FTSE Russell, one of the three global capital market index providers (alongside MSCI and S&P Dow Jones), officially promoted Romania to secondary emerging market status on Monday, September 21.

Starting this date, two Romanian companies, lender Banca Transilvania (TLV) and power producer Nuclearelectrica (SNN) were added to the FTSE All-Cap indices dedicated to emerging markets. This move should theoretically open the Romanian capital market to a new category of investors, namely emerging markets funds. At the same time, it should increase the visibility of the Bucharest Stock Exchange (BVB) and locally listed companies.

Finance minister Florin Citu believes this moment is comparable to Romania's joining the European Union. "Suddenly, the Romanian capital market is one click away from billions of euros looking to be invested. Romanian companies can finance themselves much easier,” Citu said at the BVB opening bell event on Monday.

Meanwhile, prime minister Ludovic Orban assured that his Government would continue to support the development of the local capital market, including by offering fiscal stimuli to companies that will get listed. He also promised that, after the general elections, his party (should it win the elections) will try to change the law that blocks the listing of state-owned companies for a period of two years. The Parliament, controlled by the opposition Social Democratic Party (PSD), passed this bill earlier this year and the ruling Liberal Party (PNL) unsuccessfully challenged it at the Constitutional Court.

Emerging Romania – a country project

The promotion to the emerging markets league is a great performance for the Bucharest Stock Exchange (BVB), which celebrates 25 years since its reopening this November, and for the whole Romanian economy, the BVB representatives pointed out.

"The story of the Bucharest Stock Exchange is, for the most part, the story of modern Romania and is part of our national DNA because it demonstrates the ability of this nation to mobilize itself to achieve an extremely ambitious country goal. The stock exchange was re-established in 1995 after being closed for almost half a century, immediately after the installation of the Communist regime in Romania. We started everything from square one. Since then and up until now, after a quarter of a century of work and alignment with the highest standards, the Romanian stock market has reached the level of requirements imposed by our international peers. Never in the recent history of the country has there been such an extensive economic project that would require so much effort and determination over such a long period of time. And above all, today we recognize and celebrate that Emerging Romania is more than BVB’s project, it is the project of our country," stated Radu Hanga, Chairman of the Board, Bucharest Stock Exchange.

"Romania has a new highway that connects us with the whole world, not only with Europe. Following the promotion to Emerging Market status, this highway represented by the capital market will facilitate the circulation of cash flows to and from anywhere in the world. That is why the listing of companies on the stock exchange, whether they are largely state-owned or privately-owned, is the way to the economic and sustainable development of Romania,” he added.

New opportunities for Romanian listed companies

Romania’s promotion to emerging market status should, in theory, help local companies get easier access to financing and more visibility on the radar of foreign investors. This could also lead to better valuations for Romanian companies.

"Romania has the chance to seize the opportunities offered by the new Emerging Market status because there are several candidate companies that could meet the liquidity criterion at this moment. New issuers will be able to enter the FTSE Russell indices if they meet the liquidity criterion in the following evaluations,” said Adrian Tanase, CEO of the Bucharest Stock Exchange.

“The consolidation of this newly won status can be achieved only by increasing the number of Romanian companies included in the Emerging Markets indices, and this means that we will have more valuable and stronger Romanian companies, which will contribute to the development of the Romanian economy. That is why we need a close collaboration between the Bucharest Stock Exchange and the authorities, between the business environment and the political environment, so that together we can double, in the next 10 years, the degree of representativeness of the capital market in the economy, from the current level of 10% to 20% of GDP," he concluded.

Three Romanian companies in FTSE’s Emerging Markets indices

Two Romanian companies, Banca Transilvania (TLV), the most traded company on the local market, and Nuclearelectrica (SNN), which is state-controlled, have met the necessary criteria to be included in the All-Cap indices dedicated to Emerging Markets according to the classification of the global index provider FTSE Russell. The contribution of the two companies was decisive for the upgrade of the entire market, as the promotion considered the presence of at least two local companies in the All-Cap indices (which include Large, Medium, and Small Capitalization companies, excluding the Micro-Sector).

Banca Transilvania becomes the first privately-owned Romanian company listed on BVB that is included in the FTSE Russell indices dedicated to Emerging Markets.

"23 years ago, when we were listed on the Bucharest Stock Exchange, we were a small bank with a capitalization of 10 million dollars. Today we are delighted to contribute from a leading position both in the banking sector and in terms of liquidity on the stock exchange to Romania’s inclusion in the FTSE Russell index. We hope that our positive experience and success story will inspire and attract other companies to follow us," said Horia Ciorcila, Charmain of Banca Transilvania’s Board of Directors.

As a result of Romania’s upgrade to the Emerging Market status, other Romanian companies listed on the Bucharest Stock Exchange can benefit from the inclusion in the Emerging Market indices. According to the FTSE Russell classification, the first Romanian company that benefits from the market upgrade is construction materials producer TeraPlast (TRP), the first Romanian company included in the FTSE Global Micro-Cap index. The inclusion of the Romanian companies in these indices can contribute not only to enhanced visibility but also to attracting capital from fund managers.

Bucharest Stock Exchange, down on its first day as emerging market

Romania’s new emerging market status was not immediately reflected in the evolution of local stocks. The BET index, which follows the most traded companies on the Bucharest Stock Exchange registered a 1.7% decline on Monday, at 14:20. Banca Transilvania shares were down over 3% while Nuclearelectrica shares were among the few gainers, recording a 1.84% increase. Teraplast shares were down 2.56%.

andrei@romania-insider.com

(Photo source: Inquam Photos / Diana Oros)