The Bucharest court of appeal has ruled that Romanian hydropower company Hidroelectrica has officially existed insolvency, nearly five years after the start of the procedures, the court-appointed manager Euro Insol announced on April 3.

The closure of the insolvency proceedings opens the way for Hidroelectrica’s initial public offering (IPO), which is set to be the largest listing in the history of the local capital market. The listing would bring the state much needed funds to decrease the budget deficit, which is expected to exceed 3% of GDP this year, the European Commission and the International Monetary Fund (IMF) have warned. 

According to Remus Borza, the coordinator of the restructuring process, Hidroelectrica’s listing could bring the state nearly €1bn and will allow the government to keep the budget deficit below 3% of GDP this year.

Hidroelectrica is the main hydropower generation company in Romania with an installed capacity of 6.3GWh and a 25%-30% share of the country’s total energy production. The company entered insolvency in mid-2012 amid cash-flow problems and had to re-enter insolvency in 2014.

The company’s combined loss when entering insolvency amounted to €170mn from 2011 and 2012 and its debt exceeded €1.1bn, Euro Insol said in a statement. When the insolvency procedures were opened, Hidroelectrica had 11 electricity supply contracts which were causing it a high level of financial damage, amounting to €1.1bn between 2006 and 2012.

During the insolvency procedures, it underwent restructuring and terminated contracts with private traders which used to buy energy at low prices from Hidroelectrica and resell it at much higher prices. Hidroelectrica won all the lawsuits with the energy traders that challenged the termination of their contracts.

High personnel costs were another reason for entering insolvency. According to Eoro Insol, those costs amounted to €100mn in 2011, despite the fact that production significantly dropped that year because of unfavourable weather conditions. Spending on personnel was oversized, considering that the employees’ revenues consisted 41% of their monthly wage and 59% of bonuses, the administrator concluded.

One year after entering insolvency, Hidroelectrica reported a profit of €202mn in 2013 and in 2014 this increased to €300mn. 

“Between 2013 and 2016, Hidroelectrica reported a combined profit of €1bn and an annual Ebitda of €500mn. During insolvency, the company’s market value doubled from €2bn in 2012 to €4bn in 2016,” Borza said.