The IPO is a unique opportunity for Hidroelectrica to accelerate its development, including by increasing the company’s access to additional sources of long-term financing and by implementing best practices in corporate governance, transparency and sustainability, says Daniel Naftali, Deputy Portfolio Manager, Fondul Proprietatea. In the immediate future, Fondul Proprietatea and Hidroelectrica will select the syndicate of banks that will broker the public offering, Naftali said in an exclusive interview with Energynomics.
At the same time, a dual listing has been proposed, he added.
How does the war in Ukraine affect the investments of Romanian companies and what should Romanian companies do to accelerate investments and ensure our energy independence from Russian supplies?
The shock of the war in Ukraine will certainly have long-term economic effects. At the European level, the war in Ukraine has led to a stronger commitment to accelerate the transition to green energy by supporting investments from renewable energy sources and supporting industry to replace the use of fossil fuels.
In terms of energy independence, strictly in terms of domestic natural gas consumption and security of gas supply, Romania is in a favourable situation compared to other European countries, benefiting from the fact that a significant proportion of domestic demand is provided from domestic production. Even so, the energy markets being integrated, the increase in energy prices is felt directly in our country as well.
In order to accelerate investments by Romanian companies, it is important that they consider the careful selection of projects according to the degree of maturity of their preparation, the level of alignment with the European objectives and requirements and, of course, according to their long-term financial feasibility.
It is obvious that a fair and stable fiscal regulatory environment is very important in order to encourage Romanian energy companies to invest, a negative example being the over-taxation of additional revenues made by electricity producers, a measure that was recently extended by 12 months until March 31, 2023.
At the same time, it is important that the measures to protect final consumers adopted by the Government are correctly calibrated and clearly limited in time, so that the competitive environment and investment decisions are not adversely affected in the long term.
What are the main advantages of listing a company the size of Hidroelectrica?
By listing on the capital market, Hidroelectrica will become one of the most visible electricity producers in Europe, given the value of the company and the size of its 100% renewable electricity production portfolio, almost exclusively hydro. For Hidroelectrica, the listing is a unique opportunity to accelerate development, including by increasing the company’s access to additional long-term financing sources.
At the same time, Hidroelectrica will implement best practices in corporate governance, transparency and sustainability, a process that will continue and will be continuously improved after the listing, considering Hidroelectrica’s new listed company status.
For the Romanian capital market, the listing of Hidroelectrica will mean a decisive step towards the promotion to the emerging market status of the Romanian capital market by MSCI, an important objective for the Romanian economy, given the significant increase in the attractiveness of the local capital market.
Last but not least, the listing of Hidroelectrica will provide a benchmark for the market value of renewable electricity generation assets, which is extremely important in the context of the need to accelerate investments in additional electricity generation capacities.
What are the main obstacles to listing Hidroelectrica?
Any listing involves a complex process of preparing the company for the new public company status, listed on the stock market. Hidroelectrica is in an extremely favorable situation, benefiting from the financial, managerial and organisational resources needed to successfully complete such a process. At the same time, the listing of Hidroelectrica on the stock exchange will take place as a result of the successful completion of the public offer for sale (IPO) of at least 15 % of the shares held by Fondul Proprietatea within Hidroelectrica, a very large transaction and must be properly prepared and structured, so that as many investors as possible are interested in investing in the company and can participate in the IPO when it is launched. Obviously, any IPO is subject to the risk posed by the evolution of market conditions, but what we, together with the company, the intermediation syndicate and other consultants need to ensure, in the preparation of the IPO and the listing, is thatHidroelectrica and Romania receive maximum attention from investors.
How will the listing of Hidroelectrica take place, on which stock market rings and when do you estimate that it could take place?
The General Meeting of Shareholders of March 31, 2022, approved the listing of the company on the Bucharest Stock Exchange on the basis of a public sale offer made by Fondul Proprietatea shareholder based on its shares in Hidroelectrica. The first window of opportunity for Hidroelectrica listing is the fourth quarter of this, which is also an ambitious target for listing. Given that the listing of at least 15% of Hidroelectrica’s shares represents a very large international transaction, we believe that there are strong arguments in favour of a dual international listing, in addition to listing on the Bucharest Stock Exchange, in order to make the IPO accessible to all categories of investors.
We point out that in the next period, Fondul Proprietatea together with Hidroelectrica will select the syndicate of banks that will intermediate the public offer and make the listing on the stock exchange. This is an extremely important step because once the brokerage syndicate is selected, we will enter the effective preparation period specific to any IPO in which banks, together with the other consultants and Hidroelectrica management, will finalise the proposal for investors (equity story) and in parallel will begin to collect feedback from institutional investors on Hidroelectrica and IPO for optimal structuring and preparation of the transaction.
What are the risks posed by the decision of the Bucharest Tribunal to annul the recruitment and selection procedure for the members of the Hidroelectrica Directorate?
Based on the information currently available, we do not believe that the decision of the Bucharest Tribunal will affect the objective of the listing. At the same time, as it is a dispute that has yet to be settled definitively, Hidroelectrica informing the public of its intention to use the appeal in court, it is difficult to comment on this issue.
Do you think that corporate governance rules are sufficiently respected in Romanian state-owned companies? What should companies do to keep them as strict as possible?
Romania has one of the advanced laws on corporate governance in state-owned companies, implemented since 2011 by Emergency Ordinance 109. From the experience of Fondul Proprietatea we can say that over time the level of implementation of the corporate governance experienced significant fluctuations in the selection and appointment of board members, respectively of the general manager. One of the biggest problems we face at the level of the companies in the portfolio is the lack of continuity in the implementation of governance standards over time, leading to long periods in which companies operate with boards and executive directors with interim mandates, making it very difficult to formulate and implement medium and long-term strategies and measures.
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This interview first appeared in the printed edition of Energynomics Magazine, issued in June 2022.
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