IPO of Romania’s RCS&RDS completed at low price

IPO of Romania’s RCS&RDS completed at low price
By bne IntelliNews May 11, 2017

The 21.7% IPO of Digi Communications, the parent company of Romanian diversified telecoms company RCS&RDS, was completed at the price of RON40 (€8.78), the deal intermediaries informed institutional investors on May 10, according to unofficial sources.

It was a moderate success: the entire volume of shares on offer was sold, yet at a rather low price compared to the sellers' expectations as expressed in the IPO prospectus. The investigations into RCS&RDS by anticorruption prosecutors, announced during the IPO, make the developments after the floating of the shares expected on May 16 uncertain. 

Notably, Digi has said that RCS&RDS — not only members of its management, as announced by the anticorruption prosecutors — is the subject of the investigations. RCS&RDS has denied any wrongdoing.

The shareholders received RON860mn (€190mn) for their 21.7% stake. The shares are of type B, which entitle their owners to full dividends but only one voting right (as opposed to 10 voting rights for class A share owners). The company’s founder, Zoltan Teszari, exerts control (directly or indirectly) over the entire 65.8% stake of type A shares. Evaluating the whole company based on the price of the 21.7% stake of type B shares is therefore debatable. 

The sellers decided on May 10, after the bids were placed (but within the limits of the IPO prospectus), to allot a larger part of the 21.7mn shares to retail investors, namely an additional 1.1mn on the top of the 3.26mn allotted initially. Retail investors significantly (around 20 times) oversubscribed the offer, while demand was apparently weaker among institutional investors.

The price was set on the institutional segment of the IPO (RON40 per share) and used for the retail segment as well, with the discounts given to the bids placed in the first days close to the lower limit of the RON38-56 expected band announced in the IPO prospectus.

After the National Anticorruption Directorate (DNA) announced its investigation, the intermediaries gave investors (both retail and institutional) two days starting May 8 to withdraw their offers. The impact on the retail investors’ segment was modest, but it seems that it was stronger on the institutional investors segment for reasons related to either their bindings (related to ethics) or confidence.

Some institutional investors stepped back, due to strict regulations related to their investments, and this pushed down the price, Bursa daily reported. On April 26, the European Bank for Reconstruction and Development (EBRD) approved an offer for Digi shares, conditioned on annual reports to be issued by the company on ethics conduct — environmental protection and bribe avoidance. The intermediaries of the IPO, Deutsche Bank and Citigroup, were also planning to buy some of the shares. It is unclear at this moment whether the EBRD or the two banks eventually placed bids. However, the shifting of the 1.1mn shares from institutional to retail investors indicates a certain weakening of the demand from the former category.

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