Clare Nuttall in Bucharest -

A series of IPOs of state-controlled power companies has put the Bucharest Stock Exchange’s market capitalisation ahead of the Budapest exchange’s for the first time. The Romanian exchange is now setting its sights on overtaking Prague.

The Bucharest Stock Exchange (BVB) picked as its model the region’s most successful exchange, the Warsaw Stock Exchange (WSE). In July 2013, the BVB recruited former WSE chief executive, Ludwik Sobolewski, who headed the Polish exchange for seven years. “We convinced him to take this challenge... With his experience, he is trying of course to copy and paste good things from Warsaw but also to innovate,” Lucian Anghel, president of the BVB board of directors and CEO and president of the BCR Pensii management board, says in an interview with bne.

Anghel believes that the BVB is currently where the WSE was a decade ago, and that Romania “could be a second Poland” in terms of the successful development of its capital market. “We planted some seeds, and will benefit in the next three to five years. We are still at the beginning but the snowball has started to roll,” he says.

No longer on the frontier

The exchange’s main strategic goal for the next three to four years is to obtain an upgrade from frontier to emerging market from MSCI and the major international rating agencies. Its management wants to emulate the financial gains made by other exchanges to have made the leap. In June 2013, for example, MSCI announced it would upgrade the Dubai, Abu Dhabi and Qatar exchanges. Between 2012 and 2014, the main indexes on the three exchanges have increased by between 55% and over 200%, while turnover is up by four to ten times.

To secure the upgrade, the BVB launched reforms to make it easier and cheaper to open a trading account, allow investors to submit documents in English, and increase trading hours for a longer overlap with London and New York.

This is not a solo effort on the part of the BVB, which is working with the Prime Minister’s office, the government, the central bank and Romania’s financial regulator, the ASF. Since November 2013, more than 30 experts have been working on the 8 Barriers programme to eliminate the main bugbears for investors. “In my 19 years of experience in the financial sector in Romania, I have never experienced such a strong commitment from the highest level, as on this project to elevate the Romanian cap market from frontier to emerging,” says Anghel. “They understand the goal and they are listening more and more to international investors’ voices.”

A series of IPOs of major state-owned companies allowed the BVB to overtake the Budapest Stock Exchange in terms of market capitalistation, even though Hungary's is rated as an emerging exchange and is therefore able to attract funds from a much bigger pool of investors. “Our next target is Prague,” says Anghel. “Since we doubled our turnover in the last two years, I am confident we can do this.”

The IPO of electricity distributor Electrica in June was the largest ever in Romania, raising more than €440m. Other major companies to have floated include Romania’s largest gas company Romgaz and nuclear power company Nuclearelectrica, while the planned IPOs of hydropower company Hidroelectrica is expected to be on a similar scale to Electrica’s in 2015.

Small business plans

But while these IPOs of state-owned companies have sent the BVB’s market cap soaring, there are also plans to attract small and medium-sized enterprises (SME) and companies from Romania’s expanding IT sector. The Alternative Exchange Romania (AERO), a new market dedicated to startups and the IT sector, is due to launch in November. AERO is modelled on the WSE’s NewConnect, which now has a market cap of over €5bn. The project is headed by Sobolewski, who also initiated NewConnect. “We have a lot of IT experts in Romania, and it will be much easier for them to use the new exchange,” Anghel tells bne. BVB officials have discussed the project with IT entrepreneurs and Romania’s IT industry association, and some companies in the sector are already finalising their listings.

However, one of the problems the BVB faces is a lack of awareness of the exchange among international investors, an area Anghel is trying to address including by pointing out high yields especially in the power sector. “One of the most striking pieces of information for investors is that the dividends paid by the six largest listed energy and utilities companies were an average of 9% in 2013,” he says.

Currently, 36% of investors on the BVB are EU institutional investors; 28.5% local legal entities, mainly pension funds; and a further quarter local retail investors, a figure that has increased recently due to the record low interest rates in Romania. Recently, the BVB has seen a inflow of institutional investors from Poland, which were among the largest three or four investors into some of the recent IPOs. Poland’s second largest broker, IPOPEMA Group, opened a trading account in Bucharest this year.