The subscription period for 17.34% of Hidroelectrica (H2O), which produces some 30% of Romania’s electricity and is valued at around EUR 10 billion, ends on July 4 amid huge interest expressed by a large variety of investors. The H2O shares will start trading on July 12.

But Hidroelectrica’s IPO itself will not increase the liquidity on Romania’s equity market as a large part of the company’s shares will end up in the pension funds’ portfolios, not to be traded soon. Individual, institutional and other investors – some of them unexpected investors such as manufacturing companies – many of them at their first experience at BVB, may not be interested in other placements.

New IPOs could enhance BVB’s profile, but keeping investors interested is not yet guaranteed.

Small investors will get roughly one-fifth of the number of shares subscribed in the IPO organised by Fondul Proprietatea for 2.6% of Hidroelectrica (BVB: H2O), while the institutional investors have also oversubscribed their 14.7% tranche. This means four-fifths of the money mobilised by small investors for the IPO will become available for alternative investments on July 5.

Keeping both small and large new investors active at BVB is critical for the durable development of the Bucharest Exchange - now not seen as a credible investment option by potential local investors and seen as a small market by large, institutional investors.

While the large investors have used financial instruments (letters of guarantee) to subscribe for more H2O shares than they actually intend to buy, most small investors have transferred cash into their trading accounts. It would thus be fair for the IPO managers to increase the portion dedicated to small investors, either from the overall 17.34% stake or by adding the remaining shares held by Fondul Proprietatea (up to 19.9%) if the prospectus allows the latter.

It is more likely that extra shares sold to small investors may retain more of them as active investors. Romanians have a very low propensity to invest in shares of mutual funds, possibly given a large number of financial scams in the past but also given the insufficient development (in terms of transparency and predictability) of the local equity market.

Many individual and institutional investors are at their first experience at Bucharest Exchange. Keeping all of them interested and particularly keeping their money from being transferred back from their investment accounts is not guaranteed.

Fondul Proprietatea mentioned other IPOs at some large state companies where it holds minority stakes. State’s involvement is, however, essential as it still holds majority stakes in large companies.

iulian@romania-insider.com

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