The latest edition of Energy Breakfast Club focused on financing sources for energy projects and gathered at the Palace Cesianu-Racoviţă over 60 experts interested in the current financial context and future business development opportunities in the field. Radu Crăciun, CEO BCR Pensii and Ovidiu Dumitrescu (CFA) Deputy General Director Tradeville launched the ideas around which the dialogue on proposals for future initiatives was built.
The dialogue started with a summary of the work and priorities of the Ministry of Energy presented by Gabriel Avăcăriţei, chief editor energynomics.ro. He referred to the positive developments recorded in recent months in connection with European projects of common interest, mainly project BRUA, which means a contribution of almost 180 million euros from the European Union, out of an estimated 560 million euros to be invested between 2017-2020. Unlocking financing through the National Investment Plan resulted in the signing of contracts with CE Oltenia, investment from Işalniţa and Rovinari, and OMV Petrom. The first installment is to reach the companies by the end of this year, while the others are staged annually up to 2020. Gabriel Avăcăriţei has reminded the ministry of Energy intention to put up for sale stakes at CE Oltenia and Hidroelectrica, through initial public offering, and Rompetrol Rafinare, by auction.
We are near the end of a period of economic growth
Overheating Romania has a spectacular economic growth, the largest in Europe, with an advance of GDP estimated at 5%, in 2016, according to the IMF. Economic growth is driven mainly by consumption, not investment, CEO of BCR Pensii warned. “The IMF expects inflation to rise in the coming years and this has relevance for investors perspective, because once with a higher inflation, we will see also rising interests for the financing in lei,” said Radu Crăciun.
“Today, money is plentiful. Banks are sitting on liquidity and do not know what to do with money – as some examplee, there are low interest rates on the interbank market and low yields on government bonds. And it’s not just the banks, it is also the energy companies that have significant cash available, that is not put to work,” said Radu Crăciun.
But the first thing you need before investing is a national energy strategy, in order to have an idea on what the Romanian state aims for in the years to come. “In a capital intensive industry, without good predictability, risk appetite is low. The existence of an energy strategy is a prerequisite for unlocking investment projects”, said Radu Crăciun.
Pension funds Speaking about sources of financing, CEO of BCR Pensii mentioned that in about two years, the private pension funds in Romania will have about 10 billion euros worth assets. “We are allowed to have an up to 5% exposure per issuer. If we find an issuer that is so interesting that all pension funds to take an exposure of 5% of the 10 billion, that would mean about 500 million euro. Exposure on such issuer is possible in various forms, either by issuing shares or, easier and perhaps more tempting, by issuing bonds.” Radu Crăciun expressed regret that the bond market in Romania is extremely poor. “I encourage the firms you represent here to consider issuing bonds on the stock exchange, because, I tell you frankly, at the moment there are are many options we have for investing on the stock exchange in Romania,” Radu Crăciun addressed the assistance.
Discrepancies Back to Romanian macroeconomic indicators, Radu Crăciun noted that the figures look good on average, but they hide major discrepancies between regions. “Economic divergences within Romania are rising and we are witnessing the decoupling of Moldova, on the one hand, and Transylvania, Bucharest, on the other hand”. The West and Center of the country are overheating, with almost zero unemployment and a clear shortage of skilled manpower, while in Moldova, unemployment remains close to 12-13%, and there is still a substantial economic emigration. “There are regions where we have the capital, other areas where there is the manpower, but poor infrastructure stops labor and capital to meet,” said Radu Crăciun.
In the end of his address, Radu Crăciun mentioned the international developments, which, in his opinion, are the main risk for the Romanian economy. “There is this rearrangement of tectonic plates from a geopolitical perspective, and Romania is highly vulnerable. It is important that on a personal level, at the country level, as well as at the business level, we have emergency plans, plans for crisis situations” Radu Craciun concluded.
Advantages for IPO’s, stages and costs
In his intervention, Ovidiu Dumitrescu (CFA) Deputy General Director Tradeville introduced the assistance in financing by IPO – initial public offering. Ovidiu Dumitrescu mentioned the necessity of listing companies locally, as the foundation of a further global strategy. “A successful listing from the position of foreign company on major markets (London, New York, Frankfurt or Tokyo) involves considerably more effort than listing at local level,” argued Ovidiu Dumitrescu, and skipping this step increases the risk of failure. A few years experience at local level, helps in refining governance practices and communication, said Dumitrescu.
Further on, the representative of Tradeville estimated the listing initial cost at 2.5% to 9% of the IPO, and subsequent costs of maintaining on the stock exchange at 0.3-2.5% per year. “Costs, increased transparency and reduced control are the main arguments against listing”, said Ovidiu Dumitrescu. Meanwhile, the benefits are far more numerous:
- access to capital (even when other sources are not available)
- increased visibility (web, advertising) attract customers
- 35% of the shares may provide control in case of a fragmented shareholding
- compliance with governance standards increase the company value
- intergenerational transferring is easier (in shares or cash)
- enhanced visibility enables better conditions from credit providers / banks
- gives a market value to managers’ skills and ingenuity
- makes it easier to attract talented employees
Over 50 representatives from Adrem Invest, Alpha Bank România, Ambasada Bulgariei, Ambasada Ungariei, Ascentor, BCR, BCR Pensii, BVB, Cabur, CONPET S.A., Elsaco Esco, ELVA Serv, Energobit ESCO, Eneria, Escorom, Fabiz ASE, Facilities Management Services SRL, Hotel Hilton, ICEMENERG, Investisia Group, Kerui Group, Mazars, OTP Asset Management, Power Electric SRL, Premier Palace SPA Hotel, Renomia, RINA Simtex SRL, Romelectro, Roy Croft Ross, SGS România, TEB Energy Business, Tradeville, Transelectrica, Ţuca Zbârcea, Unicredit, Valmere, Voith Hydro, wpd România SRL, WSB Energie Verde SRL attended the presentations and participated in discussions.
The event was organized by energynomics.ro and supported by our partners: BCR Pensii, Premier Palace SPA Hotel, Ridgid, SGS România, Tradeville.
This year, energynomics.ro aims to organize at least 4 more Energy Breakfast Club meetings. The schedule and the proposed themes are here.