Anghel urges investors to look to capital markets during lean times

On a market where FDI, remittances and the absorption of EU funds seem to have hit the buffers, Romania needs to find alternatives to international loans to finance the economy

June 2012 - From the Print Edition

Lucian Anghel, chief economist and head of strategy and macro & market research at BCR, who is also chairman of the Bucharest Stock Exchange (BSE) board, told The Diplomat – Bucharest why the stock exchange is one of the solutions and what are the key elements for successful listings.
In a period when the European Union is like a game of dominoes – waiting for the last piece to drop – Romania is walking over hot coals to access alternative financing.
Aside from the multi-billion euro loan from international financial institutions, the country is still struggling to identify and put into action some alternatives.
For many years there has been talk of privatizing some of the biggest energy companies on the market.
Many politicians came into office and as many strategies were proposed but none stuck. Starting last year, some concrete steps were made and the Romanian authorities have even set a calendar for the initial and secondary public offerings on the Bucharest Stock Exchange (BSE) for the main state-owned energy companies on the market. The plan is to privatize the companies by selling minority stakes.
Lucian Anghel, chief economist and head of strategy and macro & market research at BCR, also chairman of the BSE board, tells The Diplomat – Bucharest that Romania urgently needs to find alternatives to finance the economy.

Why the BSE?

“Generally, economic growth needs solid investments and in this new phase through which Romania will be passing – for the next 10 years – we need to find those financing sources which will allow us to grow,” urged Anghel. According to him, the importance of the stock exchange must be put into context in order to understand the need to make the BSE a financing source to support the local economy.
“Let’s not forget that loans aren’t what they used to be during 2007 or 2008, the boom phase. Also, it should be taken into account that the European banking authority has imposed several restrictions which require a more consistent solvability rate and stricter selection criteria from European banks when approving loans. This is of great importance as more than 80 percent of the bank’s capital is controlled by foreign banks, mostly European,” said Anghel.
In addition, added the BSE chairman, in the coming period Romania will start reimbursing the loans it took from the International Monetary Fund, World Bank and European Commission, while foreign direct investments have fallen to EUR 2 billion, down from EUR 9.5 billion in 2008. “The remittances of Romanians working abroad have also fallen from EUR 7.8 billion in 2008 to EUR 3.8 billion this year,” Anghel estimates. “And European funds – the cheapest financing solution – aren’t easy to get. The top performer in terms of EU funds is a Baltic country with an absorption rate of some 40 percent. Romania has grown from EUR 1.1 billion net in 2010 to EUR 1.3 billion net last year, while its payments to the EU reached EUR 1.3 billion net last year. It is good that we can talk about an increase, but we are still at a low absorption level,” said Anghel. This is why he considers the stock exchange a solution as Romania deals with its constrained economy.

Confidence is key

In the chairman’s opinion the main focus of the BSE must be to restore investors’ confidence.
“The new board was elected in January and we have set a very ambitious goal: to become a regional hub on the long run and a financing engine. For this one needs confidence from investors, which could come from successful listing stories. We have had the Transelectrica SPO – which in my opinion was a success and raised some EUR 50 million – but we need more examples like this to give entrepreneurs the confidence that they can come to list a part of their business successfully on the BSE. We are running late as, let’s remember, Poland started 20 years ago, and with its first IPO in 1991 it raised EUR 60 million,” said Anghel.
One good example of how to use the stock exchange for further development, suggests the economist, is CEZ. At the time of listing the Czech state held 100 percent of the company, while currently its stake is 70 percent, but of a company 10 times more valuable.
“This case invites a question: what is better – to hold 100 percent of a small company or 70 percent of a company 10 times more valuable, which can generate dividends and has a high performing management?
From this point of view, the state could only benefit by selling these minority stakes on the stock exchange, as it would support the further development of the company,” argued Anghel.
“Let’s recall that a while ago Hidroelectrica was selling a small hydro power plant just to support its day-to-day activity. What do we need to follow the example of Poland or the Czech Republic?”
As for the listings calendar, there is no news, says Anghel, as Trangaz was next on the listings list, but action has been likely postponed.
For a success story on the BSE there are at least two mandatory ingredients. One, Anghel says, is for the listed company to have a professional management which has set some realistic targets to increase the company’s value. The other is investments.
The state has shown over time that it has no capacity to invest and to push a company to its full potential, even to become a world player.
The BSE chairman predicts that the action plan established at the beginning of the year will not change, despite the recent change of government and the upcoming elections.
“No matter the government we will realize that we need alternative ways to finance the economy and this is why I believe the public offerings will continue, as they are included in the agreement signed with the international financial institutions,” concluded Anghel. ■

Who is Lucian Anghel?

He received a PhD from the Academy of Economic Studies in Bucharest in 2002. Having spent over 15 years at Banca Comerciala Romana, Anghel is currently chief economist, head of strategy and the research division, coordinating the strategic programs of BCR Group. For almost two years before this appointment, he held the position of deputy executive manager of the bank’s treasury division. He was a member of the supervisory board of Erste Asset Management and BCR Asset Management for more than five years. In January this year, Anghel was elected chairman of the BSE board.