Conferința BURSA - Dezvoltarea Romaniei 2018
BURSA 27.08.2018

ADELINA TOADER (translated by Cosmin Ghidovean)
 
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     The capital market was marked, last week, by a number of controversial statements tied to the listing of Digi Communications, starting from the statements made recently by Darius Vâlcov, state advisor on the team of the prime-minister, who wrote on his Facebook page that he has asked the Financial Oversight Authority (ASF) if it was true that the book value of the Digi shares was 1 leu and 8 bani, and pointed out that at the time of the IPO, the shares of Digi were listed at 40 lei and are currently priced at 28 lei (30% down) and keep going down.
     Vâlcov then asked the ASF if it was true that over 3 million Romanians own Digi shares, through the pension funds (2nd pillar) and that a large portion of the money earned from the sale of stock in the IPO by Digi went to the accounts of an offshore firm from Cyprus.
     Another question which the advisor addresses to the Financial Oversight Authority concerns the accuracy of the information that Digi owes 1.3 billion Euros in debt, way more than the value of its assets. "Were pension funds allowed to acquire shares in a company that was under criminal investigation?", Vâlcov further asks.
     The BURSA newspaper wrote, last year, at the time of the announcement for the listing of Digi Communications, about the doubts that arose around the entire procedure.
     Among other things, they concerned both uncertainties around the company's financial results, as well as some criminal aspects which concerned the management of the company.
     At the time we pointed out that first of all, the name of the seller - Digi Communications N.V. - only appeared in the title of the announcement, whereas in the remainder of it was simply called "DIGI".
     Still, throughout the announcement, the key aspects presented about "DIGI" seemed to refer to "RCS&RDS".
     The announcement did not include any direct reference to "RCS&RDS", but instead presented a statement by Serghei Bulgac, CEO of RCS & RDS SA, the biggest operating company within the group and future CEO of DIGI.
     The representatives of "RCS&RDS" told BURSA, at the time, that Digi Communications NV was the parent company of the group and clarified that "Cable Communications Systems", the parent company of "RCS&RDS", would become Digi Communications NV.
     According to the Office of the Trade Registry, "Cable Communications Systems" owned 95.79% of "RCS&RDS" at the time.
     Also, the announcement for the listing of the company was saying, at the time that DIGI had constantly generated powerful cash flows and a solid adjusted EBITDA since 2014 and up to that moment (April 2017): "In 2016, DIGI generated revenues of 842.8 million Euros, and the adjusted EBITDA and the adjusted EBITDA margin have reached 263.3 million Euros and 31.2%, respectively, representing a compound annual growth rate of 8%, since 2014 and until 2016". The representatives of the company did not want, at the time, to explain what "adjusted EBITDA" meant, nor whether they had already submitted the request for approval of the prospectus to the Financial Oversight Authority in Holland. The fact that a company which was going to go public and which was expected to be willing to act transparently declined to answer some simple questions, based on its own press release, raised suspicions, especially since the uncertainties concerned a mere definition. Behind the pompous phrases, there was no clear economy information, based on which investors could make a decision to participate in the offer, like people in the market were saying back then.
     Furthermore, in the press release which announced that it wanted to get listed, the company did not recommend to investors to rely on the data it itself presented: "The contents of this press release was drafted by DIGI at its own responsibility. The information included in this press release only have a general purpose and do not claim to be integral or complete. No person, for any purpose, may rely on the information included in this communication, or on its accuracy, impartiality or exhaustiveness".
     The DIGI announcement also stated that investors should not buy any mentioned security, with the exception of the case where it is done based on information contained in the prospectus, which was going to be published after its approval.
     The listing of DIGI Communications, the majority shareholder of RCS&RD also received a harsh blow from the National Anti-Corruption Department (DNA), which not only started a criminal investigation against RCS&RDS and two administrators, during the IPO, but also announced that Serghei Bulgac, CEO of DIGI and RCS&RDS, was a suspect, on the day of the listing on the Stock Exchange.
     The company only announced that one day after the company began its listing on the stock market.
     Many voices in the market were saying at the time, that it was impossible that those announcements by the DNA were simple coincidences, as the acts in the investigation were a few years old.
     At any rate, the management of the BSE showed, at the time, a degree of casualness concerning the matter that was hard to understand.
     *  Reactions following the statements of Darius Vâlcov
     Following the statements made last week by Darius Vâlcov concerning the alleged irregularities in the Digi IPO, the ASF announced that it began an investigation of all the aspects resulting from the information which was published concerning the investments of the Romanian private pension funds (2nd pillar) in DIGI Communications stock.
     The ASF stated the following: "In the case of the listing on the Bucharest Stock Exchange of Digi Communications N.V., the prospectus was approved by the Dutch authority, as the Romanian Financial Oversight Authority was only notified about this approach. The prospectus, which was made public in favor of the listing, makes available to investors all the relevant information about the situation of the company and even mentions the associated risks, such as risks concerning the activity and industry in which the company operates, risks concerning legal aspects, regulation and litigation, risks concerning the investments in countries where the company operates, risks pertaining to the financial position and risks concerning the IPO and shares".
     The Financial Oversight Authority has also stated that, following the conducted studies, the Authority finds violations of the legislation which governs the activity of the overseen entities, will take the necessary measures, according to the law, or will notify the competent institutions, as the case may be.
     In turn, the Association of Brokers has reacted following these statements, asking for more caution when it comes to the public statements concerning listed companies and signals the potential influence which these statements could have on the stock price of those companies, which could lead to negative effects when it comes to investor p[rotection and the good functioning of the market.
     The Association of Brokers reported the following, in a press release: "As we have found, with increasing concern, that lately, public statements concerning the companies listed on the stock exchange, made by representatives of the Government, the Association of Brokers on the capital market reports the possible influence which these statements could have on the price of those companies' stocks, which could lead to negative effects when it comes to investor protection and the good functioning of the market".
     The Association of Brokers reminds that, in line with the regulations of the stock market, the broadcasting of information through mass-media, including through the internet or any other means, which sends or can send false or misleading signals over the price of a financial instrument, including the spreading of rumors, in the context in which the person which has provided the information knew or should have known that the information was false or misleading, can be considered market manipulation.
     The Digi-RCS & RDS group announced in a press release that it rejects any calumnious statements repeatedly expressed "by this Romanian politician and we find that we have become the target of a true defamation campaign".
     Digi said: "The politician throws around a series of statements which mislead and betray either a total ignorance of the stock market sector, or a strategy to manipulate information to create confusion and mistrust in one investment segment".
     Moreover, Digi finds it inappropriate to say the least, that a politician which associates with the Romanian government to attack one of the biggest local companies, which is among the top Romanian companies. "This kind of statements do nothing but reduce the level of investor confidence in Romania's ability to provide an auspicious climate for the development of durable businesses, that would sustain the economy of the country and of the region", the Digi Group further states.
     The company also clarifies that Digi-RCS & RDS have made public, in a transparent and complete manner, all the necessary information for any investor to decide on whether or not to buy shares in Digi in full awareness, and all the market press releases issued by the market before, during and after the listing process, are available on the website of the company.
     The press release also informs: "When the listing of Digi-RCS & RDS shares on a public market was decided, because we wanted to contribute to the development of the Romanian market, we have chosen the Bucharest Stock Exchange. So, in May 2017, we have completed a lengthy listing process, whereby everyone was given the chance to buy shares in Digi-RCS & RDS for investment purposes (both individuals and specialized funds), without any financial benefit for us".
     The representative of the company have emphasized that the company has invested since 2010 over 2 billion Euros to develop a performing network of fixed and mobile electronic communication network, and over the last ten years has paid over 1 billion Euros to the state budget and the social security and healthcare budget, making it one of the biggest taxpayers in Romania.
     The company has also announced that the debts which Digi-RCS & RDS has contracted over time have financed its accelerated growth, on an extremely dynamic and competitive market, where the need for investment is ongoing. The representatives of the company point out that the degree of indebtedness of the company is inferior to that seen on the European markets in the telecommunications sector. 

