The combined debts of these companies amount to EUR6.8 billion, 2.6 times higher than the overall book value (net assets) of the same companies, show ZF calculations.
In the last two years 15 of the top 100 companies controlled by Romanian entrepreneurs announced their insolvency because they relied too much on loans attracted from banks and did not get enough capital from the stock exchange or from private equity funds in order to withstand the shocks dealt to the economy.
Among these are Grup Romet and Aromet of businessman Constantin Toma, IT&C distributor RHS Company, controlled by Dragos Popescu, and footwear retailer Leonardo, held by Florin Panea.
Although many entrepreneurs face an acute shortage of financing, none of them has since 2008 tested the interest of investors on the Bucharest stock exchange.
There has been no public offering to sell shares since 2008, while the private equity market is almost non-existent, with Romanian companies attracting only EUR23 million from such funds last year.
The rate of non-performing loans in Romania is one of the most significant in Europe, reaching a record-high of 22.3% in June. This could be the result of banks giving loans easily during the economic boom years and not advising entrepreneurs to diversify their risk.
“I think there is no company that lends itself to listing which has not been asked several times a year if it wants to get listed,” says a banker.
“Banks have been asking entrepreneurs this for a long time because they are clearly overindebted and the debt service affects their cash flow. Loans are like steroids. At first they give you the strength to run faster, but if you take too many, you could have a heart failure,” the banker said, adding that banks have their share of the blame because during the economic boom years they competed to give loans, although stock exchange financing made more sense at the time.
Another banker, Misu Negritoiu, recently said that the quite high level of non-performing loans in Romania is because Romanian companies are over-indebted, having an exposure of 200%. This is the ratio between debts and the company’s net book value (equity capital).
For instance Cristim 2 Prodcom, held by businessman Radu Timis, had an indebtedness level (debt to equity ratio) of 10,300% and according to ZF calculations would need around EUR27 million to reach the average indebtedness level in the sector.
But Romanian entrepreneurs say the indebtedness level is not a concern for them, despite the large number of insolvencies in the past few years.
“Our indebtedness level is high because we have invested more and brought the company to European standards. This is more than the bank’s money that has been invested in Cristim 2 Prodcom. We are not afraid of insolvency, we are in fact on a very good trend. Because we have finished our investments, we don’t need money at the moment,” says Radu Timis, owner of Cristim 2 Prodcom, part of the CrisTim group.
Drug wholesaler Farmexim, one of the largest players on the market, had a total debt to equity ratio of 1,015% at the end of 2012. This compares with a 77% European average.
But Ovidiu Buluc, who controls the company, says the bulk of debts are to external suppliers and are due to the pharmaceutical sector gridlock and that the company’s profits of the past few years have been capitalized in order to consolidate the company.
“The loans we took are the lowest in the sector, we have an indebtedness level [through bank financing] of around 10%, the rest are debts to external suppliers,” Buluc says. He adds that the company’s financial performance is very good, and that Farmexim keeps being capitalized. No dividends have been paid in the past few years and Farmexim made a profit in the first seven months, Buluc also says.
“I don’t feel the need for additional capital. Our bourse is not a bourse, it is more of a game of Russian roulette. Perhaps if we had had a reliable stock exchange, I would have considered a listing,” Buluc also says.
Most of the top-ranking companies with Romanian shareholders have indebtedness levels higher than those considered sustainable by analysts. Only 19 companies in the top 100 have an indebtedness level below the European average.
Cable company RCS&RDS of businessman Zoltan Teszari had a debt to equity ratio of 870% and ZF calculations show the telecom giant should get capital of around EUR380 million in order to reach a 177% indebtedness level, the European average in the sector.
(English version by Daniela Stoican)