One year from the fund’s listing, U.S. investors are now pushing for the privatization of major state companies in the energy sector.
Romania created Fondul Proprietatea in 2005 to compensate former owners stripped of their properties by the communist regime. The fund received stakes of between 10% and 25% in leading Romanian companies in the energy sector (20% in Petrom and Hidroelectrica, 15% in Romgaz, Transgaz and Transelectrica). At the time, the government, headed by Calin Popescu Tariceanu, the architect of the fund, hoped that the assets pooled in this fund, valued at around EUR4 billion, would be enough to cover the existing compensation petitions.
The fund was supposed to be listed on the stock exchange very shortly thereafter, but the process was put off from one year to the next. So, thousands of owners who received shares in the fund as of 2006, had to keep them in their portfolio or sell them on the grey market, under non-transparent conditions and at prices much lower than their nominal value. This allowed speculators, both individual investors and speculative foreign funds, to buy shares in the fund at very low prices.
During this time, Fondul Proprietatea was also one of the favorite places for ruling politicians to place their acquaintances, who collected wages comparable to those of multinational managers without doing much.
Franklin Templeton wins manager mandate
Everybody was hoping that once a foreign manager was selected and the fund was listed on the stock exchange, things would run more smoothly. In 2009, heavyweight fund managers came to Bucharest to persuade the state to award them the mandate for managing Fondul Proprietatea. The list included U.S. giants such as Blackrock, Morgan Stanley, Julius Baer, UK’s Aviva, Netherland’s ING and Austria’s Erste. In the end, the mandate was awarded to Franklin Templeton, an almost unknown name in Romania at the time. But Templeton came to Bucharest with the heavy artillery, determined to win the mandate at any cost.
Mark Mobius, one of the best-known investors on emerging markets, came in person to persuade the members of the selection committee (state representatives) that Templeton is the best choice. Mobius was seen as an exotic character, who flew to Bucharest by private jet and booked several rooms at the Marriott hotel in order not to be disturbed.
In the end his efforts proved fruitful, as Templeton received the mandate to manage the fund. But the U.S. investment firm waited more than a year (until September 2010) to actually start its mandate, a time during which they were even worried they might lose it (Social Democratic Party PSD, which came to power in 2009, alongside PD-L, was against the appointment of a foreign manager at Proprietatea).
In September 2010, when state representatives voted in the General Meeting of Shareholders the appointment of Templeton as manager, the Finance Ministry had 43% in the fund left, but held control over the fund in the General Meeting of Shareholders.
Templeton sped up listing proceedings and on January 25, 2011 Mark Mobius and Greg Konieczny (the Polish-born manager of the fund appointed by Templeton) opened the Bucharest stock exchange session at the listing of Fondul Proprietatea. The fund’s listing was considered the event of the year on the capital market and not only, and the event was attended by many political personalities wishing to mark this “success” as their own.
The expectations were huge. The state was hoping the price of shares would rise after the listing, so that the 36% it had left would last it for as many compensation payments as possible, former owners themselves were hoping that prices would rise and they could sell their shares for as high a price as possible.
Brokers were hoping that foreign funds would bring hundreds of millions of euros to the Bucharest stock exchange and boost transactions. And Templeton had a mission to bring the share price as close as possible to the value of the fund’s assets. Mobius then talked about eastern investors (China and Hong Kong) and about the privatization of state-held companies, which he said would be a driver for growth for the fund’s shares.
After a year, the state is left without shares, the Americans rule
Pre-listing hopes were dashed from the very first day, when the fund’s shares closed at RON0.6495/share (which has to this day remained the all-time high), and the EUR2.1 billion capitalization was 41% lower than the asset value.
Since then, things entered a downward slope: the state resumed compensations in May, throwing hundreds of millions of shares into the market, and because the stock exchange price was lower than the nominal value at which the compensations had been made up until then, the state quickly ran out of shares (it had to part with more shares in order to pay the same amounts in compensation).
So many former owners did not get shares. On the other hand, speculators who bought shares on the grey market before the listing rushed to sell them (at substantial profits) and were in a hurry to reinvest the money in compensation cases. Thanks to “having friends in high places”, namely in the National Property Restitution Authority (ANRP), where a vicepresident was arrested last year for bribe taking, these cases were pushed forward and their owners got new shares which they were quick to sell on the stock exchange. This lasted until the state ran out of shares in December 2011.
At the same time, several foreign investment funds bought shares massively, ending up controlling around 40% of the fund at present. They bought around EUR500 million in shares in Fondul Proprietatea in the past year, but they did it thinking they would get back at least twice as much. The biggest investor in the fund, US-held Elliott (a very aggressive hedge fund), now controls 12.5% in the fund and will definitely have a big say in the fund’s management over the coming years.
Templeton has no reason not to be happy when it looks back at the first year since the listing of Fondul Proprietatea. It’s true that the price of shares is 45% of the net asset value, and Chinese investors have not rushed to buy shares, but, leaving aside the weak criticism of former owners, the main shareholders have not (publicly) expressed any discontent with the fund’s management so far. In addition, the U.S. fund manager collected at least EUR6 million from managing the fund in 2011.
The price of the fund’s shares should go up over the next year, considering that the Government has committed to list Romgaz, Hidroelectrica and Nuclearelectrica, three of the largest companies in the fund’s portfolio. So Franklin Templeton gets another chance to show it is worth the money.
(English version by Daniela Stoican)