Europe’s largest initial public offering of 2023 gave investors and Romania something to cheer about, with the shares surging in their debut in what may be a turning point for the market in Bucharest.
Shares in Romanian utility Hidroelectrica SA advanced as much as 11% in their debut in Bucharest. The renewable power producer immediately became Romania’s biggest listed company, worth more than $10 billion, and the ticket for the local bourse to ditch its frontier status and graduate to an emerging market at MSCI.
The $1.8 billion offering, completed last week, was oversubscribed as the company’s high profitability and dividends lured investors to the owner of hydropower stations, including on the Danube river. The listing of a minority stake in Romania’s biggest producer of electricity also fulfills one of the criteria needed for the European Union member nation to gain access to more aid from the bloc.
“I see this as a turning point for Romania,” said Pablo Escondrillas, Managing Director and Head of EMEA Power Investment Banking at Citigroup Inc. “This IPO will hopefully allow to attract more investors.” Citi was a custodian and stabilization manager in Hidroelectrica’s listing.
Hidroelectrica shares closed at 110 lei, up 5.8% on Wednesday, compared with the IPO price of 104 lei.
Europe’s largest IPO since Porsche AG and the third biggest in the world this year is a test for the Bucharest Stock Exchange, which has one of the lowest liquidity pools of any markets in eastern Europe. The bourse’s average daily turnover amounted to the equivalent of $23 million this year, according to its data, while Hidroelectrica’s traded volume singlehandedly topped $171 million on Wednesday.
Hidroelectrica is trading under the H20 ticker and will have the fourth-largest weighting in Romania’s BET Index. It replaces aluminum smelter Alro SA in the benchmark gauge.
“The tale has just begun and we want to turn it into a success story for Hidroelectrica and the capital market,” Bucharest Stock Exchange Chief Executive Officer Adrian Tanase told a packed room celebrating the listing, with guests including Prime Minister Ion-Marcel Ciolacu, central bank Governor Mugur Isarescu as well as company executives.
‘Maturity Test’
Isarescu said the stock exchange passed its “maturity test” with the listing, including the IPO in which retail investors bought 20% of the offered shares. The benchmark BET index jumped as much as 3% on Wednesday, trading at the highest level since February 2022.
In order to get upgraded to emerging-market status at MSCI, the Bucharest bourse should allow local pension funds to become more active players on the market and increase the number of companies with high turnover and free-float, according to Attila Gyurcsik, the CEO of Accorde Fund Management in Budapest.
“It would be important to have other large public companies listed on the stock exchange,” said Gyurcsik, whose fund bought shares in the IPO. “Even if state ownership in companies already listed on the stock exchange were reduced,” it would help make the index “as diversified as possible,” he added.
Hidroelectrica attracted buyers also because as a renewable energy producer, it “fits well in different portfolios,” said Alexandru Ilisie, Investment Director at OTP Asset Management Romania, which also bought shares in the offering.
“In terms of the cons, we see the highest risk from the regulators capping energy prices lower than today, or from higher windfall taxes,” he said. “We hope that the company will diversify its investments into other green energy solutions.”
Franklin Managed
Fondul Proprietatea SA, an investment vehicle managed by Franklin Templeton, sold a 17.3% stake in the utility during the IPO, reducing its holdings from nearly 20%. The remainder of Fondul’s stake in Hidroelectrica might be used to help support the trading price if required, according to a filing.
Proceeds from the sale of Fondul’s stake will be distributed to its shareholders, which include pension funds, in the coming months.
The IPO has triggered an “avalanche” of interest in the Romanian stock market, with “thousands” of new accounts set up, giving investors new exposure to Bucharest-listed companies and the country’s economy, bourse Chairman Radu Hanga said.
Citigroup Global Markets Europe AG, Erste Group Bank AG, Jefferies GmbH and Morgan Stanley Europe SE were joint global coordinators in the deal. Banca Comerciala Romana S.A., Barclays Bank Ireland PLC, BofA Securities Europe SA, UBS Europe SE, UniCredit Bank AG and Wood & Company Financial Services, a.s. were joint bookrunners. Auerbach Grayson, BRD - Groupe Société Générale, S.S.I.F. BT Capital Partners S.A. and S.S.I.F. Swiss Capital S.A. acted as co-lead managers.
--With assistance from Ksenia Galouchko.
(Updates with more quotes and latest share price, from the first paragraph.)
Author: Irina Vilcu, Konrad Krasuski and Veronika Gulyas