Property Fund takes on critics of second listing

Greg Konieczny, fund manager of the Property Fund, tells The Diplomat - Bucharest the fund's latest plans for a secondary listing on the Warsaw stock exchange and describes the main challenges on the local market. By Dana Verdes

September 2012 - From the Print Edition

For the manager of one of the most important funds on the local market, the Property Fund, things are not going as smoothly as he might have hoped. The job comes with lots of responsibilities and obstacles and is not the cushy gig that many would guess.
"I have always been involved in investments in this part of the world but it is very different actually doing business locally and being responsible for such a mandate. It's very challenging, it requires a lot of time and sometimes it is very frustrating. Here, very often we agree on something and it does not happen. I have to adjust as the Romanian climate is very different from my country," Greg Konieczny, fund manager of the Property Fund, tells The Diplomat - Bucharest.

The secondary listing

The fund's short-term plans are very clear. They include its listing on the Warsaw Stock Exchange. "We have emphasized many times that the success of the fund depends on the development of the domestic market and with this secondary listing we have been getting a lot of comments from local brokers and other people involved in the market that by doing this, the local market is going to suffer. Based on our experience, and the experience of the investment banks, the local market should benefit from this, big time, and those who refuse to accept it must at least acknowledge our arguments behind it. In terms of secondary listings, it is always the local market that wins, as eventually all the liquidity really concentrates on this market," said Konieczny.
He added, "For us, the listing in Warsaw is not about creating better liquidity there, but just to add to the demand from investors. There are, of course, benefits for the Romanian market. The fund listed on another market would be very visible. It would be one of the largest companies and, as a result, there will be a lot of news and comments about the FP in the Polish and international press. We're trying to promote the Romanian market, our fund and obviously our portfolio."
According to the manager, the fund's main target is to increase its value. "In this regard we are trying to increase the profitability of the companies in which we are involved. The current discount is 58 percent and we are not happy about it. We have stopped making any new investments because of the discount which is very hard to beat. We are analyzing ways of increasing demand for shares through the buy-back program, the secondary listing and encouraging long-term investments through dividend payment," said Konieczny.
On the Warsaw listing, the manager says there is a persistent impediment: there is no link between the two depositories, and without this link it is impossible to really trade the shares. He has also detected a resistance, or reluctance, on the part of the Romania Depository and the CNVM.
"Up to now, we have been able to attract more than EUR 600 million of fresh investments to the Romanian market, a situation that hasn't happened in years. We plan to continue to do so but we need some support from the local authorities. We can't say everything is great and then when investors come and hear about the issue with the link, they say: ‘If they don't want you, why should we invest in the fund?'," said Konieczny.
He added, "We do not understand this reluctance as this could be a good way to increase Romania's stock exchange exposure and could bring new investors here. The CNVM and the Depository are trying to amend the regulatory framework but we do not have a deadline. That's the issue. We started to think about the secondary listing of the fund in order to allow more investors to buy, to increase the price of the shares."

The listings saga

The fund manager believes that any other listing of energy companies will follow if those companies are run by professional managers; otherwise it is not going to happen.
"The best example is Petrom. Many people do not like this company but before it was acquired by OMV in 2004 its profit was - regardless of the old gas price - EUR 50 million and the year after OMV took it over it jumped to EUR 500 million. This shows how much useless weight there is," said Konieczny. In his opinion, the local energy companies can finance their own projects internally, by the cash flow they generate, if it is not directed towards other interests.
"So far, so good, but we need action. Things seem to be going in the right direction and in some cases there needs to be some kind of decision taken. I have had discussions but the final decision will depend on the price presented by the investment bank and it might be postponed until the market improves. Work is being done to improve these listings, there are important companies involved and they can wait until the market conditions improve. What is important is that the offer is ready to be launched as soon as a decision is taken, depending on the market conditions," said Konieczny.

The Hidroelectrica thorn

Hidroelectrica has been raising many issues as the company is characterized by a lack of transparency and many dubious contracts.
"We are not happy about it because we think it is the ‘nuclear' option to address the company's liquidity problem. We are very much affected. For us, it is important to make sure that the insolvency process runs smoothly and we are ready to cooperate with the administrators. We also want this process to end as quickly as possible and, hopefully, as a result of this process, Hidroelectrica to emerge as a much stronger company," said Konieczny.
He added, "We are not going to support any asset sale by the temporary administrators. We think that, if the company decides to sell assets, this decision should be taken by, hopefully, at that time, professional managers."

Who is Greg Konieczny?

Greg Konieczny, executive vice-president and portfolio manager, joined the Templeton organization in 1995. He has research responsibilities for companies in Central and Eastern Europe (excluding Russia). Prior to joining Templeton, Konieczny was director of capital market transactions at Bank Gdanski, one of the largest financial institutions in Poland at the time. He earned a master's degree in economics and foreign trade from the University of Gdansk (Poland). In 1994, he obtained an investment advisor license from the Polish Securities and Exchange Commission.