Shareholders in Romania’s Fondul Proprietatea voted overwhelmingly to renew Franklin Templeton Investments’ mandate to manage the fund at a shareholder meeting on October 29, despite a worse-than-usual performance in the last 12 months.
Fondul Proprietatea, which means “property fund” in Romanian, was set up to recompense Romanians whose property had been confiscated under the communist regime. With stakes in 49 companies including some of the largest Romanian energy companies, it has become a proxy for exposure to the Romanian market among international investors.
Fund manager Greg Konieczny told a press conference in Bucharest that for the first time in the four years Franklin Templeton has been managing the fund, it had negative returns on net asset value (NAV) over the last 12 months, while the discount has increased. “The last 12 months have been very difficult, not only for the fund but across financial markets in frontier and emerging markets... but I want to show you that there is a future for Fondul,” Konieczny said.
Mark Mobius, executive chairman of Templeton Emerging Markets Group, who was at the press conference, expressed his confidence in the Romanian market in the long term. “Romania is one of the fastest-growing countries in Europe. If you look forward under President [Klaus] Iohannis, and at the general trend towards reform, assets here will become more valuable,” Mobius said.
Despite this year’s difficulties, Konieczny said that between 98% and 99% of shareholders voted in favour of signing the new investment management agreement with Franklin Templeton at the extraordinary general meeting. Its new mandate to manage the fund will start from April 1, 2016 and last for two years.
The new agreement amends the fee structure, and sets out performance objectives, namely to raise NAV and bring the discount down to below 15%. A new discount control mechanism will require the fund’s management to take actions including buybacks and cash distributions if the discount exceeds 15% for more than half of any financial quarter.
In addition to poor market conditions, Konieczny listed several factors that have affected the fund’s performance over the last 12 months. He cites “a number of regulatory issues” such as delayed decisions from Romania’s financial regulator, the ASF, delayed implementation of corporate governance legislation, and gas market liberalisation.
As many of Fondul Proprietatea’s portfolio companies are in the energy sector, low oil prices have affected the fund’s performance, as has the regional security situation given Romania’s proximity to Greece and Ukraine.
Key to bringing down the discount is reducing the share of unlisted companies in Fondul Proprietatea’s portfolio. “One of the main reasons for the discount is the structure of our portfolio, where unlisted companies account for more than 50% of the total, and even the listed part is not very liquid,” said Konieczny.
Progress on planned IPOs of several portfolio companies remains slow. Hydropower producer Hidroelectrica remains in insolvency while court battles over cancelled contracts with private traders - the so-called “smart guys” - are in progress, although according to Konieczny an IPO could take place in summer 2016. Concerning power company CE Oltenia, which had previously been considered an IPO candidate, “there is no chance to see Oltenia on the stock exchange any time soon. This chance is suspended from our point of view,” Konieczny said.
Romania's finance ministry is working on a shortlist of more companies to list, and a decision is expected very soon, meaning there may be the chance to see one or more companies list in 2016. Potential candidates include Bucharest Airports, salt monopoly Salrom and Posta Romana after an attempt to sell to a strategic buyer fell through in September.
However, Konieczny stressed that Franklin Templeton “is not desperate” to sell assets and confirmed the continuation of the RON500mn (€113mn) credit line from Citibank used for financing of the buyback programme.
Konieczny also pointed out that the successful listing of Fondul Proprietatea’s GDRs on the London Stock Exchange in April “has proven that the listing of our GDRs in London is welcome to investors”. Fondul Proprietatea is currently the fifth largest listed fund on the London exchange, and its portfolio company OMV Petrom has since decided to list its own GDRs in London.