franklin Templeton has its hands tied. The listing would provide a much clearer image of the value of the fund’s portfolio, and the market price, which is currently 60% lower than the asset value, could rise.
At present, the fund has RON15.35 billion worth of assets, but over 50% of them are not listed, so investors value them at just RON6.1 billion.
The fund’s listing, which occurred during Templeton’s mandate, was one of the leading events in the Bucharest stock exchange’s history, but the market price evolution disappointed.
Compared against the value of RON1 at which the shares were granted as compensation for people whose fortunes were confiscated by the communist regime, the first price of RON0.6495/share was a disappointment, while the current one, RON0.43/share, over 30% lower, deepens the frustrations of former owners.
The appointment of representatives in the Boards of Directors of companies in the portfolio is among the fund manager’s greatest accomplishments. However, it will be a long time until the impact of these appointments is reflected in higher efficiency and in the financial results of these companies.
Another achievement is the fact that the management released contracts and financial statements of the companies in the portfolio. Secret Hidroelectrica contracts were brought into the open, as were the feeble profits at Nuclearelectrica.
However, Templeton’s accomplishments do not mean a lot for the Romanian Government and for those who received shares in compensation. The government ran out of shares in a few months because of the low stock exchange price and is still far from finalizing the compensation process, while those who received Proprietatea stock in compensation subsequently had to sell them at half their value.
The manager has so far collected around EUR4.3 million for the last three months of last year, when the fund was not yet listed. After its listing, the management fee is paid on an annual basis and accounts for 0.479% of the fund’s average capitalization in the last three months of the year. At the current capitalization, of EUR1.4 billion, the fee would be around EUR6.7 million.
(English version by Daniela Stoican)