Dezbaterea BURSA ELECTROMOBILITATEA - problematică şi soluţiiDezbaterea BURSA ELECTROMOBILITATEA - problematică şi soluţii

THE PROPRIETATEA FUND MAKES A BUYBACK OFFER AT THE FACE VALUEPlaying poker with the compensations

ADINA ARDELEANU (Translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section /

The compensation begins with Ionuţ Popescu and ends with Mark Mobius; a two-hand play.

The compensation begins with Ionuţ Popescu and ends with Mark Mobius; a two-hand play.

The Proprietatea Fund (FP) will pay 1 leu per share in the program to buy back 4.35% of its own shares, at a price which is 34.22% higher than the current price in the stock market, meaning that the offer amounts to 600 million lei (134.4 million Euros).

Yesterday, the Financial Oversight Authority (ASF) has approved the request of Franklin Templeton to speed up the buyback program, through a public buying offer.

The offer will take place between October 15th - November 4th, through BCR and brokerage firm Wood&Company Financial Services. After the public offer is completed, FP intends to cancel the bought back shares and to reduce the share capital by the accounting value of the cancelled shares.

The operation of buying back its own shares appears paradoxical.

On one hand, the reduction of the number of outstanding shares, as well as the fact that there is a constant buyer (the Fund itself) together, logically lead to the rise of the price of the stock market, on one hand; on the other, the proposal to the General Shareholder Meeting is to cut the face value of the stock.

Since the face value is 1 leu/share, and the stock market price is 0.77 lei, the combination of the two actions means that the price of the stock in the market and its face value are converging.

But if we remember the reason why the Fund was created in the first place and we consider its current use, we will find an interesting story.

The idea of the Proprietatea Fund started from the idea of the Ministry of Finance led by Ionuţ Popescu in 2005. The authorities have invented an absolutely "original" mechanism to allegedly pay damages to the citizens robbed by the communist regime.

People who, over 50 decades of communism, were forced to move into the servants' rooms in their own homes, and even more, to pay rent for that to the Romanian state, have fought in court for decades to get their compensation.

Instead, even though the state acknowledged their rights, they received as compensation shares in the Proprietatea Fund, which was fed with money and stock from the country's wealth.

Of course, nobody was happy that instead of receiving their fair compensation, they received shares whose value fluctuates in the market, at a face value which for a long time proved to be three times higher than what they could actually get by selling them.

Just like they had been dispossessed of their goods by the Communist state, they were compensated in the same way: using violence.

Faced with the fear of not getting anything at all in the future, they have accepted what was given to them - shares in the Proprietatea Fund.

It's better to at least get something than to get nothing.

Many of them were old and poor and didn't have the power to fight anymore. That is when some sharks bought all their shares at a price five times lower than their face value, on an informal market.

The heirs of the victims were "compensated" with one fifth of the value of what the state had stolen from them, leaving a huge space for the valuation of these so-called "compensations".

The moment Franklin Templeton took over the management of the Proprietatea Fund it said that it wasn't interested in the compensation mechanism and that the Proprietatea Fund would act like a standard investment fund.

As a result, it abandoned huge assets which it would have been entitled to because it wanted to justify its management.

Obviously, nobody asked those who were compensated "what they actually wanted".

Today, when the market price tends to get close to the face value of the stock, and when the Proprietatea Fund is making a buying offer at 1 leu/share, the new owners - of which very few are still from among those who were actually entitled to compensation - are getting the fair value of their compensation from the Romanian state.

The "compensation" mechanism created by Ionuţ Popescu is the mechanism of any game of chance: just like poker, the one who has the most money wins.

Brokers think that the news is positive and that the price of the offer is good 

Nicolae Gherguş, general manager of Confident Invest, says that investors will be very pleased with this news: "The operation will be well received by shareholders. Those who want will sell a small part of their shares at the price of 1 leu per share. After the offer I think they will be able to buy them from the market at a lower price. The over-allocation ratio of the offer will be set at the value of 20:1. Theoretically, given the fact that the block will be bought back represents approximately 5% of the total number of shares, and since I see no reasons why any shareholders would not subscribe, then in the allocation, everybody will sell around 5% of the shares they own".

He also considers that in a buyback from the market, the small shareholders of the Fund were placed at an advantage, because they could sell their holdings more easily, and the major shareholders usually have high fixed costs for the low volume trades and that the decision to buy through a public offer equalizes the chances of selling their shares for all shareholders.

Nicu Grigoraş, head of front office at Intercapital Invest, considers that the price for buying back shares of the Proprietatea Fund (1 leu/share) is a good price, and somewhat surprising: "The price is very good considering the outlook for the future price of the Proprietatea Fund".

In his opinion, even though we are speaking about a small volume of shares (4.35% of the share capital), the news is positive.

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