The hundreds of millions of euros that will enter Romania on the occasion of the initial public offering from Hidroelectrica SA would increase the pressure on the local currency market in the coming weeks, where the central bank strictly controlled any significant movement of the exchange rate, say the analysts interviewed by Bloomberg.
According to them, the leu will most likely appreciate when foreign investors will exchange their funds to buy shares in Hidroelectrica SA, whose initial public offering estimated at 8.7 billion lei (1.9 billion dollars) would end on July 4, according to Agerpres.
This expected change in the exchange rate of the leu would test the range of variation considered by the central bank when it comes to the evolution of the national currency. Economists expect the BNR to intervene and curb the appreciation of the leu to keep the exchange rate stable below, or close to, the level of five lei to one euro this year.
“It is reasonable to assume that from the inflows of over one billion euros expected from institutional investors, a considerable part will be new money on the Romanian market,” says the economist of ING Bank Romania, Valentin Tătaru.
“Given the limited depth of the local currency market, a transitory appreciation of the leu could be possible and could test the central bank’s tolerance limit regarding the movement of the euro/leu exchange rate,” adds Tataru. He believes that “the 4.92 area is a good support threshold” for the leu and predicts that the Romanian currency will depreciate slightly to 5.02 lei for one euro by the end of the year.
Thanks to the regime of controlled floatation practiced by the BNR, the Romanian leu was one of the most stable currencies in Eastern Europe this year. By comparison, the Hungarian forint depreciated to a record low last year amid a dispute between Budapest and Brussels over European funding, after which it recovered much of its losses in volatile trading.
“We had the most stable exchange rate in the region, except for some episodes of ups and downs, and I think we will see such an episode in the summer, because the Hidroelectrica IPO will help with inflows. But this is just an assumption and, excluding these factors, I think we will see a stable currency and the leu will remain below the threshold of five lei for one euro this year,” recently said the deputy director of BRD-Societe Generale SA, Claudiu Cercel.
Fondul Proprietatea SA, managed by Franklin Templeton, intends to sell 17.3% of its 20% stake in Hidroelectrica, the largest renewable energy producer in Romania. Most of this participation is offered to institutional investors and only 15% is allocated to retail investors. According to Bloomberg News, demand exceeds supply throughout the price range.