The wealth of the five SIF listed on the Bucharest Stock Exchange fell by 1.44 billion (EUR330 million), and sales of assets drove their cumulated profits to RON1.64 billion, most of which paid to shareholders as dividends.
The high discounts SIFs were trading at compared with the assets they manage, made shareholders start pressuring SIF bosses to sell some of their assets as of 2010. The assets of the SIFs declined by 19% over the last three years, even though their stakes should have increased overall, because of the 10% rise of the stock market.
The sales paid off, and trading discounts are lower than they used to be a few years ago, but the SIFs are still far from being valued up to the assets they manage.
SIFs currently have RON6 billion (EUR1.38 billion) in assets, while their cumulated market value amounts to about EUR880 million, therefore a simple calculation shows that if they were to sell all the stocks in their portfolio, their shareholders should collect gross profits of about EUR500 million.
Analysts say that in such case not all the stakes sold will generate profit, as some were bought at higher prices than they are currently trading for, and therefore SIF bosses should look for other ways to distribute cash to shareholders, such as repurchasing shares.
SIF Transilvania (SIF3.RO), the most aggressive about portfolio sales, is now trading at the lowest discount of the five, about 30%. The discount in May 2010 stood at 67%.
On the other hand, SIF Banat-Crisana (SIF1.RO) and SIF Oltenia (SIF5.RO) are still trading at the highest discounts, 40%.
“The discount gap can only be explained by the generous dividends they paid and the asset reductions. In SIF Moldova (SIF2.RO)’s case, there is also the high transparency, the better reporting quality,” says Mihai Caruntu, head of the capital markets research department of BCR, Romania’s largest bank, held by Austria’s Erste.
He says that most often interests and dividends SIFs get from the companies in their portfolios are not enough to cover their operating costs; therefore the profits come from sales of assets.
SIF Muntenia (SIF4.RO), which has already sold half of the Erste Bank (EBS.RO) stake it got from the Austrian bank in exchange for its BCR stake, is now trading at a 35% discount, after having traded at 68% to 50% in the past three years.
“The drop of the discount of SIF Transilvania and SIF Muntenia was due to portfolio sales: the stake in BCR was sold to Erste Group and then some of the Erste shares were sold, too. A not so liquid stake was therefore converted into cash, which will probably go to shareholders as dividends,” says Andrei Radulescu, analyst with brokerage firm Broker Cluj. “This is, in my opinion, the main reason for the decline in the discount of the two companies (…)”
The drop in discounts could also have to do with the shareholder battle to have the SIF management replaced, which is still ongoing. The next big battle is to be fought in April, at the general meeting of shareholders of the five SIFs.
As a result of stock sales, SIF Transilvania and SIF Muntenia’s assets fell by 30% and 28%.
SIF Muntenia is the only one of the five whose assets are now below the 2009 low, when the stock market plummeted by 70%.
SIF Moldova, on the other hand, only saw a 7% decline in its assets over the last three years, even though it sold its BCR stake and paid hefty dividends to shareholders.
Analysts say SIFs have been selling their most liquid assets over the last few years, such as their shares in Erste Bank, listed on Vienna and Bucharest Stock Exchange, as well as significant stakes in BRD Societe-Generale (BRD.RO), the largest listed bank.
They also say the SIFs did a bit of portfolio cleanup and largely did not touch the non-liquid stakes or the problem stocks because of the very difficult market in the last few years. A number of companies in the SIF portfolios went insolvent or bankrupt, while for others the SIFs managed to find buyers.
(English version by Loredana Fratila-Cristescu)