Managers of mutual funds and private pension funds, the largest institutional investors on the Bucharest Stock Exchange, all say they are interested in taking part in the 250 million lei (around EUR55 million) bond issue prepared by gas distributor GDF Suez Romania.
However, they are complaining about the lack of supply on the Romanian market, which forces them to look toward foreign markets and finance foreign companies.
The news story published by ZF in Thursday’s edition, which said the largest gas distributor GDF Suez Energy Romania plans to issue leu-denominated bonds worth RON250 million through the Bucharest Stock Exchange, has stirred the interest of major investors on the capital market. The GDF Suez issue would be the largest offering of corporate bonds ever conducted by a Romanian privately-held company and could reduce the capital outflow caused by a quasi non-existent bond market.
Romanian mutual funds, with a total wealth of RON9.3 billion, have invested RON1.7 billion in corporate bonds. Almost all bonds in their portfolio are issued by foreign companies such as Erste Bank, BMW Finance and Metro Finance, or by Romanian companies, but bought on the Luxembourg stock exchange because on the Bucharest exchange there has been no bond issue since 2009 and the bonds that have yet to reach maturity, such as those of the EBRD and EIB, are already in the funds’ portfolios.
The situation is similar for mandatory private pension funds, with assets of RON8.2 billion, which invested RON375 million in corporate bonds, mainly foreign ones.
In other words, savings of RON1.7 billion from Romanian investors and contributions of almost RON400 million from future pensioners are used to finance foreign corporations because the Romanian capital market doesn’t provide enough opportunities. The over RON2 billion could be used instead to finance Romanian companies, whose access to bank loans is increasingly difficult.
“Of course we have liquidity for new bond issues. We are interested in talking with the brokers of the issue and with representatives of GDF Suez in order to learn about the terms of the offering: the issue price, the interest rate, where the amounts will go,” says Dragos Neacsu, president of asset management company Erste Asset Management, the manager of the largest bond fund in Romania. BCR Obligatiuni has assets of RON3.3 billion, RON600 million of which are invested in foreign corporate bonds.
Neacsu hopes that this bond issue “will break the ice” and that other privately-held companies will also be interested in getting financing from the stock exchange.
“A supplier of bond issuers could be Fondul Proprietatea investment fund, which holds stakes in major energy companies. It may be difficult to bring these companies to the stock exchange through share listing, but Fondul Proprietatea should persuade the management of companies in its portfolio to finance their activity through bond issues,” Neacsu added.
Another major bond investor, Adrian Tanase, general manager of ING Investment Management, says “any new corporate bond issued in lei, especially if it’s a local company with a good financial performance, is a potential investment opportunity for ING Bond.” ING Bond is the second-largest bond fund on the Romanian market, with assets of over RON800 million. Its exposure to corporate bonds is RON61 million.
The bond issue of natural gas distributor GDF Suez Energy is all the more attractive since up to now most bond issues came from banks and international investment institutions. GDF Suez Energy Romania ended last year with a net turnover of RON4 billion, up 8.6% and a net profit of RON209.5 million.
“Mandatory private pension funds are very liquid, with around 10-12% of assets being invested in bank deposits, and the bonds issued by a utilities company are an interesting opportunity to diversify one’s portfolio. Several such issues are needed for private pension funds, which receive monthly contributions from future pensioners,” said Radu Craciun, investment manager of Eureko Pensii. Mandatory pension fund Eureko, with assets of RON462 million, has an exposure of over RON20 million to corporate bonds.
He warns that the market of government securities, the prime target for pension fund investments, offers fewer and fewer opportunities as the Finance Ministry has not made any new issues and the price of stock exchange securities is considered high.
The bond issue is also good news for the Bucharest Stock Exchange, which has not managed to persuade a privately-held company to get listed since 2008.
“The situation on the equity market is also true of the corporate bond market, with the main problem being the lack of ‘merchandise’. There are multiple causes for this, some of them are administrative, others to do with the lack of reference prices for longer maturities, and with prospective issuers and investors being less familiar with this financing instrument,” explained ING’s Tanase. (EUR1=RON4.4617)
(English version by Daniela Stoican)