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29 martie, 2024

4 februarie, 2017

The Romanian capital market needs to meet only one more criterion, out of nine, in order to be promoted from frontier market to emerging market status, according to Lucian Anghel, President of the Bucharest Stock Exchange (BSE). The stock exchange suffers from a low liquidity and „without listing Hidroelectrica, it will be harder for us,” added the President of the BSE.

„The development objectives of the Romanian capital market are also Romania’s objectives. Upgrading the market status will speed up the process towards achieving these objectives. Mistakes can set us back by 10 years,” said the BSE’s President.

The FTSE Russell index provider included Romania on the list of countries having substantial potential to promote to emerging market status within a short or medium time frame. The upgrade will depend on the progress in terms of liquidity and the market presence of the large companies with significant individual market value, reads a company information released last fall.


Listing Hidroelectrica on the stock exchange is, therefore, a prerequisite for promoting the Romanian capital market to a higher status, according to several professionals from the banking sector, investment funds, including pension funds, and businesses environment, present at a conference that BSE organized on Thursday with the collaboration of the central bank.

The successful listing of some private companies is not enough to ensure the liquidity needed for promoting to the emerging market status. It requires to have state companies,” said Valentin Lazea, Chief Economist of the National Bank of Romania (BNR). „The few company listings completed, such as MedLife, are not sufficient to ensure the necessary liquidity,” added Valentin Lazea.

„Preparing a private company for listing lasts on average 11 years. The average lifetime of Romanian companies is seven years,” said Ana Bobirca, Vice-president of the Businessmen’s Association of Romania.

„There are no Romanian private companies that can reach the necessary liquidity target”, says Raluca Tintoiu, President of the Association for Privately Administered Pensions in Romania.


Moreover, the money transferred on behalf of future pensioners to the mandatory pension funds could take the path of the foreign markets, because there is not much left to buy in Romania.

„In the next nine years, I estimate that we shall need investment opportunities of one billion euros and I do not see how we could find them in Romania without the listing of Hidroelectrica and other companies,” said Adrian Tanase, Investment Director of NN Pensii Romania.

At stake in promoting to emerging market is for Romania to get on the radar of the major global investment funds, which will increase the demand for the shares of companies listed in Bucharest and their market value.

Listing Hidroelectrica

Hidroelectrica is valued, indirectly, at about EUR 3 billion in the portfolio of Fondul Proprietatea and listing a stake of 15% (according to the Government commitments) would significantly increase the liquidity of the BSE.

The listing of Hidroelectrica is on the Romanian Government’s agenda since before the company went out of insolvency. The event would now be foreseeable for the second half of the year, according to the company’s officials, but time is already too short. The Ministry of Energy has not taken yet any formal decision and Hidroelectrica has not taken yet the preliminary steps for the initial public offering: the appointment of the underwriters that make the market research on the price at which to sell the shares and the bureaucratic formalities.

„Emerging market” challenge

„The managers of the large fund portfolios do not allocate funds and analysts to research small businesses. To their criteria, only companies such as Hidroelectrica would correspond. As time goes by, it will become increasingly hard for us, because the size of the funds keeps increasing and so do their expectations,” said Thursday Lucian Anghel at the BSE conference.

The Romanian capital market would have access to „a fund size about 25 times larger if upgraded to the emerging market status,” said Lucian Anghel, President of the BSE.

There is an intense competition for funds between markets. It is similar to the competition for attracting FDI. It is a fierce competition at the planet level to remain and get a share as large as possible in the aggregate indices. The announcement of FTSE Russell about including us on the watch list for a potential upgrade represented the efforts of about four years,” said Lucian Anghel.

Three or four years ago, FTSE considered that the stock exchange did not meet 5-6 criteria. „At the moment, we meet all but one,” reminded the President of the BSE, referring to the liquidity.

„An unsaid truth is that there are minimum criteria that the listed companies must meet to count: nearly USD 1.3 billion – the size of the company. The most challenging criterion for us is the size of the free-float, which should be more than USD 600 million, USD 630 million respectively. These are the minimum criteria. The evaluation keyword is „comfortably exceeding” the minimum criteria, the same as in the case of the nominal and real convergence criteria for joining the Eurozone. Informally, „comfortable” would mean a minimum 20% over the minimum criteria. Informally, that would mean to upgrade. We can find that nowhere,” said the President of the BSE, referring to the need for Hidroelectrica to be listed.

Critical for economy

Upgrading the Romanian capital market will decisively contribute to the market development, respectively the company financing diversification, which is necessary for companies, the banking system, the state and its citizens, according to Valentin Lazea, the BNR Chief Economist.

„A modern capital market contributes to diversifying the risk in a modern economy and multiplying the financing channels. There are numerous advantages that a developed capital market can bring to all actors in the economy:

  • From the perspective of the companies that need financing, the capital market is often a cheaper alternative to the bank loans
  • From the perspective of the potential investors, the capital market offers a risk-return mix higher than the bank deposits or the government bonds
  • From the perspective of the commercial banks, the development of the capital market is welcome because the banks often blame the undercapitalization of the non-bank companies that makes the latter ineligible for loans,” said Valentin Lazea.
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