FTSE Russell has retained Romania on its watch list as a frontier market, with the country to be reviewed for possible reclassification as a secondary emerging market in September 2018, FTSE Russell said in its annual country classification review.

Romania was added to the watch list in September 2016. An upgrade would make the Bucharest bourse more attractive to companies and investors, and both the exchange and the government have said they are pushing emerging market status. 

According to the latest review, the single outstanding criterion is “Liquidity – Sufficient broad market liquidity to support sizeable global investment”, which is currently rated as ‘Not Met’. However, FTSE Russell endorsed the upgrade of the “Stock Lending is permitted” criterion from ‘Not Met’ to ‘Restricted’, following the introduction of legislation permitting stock lending.

“FTSE Russell acknowledges the efforts of the Bucharest Stock Exchange to bring IPOs to the market and to improve liquidity levels on the exchange,” FTSE Russell said in a statement.

“We find the news positive, since it indicates, in our view, that the chance for a potential reclassification of Romania from Frontier to Emerging Markets universe by FTSE has increased,” WOOD&Company commented.

After a handful of listings of major state owner enterprises, mainly from the energy sector, in 2013 and 2014, the IPO market for private companies in Romania recently revived, with the listing of Medlife in December 2016 followed by the considerably larger IPO of Digi Communications in May.

However, planned IPOs of state-owned or partly state-owned companies — in particular hydropower company Hidroelectrica — have been repeatedly delayed, despite being under discussion in Bucharest for several years. 

Minister of Economy Toma Petcu said on September 23 that the Romanian government is interested in accelerating the initial public offering (IPO) of a stake in Hidroelectrica, according to Agerpres. The ministry envisages the sale of a 10% stake, instead of 15% previously announced, and it has drafted a note to be endorsed by the government in this regard, Petcu said. Later, the state will sell another 5% stake, he added.

However, managers of Romanian property restitution fund Fondul Proprietatea told a press conference on September 26 that steps taken at Hidroelectrica and other majority state-owned companies in the fund’s portfolio make IPOs in the near future unlikely. The fund is currently locked in disputes with the government over the management of both Hidroelectrica and fellow energy company Nuclearelectrica, over what it says is an attack on corporate governance at the two firms. 

“We would be happy to see Hidro listed, but the situation at the moment is that the government’s words and actions don't align,” said Johan Meyer, co-portfolio manager of FP. “Their objective is to have a stock market upgrade to emerging market status, but you don’t achieve this by not promoting any listings, and companies can’t be listed without the corporate governance code being applied.”