Romania’s capital markets: to boldly go

By bne IntelliNews May 12, 2015

Clare Nuttall in Bucharest -


Wide-reaching reforms to Romania’s capital markets are in progress, with the aim of establishing the Bucharest Stock Exchange (BVB) as one of the major bourses in Central and Eastern Europe.

Turnover on the stock exchange has soared following a series of IPOs of major utilities. In June 2014, electricity distributor Electrica raised over €440mn in Romania’s largest-ever IPO. This followed the IPOs of Romania’s largest gas company Romgaz and nuclear power company Nuclarelectrica in 2013, the latter being the first major IPOs since the pre-crisis listing of gas transportation company Transgaz back in 2007.

While no IPOs of large state-owned companies are expected this year, the government hopes to list as soon as possible companies including hydropower generator Hidroelectrica, Bucharest Airports, Constanta Port and salt monopoly Salrom. Hidroelectrica in particular is expected to hold an IPO on a similar scale to Electrica’s when it enters the market in 2016.

STEAMing ahead

The listings in the last two years have enabled Bucharest – already the dominant exchange in Southeast Europe – to overtake the Budapest exchange in terms of market capitalisation. “The regional dynamics are rapidly changing and this presents an opportunity for the Romanian market,” says Jim Turnbull, senior capital markets advisor at the European Bank for Reconstruction and Development (EBRD). “Bucharest may not rival Vienna or Warsaw, but as Poland has been affected by the pensions reforms there is a case for another strong exchange in the area.”

The primary goal at present is to obtain an upgrade from frontier to emerging market status, which is expected to deliver a substantial boost to turnover on the Bucharest exchange.

The BVB is working on reforms to expand and improve Romania’s capital markets together with the government, the central bank and Romania’s financial regulator, the Financial Supervisory Authority (ASF).

In addition to the BVB’s “8 Barriers” programme, aimed at tackling the chief obstacles to investment, the ASF launched the STEAM project to support development of the Romanian capital market.

Achieving emerging market status will require meeting specific indicators on the size, liquidity and accessibility of the market, a spokesperson for the ASF tells bne IntelliNews. While it is difficult to estimate how long this will take, provided planned reforms are carried out and the positive trends on the BVB continue, “the time horizon for achieving emerging market status could be up to two to three years after the initial launch of the STEAM project [in August 2014].”

In addition to work by the Romanian authorities, the European Bank for Reconstruction and Development (EBRD has also contributed to development of the Romanian market. In November, the EBRD announced it had acquired a 4.99% equity stake in the BVB. Through the investment, according to a statement from the bank, “the EBRD is supporting the Romanian government’s comprehensive capital market development programme, which aims to improve the functioning of the local capital markets, enhance liquidity and increase availability of debt and equity offerings in the local market markets.”

The EBRD’s Turnbull called the investment in the Bucharest exchange a “unique” transaction. “It was a purchase of previously listed shares in the public market. Whilst it was a commercial transaction, it was also intended to send a very strong signal of confidence in the direction of reforms in the capital market,” he says.

Getting the news out

Since then, the EBRD has helped to promote the exchange internationally, including by working with the BVB to organise a conference on the Romanian capital market at its London headquarters in February. “Romania is a rising tiger of Central and Eastern Europe,” the BVB’s CEO, Ludwik Sobolewski, told investors at the conference. Sobolewski, who previously headed the highly successful Warsaw Stock Exchange, added that, “Our goal is to reach out to international investors willing to increase their presence on our market and to discuss how Romania can become a fully-fledged member of the emerging markets family.”

Around 140 fund managers and other interested parties attended the conference, indicating a healthy level of interest. “There is obviously growing interest in Romania as the growth fundamentals are pretty good, with the economy growing at around 3%, interest rates that are still relatively attractive and interesting growth stories in the equity market,” Turnbull says.

Going forward, broadening the range of liquid, publicly traded instruments available on the Romanian capital market is an important aspect of the reform progress, according to Turnbull.

The question of covered bonds is currently being resolved, while the municipal bond market received a boost when Bucharest City issued RON2.2bn (€500mn) worth of bonds that floated on the BVB regulated bonds market on May 5. The bonds, which have maturities of three, five, seven and 10 years, will refinance a €500mn bond issued in 2005 that is due to mature in June. The EBRD participated in the bond issue, making a RON333mn subscription.

The issue has been described as Romania’s first “genuine municipal bond” and is expected to help broaden the range of liquid, publicly traded instruments on the local capital market. “While a lot of municipal bonds have been issued, these are seen as ‘loans in bond form’ – they are small, illiquid and often take money from a single investor, so don’t do much to develop the secondary market,” says Turnbull.

The latest issue, however, is expected to set the municipal benchmark yield curve and could lead to further development of the market.


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