Fondul Proprietatea (FP.RO) and OMV Petrom (SNP.RO) have, in the last month, attracted foreign investments of EUR23 million on the Bucharest Stock Exchange from U.S. hedge fund Elliott and from Franklin Templeton Frontier Markets fund.
Although the amount in itself is not large, the purchases of the two funds are a bet on the Romanian market and especially on the energy market from two of the world’s most influential groups.
Fondul Proprietatea, which has stakes mainly in energy and transport, is reflective of two of the hottest sectors in the economy.
“It is obvious that the two funds want to increase their exposure to Fondul Proprietatea and Petrom. Why are they buying more now? The optimism generated by the decisions of the European Central Bank and the Fed led to higher inflows into investment funds, so they have more money to invest,” said Valerian Ionescu, manager of the capital markets trading department of BCR.
The Elliott group manages assets of around $16 billion and is headed by Paul Singer, a US billionaire with strong political links. He is said to be one of the biggest sponsors of Mitt Romney, Barack Obama’s contender in this year’s U.S. presidential elections.
Franklin Templeton is the manager of Fondul Proprietatea and one of the world’s largest investment groups, with assets of over $700 billion. Templeton is one of the first major asset managers to have entered emerging markets in the ’80s through Mark Mobius, a legendary investor.
U.S.-held Elliott has in the past few weeks made significant acquisitions of shares in Fondul Proprietatea, worth EUR13 million, accounting for 0.8% of the fund’s capital. Elliot is the biggest Fondul Proprietatea shareholder, with an almost 15% stake worth around EUR240 million on the stock exchange.
The interest of the U.S. group for Fondul Proprietatea is explained through the fact that the fund’s shares are now traded at a 41% lower price than the fund’s net asset value. The capitalization of Fondul Proprietatea is around EUR1.63 billion, while the fund’s assets were valued at EUR2.77 billion at the end of July, a value that doesn’t include the 20% stake held by the fund in Hidroelectrica, the energy producer that went insolvent in June. The Hidroelectrica stake was valued before insolvency at around EUR730 million, but investors buying shares in Fondul Proprietatea at present hope to see a rise in value as the company is restructured. So the actual discount at which the fund’s shares are currently traded is over 50% and has not declined at all since the fund’s stock exchange listing in January 2011.
Buyers hope to see the difference between the price of shares and the value of assets narrow down, and this could happen after the listing of large state-run companies in the fund’s portfolio, such as Romgaz, Hidroelectrica and Nuclearelectrica, or through the sale of stakes in electricity and natural gas distributors.
The major interest for Fondul Proprietatea shares and the increasingly big amounts bought by Elliott were also reflected in an increase in the price of shares, by 17% since the end of July.
The value of Fondul Proprietatea shares and implicitly the price of shares are also influenced by the evolution of Petrom shares, which rose 20% in the last three months. The main buyers of Petrom shares in the past few months have been the funds managed by US Franklin Templeton, which is also the manager of Fondul Proprietatea.
Templeton bought shares worth almost EUR10 million in the last month, accounting for 0.2% of the company’s capital.
Petrom is one of the most attractive companies on the local stock exchange, recording net profits of over EUR1 billion in the last four quarters, with its market capitalization amounting to EUR5.18 billion.
(English version by Daniela Stoican)