     Darius Vâlcov, finance minister between December 2014 - March 2015, was sentenced, in first instance, to eight years in jail, by the High Court of Cassation and Justice, in a case of corruption.
     
     ____________________
     
     Thursday night, Darius Vâlcov also posted on his Facebook page a secret protocol concluded between the Romanian General Prosecutors' Office and the Romanian Intelligence Service, on December 7th, 2016. The document signed by Augustin Lazăr and Eduard Helving stipulates the cooperation between the two institutions, "in order to carry our their respective duties", its object and rules, as well as the responsibilities of each of the signatory institutions.
     SRI spokesperson, Ovidiu Marincea, said that the protocol was denounced one month after its signing, and has not produced any effects. A non-secret protocol has also been published on the website of the Public Prosecutor, which the institution had signed with the SRI, concerning the cooperation between the two concerning the establishment of the concrete conditions for access to technical systems of the National Center for the Interception of Communications.
     
     ________________________
     
     On August 23rd, the shares of Digi Communications, the parent company of RCS & RDS, reached a low of 27.45 lei/share on the BSE, the lowest value since the listing of the company, in May 2017.
     Throughout the entire last week, the shares of the issuer lost 0.89%, after rising 1.1% on Friday over Thursday, to 27.5 lei.
     Over the last month the price of the company's shares fell 7.5% over the last month, and 20.26% over the last six months.
     The shares of Digi have fallen 31.5% since their listing at 40 lei/share, in the May 2017.

 
 

 
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