The subscription period for 17.34% of Hidroelectrica (H2O), which produces some 30% of Romania’s electricity and is valued at around €10bn, ends on July 5 amid huge interest expressed by a large variety of investors. The H2O shares will start trading on July 12.

But Hidroelectrica’s IPO by itself will not increase the liquidity on Romania’s equity market as a large part of the company’s shares will end up in pension funds’ portfolios, not to be traded soon. Individual, institutional and other investors – some of them unexpected investors such as manufacturing companies and many of them having their first experience of the Bucharest Stock Exchange (BVB) may not be interested in other placements. New IPOs could enhance BVB’s profile, but keeping investors interested is not yet guaranteed.

Small investors will get roughly one-fifth of the number of shares subscribed in the IPO organised by Fondul Proprietatea, which will give them a combined 2.6% of Hidroelectrica, while the institutional investors have also oversubscribed their 14.7% tranche of the company. 

This means four-fifths of the money mobilised by small investors for the IPO will become available for alternative investments on July 5. Keeping both small and large new investors active on the BVB is critical for the durable development of the Bucharest Stock Exchange — currently not seen as a credible investment option by potential local investors and seen as a small market by large, institutional investors.

While the large investors have used financial instruments (letters of guarantee) to subscribe for more Hidroelectrica shares than they actually intend to buy, most of the small investors have transferred cash into their trading accounts.

IPO managers could increase the portion dedicated to small investors, either from the overall 17.34% stake or by adding the remaining shares held by Fondul Proprietatea (up to 19.9%), if the prospectus allows the latter.

It is more likely that extra shares sold to small investors may retain more of them as active investors. Romanians have a very low propensity to invest in shares of mutual funds, possibly given a large number of financial scams in the past but also given the insufficient development (in terms of transparency and predictability) of the local equity market.

As many individual and institutional investors were encouraged to have their first experience of the BVB with the Hidroelectrica IPO, the next challenge is to keep all of them interested — and in particular to keep their money from being transferred back from their investment accounts. Fondul Proprietatea mentioned other IPOs at some large state companies where it holds minority stakes, among them Bucharest Airports and salt monopoly Salrom. The state’s involvement is, however, essential as it still holds majority stakes in large companies.