Adrian Mitroi, ASE professor: "We desperately need listings, but done professionally, not «Romanian»”

The Romanian economy needs the listing of state-owned companies on the stock exchange, because, in the current global and geostrategic conditions, large investors are no longer willing to take risks in a country with a high budget deficit, university professor Dr. Adrian Mitroi, from the Bucharest Academy of Economic Sciences, told the BURSA newspaper.

The finance and economics expert told us regarding the listing of state-owned companies: "The intention is honorable and very appropriate, but wrapped in an inappropriate public message, with the companies mixed together. I did not understand in the end whether they were on the criteria of the National Recovery and Resilience Plan or not; I understood that restructuring could have been changed to privatization or, in the end, to listing. Regarding the discussions on ABB (Accelerated Book Building - ed. - accelerated private placement or accelerated construction of the order book), because, in the extremely neurotic political conditions in Romania, it was obvious that it would raise many questions. ABB is not possible for the Romanian market, for companies of this rank, although it has been discreetly used a few times. In mature markets, this is an instrument intended primarily for companies that need capital, which is not our case; here the effect is of discount, and the discount is probably the biggest concern. I looked at a yield of 5%, which I think is announced, and then I assume that the yield for these companies will revolve around this figure. For Romania, it is probably a bit high. A dividend of 5% in perpetuity means that, for 1 lei of ownership (a share that generates 5% in perpetuity), the value is 20 lei. The comfort of receiving a substantial rent as a shareholder also leaves the potential for price appreciation intact. This is an exceptional magnet for any type of investor and is not worth discounting, especially since these companies do not need equity at this time. It is an idiosyncrasy of the model itself; these companies need to be stabilized, and the public listing through SPO (Secondary Public Offering) can be done under transparent conditions in a few months, with a little effort; it does not have to take two years”.

University professor Adrian Mitroi also said that the direct negotiation system is not good, because it requires financial and not strategic investors, and added: "The financial investor is interested in value and will put pressure on an acquisition at a low price in order to have a high dividend and to be able to sell the growth potential later. The targeted Romanian companies (Hidroelectrica, Nuclearelectrica, Romgaz) have capital, but the state takes most of their profit, leaving them without resources for investments. In my proposal, I agreed to the classic, but rapid listing, over six months, which would come with a constraint of a maximum 50% dividend distribution rate. If you have a 5% dividend, you have to leave the company the capacity to finance and self-finance. You don't have to distribute dividends of this magnitude just to be attractive, but to obtain a substantial sale price, not a discount."

He stated that political opinions have also emerged in the public space according to which the money obtained from the listing would be used to finance the deficit, which, according to Adrian Mitroi, would be an error.

"Although the intentions to reduce the deficit may be honorable, the side effects are staggering. The increase in public debt is alarming; we have a multiplier of four, meaning that for every percentage of deficit reduction, we add 4% to the public debt, which will reach 66-67% by the end of the year. At this level, Romania is in "suspended animation” and can no longer develop in any way. (...) We have accelerated the public debt from 20% to 65% without a single millimeter of sustainable economic growth or major infrastructure. (...) We finance ourselves with 7% interest, not 3%. That means we finance 1% economic growth at a cost of 7%, which is a clear lack of profitability. (...) It is a zero rule in corporate finance: long-term assets are not financed from short-term liabilities; all funds released from such investments must not be lost in the budget deficit. They must go towards solid investments, infrastructure or capital increase in other companies. The state should make a title of glory out of the fact that this money will be specifically allocated, for example, through project bonds. Rigor would have required that political decision-makers consult finance professors to avoid wrapping a «quality cheese» in a «dog's bladder». Although the market reacted negatively, listing remains a necessary solution for improving governance”, said Adrian Mitroi.

The expert in finance and economics added that, for a successful listing, companies must have specific management. Mr. Mitroi specified: "Management for restructuring is different from that for closure or listing. Our defect is Ordinance 109, which negatively buffered corporate governance and led to a decrease in value. For maximum value, an impeccable management image is needed. We lost funds from the PNRR just to maintain a handful of people in leadership positions in energy companies; it is beyond the "night of the mind" how toxic this approach can be. No appointments to corporations should be made by politicians anymore. Robotics should be used, chatbots that analyze not only CVs, but the business plan and skill set. It is blatant that in Romania the interests and benefits of some individuals are more important than the national interest. My proposal is that no appointment should be made humanly, but based on artificial intelligence appropriate to the position and exigencies of the company."

He also said that "we desperately need listings, but done professionally, not "Romanian"" and added: "Pension funds must be helped in their capitalization, because they no longer have enough interesting local assets and their money is parked only in government bonds. We must offer the population, at least indirectly through pensions, the chance to access this growth potential. For this, transparency and experts are needed, not political tricks".

The decision is a financial one, not a political one, and requires fresh management to ensure a fair price, showed Adrian Mitroi, who drew attention to the fact that the listing of the companies in question is the only solution in the current context, in which global capital is extremely reluctant, and the only reason why we are still financed with 7% interest for 10 years is the hope that we will lower inflation and grow economically.