The head of the Bucharest Stock Exchange (BVB) says he is making a push to attract more companies to list, especially those from Romania’s booming technology sector.
The BVB has already launched a comprehensive reform programme, and its liquidity has been boosted by several IPOs of large majority state-owned companies such as Electrica, Romgaz and Nuclearelectrica. However, more IPOs are needed to boost liquidity and encourage investment, Ludwik Sobolewski, the chief executive of the BVB since 2013, tells bne IntelliNews in an emailed interview.
Under Sobolewski, the former head of the highly successful Warsaw Stock Exchange, which he left in 2013 somewhat under a cloud, the BVB is reaching out to issuers. “We redefined the mission of the Bucharest Stock Exchange, which is now to initiate and maintain productive relations with current and potential issuers of financial instruments, and especially with private entrepreneurs,” Sobolewski says.
The series of large-scale IPOs in the last few years were all by state-controlled companies. However, only one company, Hidroelectrica, is expected to list this year, provided its ongoing insolvency procedures can be concluded in time. The future pipeline is unclear, as the government has not decided which companies will be listed next, despite prodding from Romania’s property restitution fund Fondul Proprietatea, a minority shareholder in many state-controlled companies.
Sobolewski believes there is potential for more private sector companies to debut on the BVB, especially those in the hi-tech sector, which has flourished in Romania thanks to high education levels, relatively low wage costs and diverse language skills. “The IT sector is one of the hallmarks of the Romanian economy at present,” he says. “Certainly, we are aiming at attracting such companies to the capital market. This is an increasingly good opportunity for both early stage and more advanced innovative businesses.”
One of Sobolewski’s initiatives since taking the helm of the BVB in 2013 has been to launch the Alternative exchange in Romania (AeRO), a market for early stage companies, in particular those in the tech sector. The market plays a similar role to the London Stock Exchange’s AIM or the Warsaw NewConnect, also launched by Sobolewski.
The AeRO was launched in February 2015 and the BVB’s management continues to improve on it. There are now 277 companies listed on the AeRO, many of which have moved across from the BVB’s now defunct Rasdaq index rather than new entrants to the market. “We are frustrated with the results, number of companies wise, debuting on the AeRO,” Sobolewski admits, but adds that, “this sort of motivational frustration is very healthy for the prospects of this market.”
There is also speculation in Romania about a larger IPO from the sector, from Telekom (formerly Telekom Romania), in which the Romanian state still has a substantial minority stake alongside its majority shareholder Deutsche Telekom, which owns 54% via OTE. Two local firms, Swiss Capital and BT Securities, are currently working on a strategy for the company, after which the Romanian Ministry of Communications and Information is due to make a decision on how to dispose of its stake.
If the ministry decides to opt for an IPO of all or part of its stake, this would benefit the exchange. “In my view it is of national importance to place a big minority stake that belongs to the Romanian state... on the public market,” Sobolewski says.
Full STEAM ahead
Encouraging new listings is part of a wider reform programme carried out by the BVB, the Romanian government and the country’s financial markets regulator, the Financial Supervisory Authority (ASF). Sobolewski believes the exchange has made “enormous progress” over the last two and a half years “in the way it operates, delivers services to the clients, builds up its domestic and international visibility”. The BVB is the “leader of the change of the capital market culture in Romania,” Sobolewski says. “My experience, I believe, is important for that ambitious endeavour.”
The Eight Barriers programme launched by the BVB inspired the ASF to launch its own initiative, the STEAM programme also aimed at removing regulatory obstacles for investors and issuers, while the government has amended laws and regulations affecting the capital market. This is still very much a work in progress; as Sobolewski says, “I keep repeating that only around 50% of the whole package has been completed... this is an ongoing work.”
Despite this, Romania has already made its mark among international investors, helped by a strong economic performance recently. This year the economy is forecast to grow by 4.2%, according to the International Monetary Fund, which is among the fastest rates in Europe. “Romania has been for some time a star of the Southeast Europe [market] as regards entrepreneurship and the dynamics of the financial sector,” Sobolewski says. “My contacts with the world of institutional investors, those operating out of London, New York, Stockholm or regional centres such as Vienna, Warsaw or Budapest, are full of their positive appraisals of Romania.”
Even the uncertainty surrounding parliamentary elections due to take place this autumn has not deterred investors, since Romania is a “very stable country” which has “entered the path of significant reforms of social and economic life”, he says.
However, hopes of Romania securing emerging market status from index compiler MSCI (rather than the current frontier market status) have so far not been realised. The market capitalisation of comparable equity instruments remains several times higher on exchanges such as Budapest or Prague, which Sobolwski attributes to “the label of a frontier market that Bucharest is still assigned, whereas the other two... enjoy emerging market status”.
He argues that the BVB has comparative strengths, including “a wider array of listed assets and a much lower concentration of turnover”. “Looking at qualitative criteria, in my view Romania is already at least a ‘secondary emerging market’,” he says. “However, formal classifications boost trading on the emerging markets of the region, and keep it at almost ground level in Romania.”
The BVB has come a long way, but emerging market status could take the exchange to the next level.