AISIF: Blue Capital, the largest real shareholder of Lion Capital, has ended up powerless in the hands of a management that exclusively pursues its own interests

Andrei Iacomi
English Section / 17 aprilie

AISIF: Blue Capital, the largest real shareholder of Lion Capital, has ended up powerless in the hands of a management that exclusively pursues its own interests

Versiunea în limba română

AISIF informs the new management of ASF to protect the rights of all investors in the capital market

Blue Capital is demanding that Lion Capital pay dividends and make buybacks for the benefit of shareholders

The Pilon II pension funds have been running for several years from the shareholding of Lion Capital, SIF Muntenia and Infinity Capital Investment

The request of the shareholder Blue Capital, which owns 8.63% of Lion Capital (formerly SIF Banat-Crişana), that the alternative investment fund distribute dividends and make buybacks for the benefit of shareholders, provoked the reaction of the Association of Investors in SIFs (AISIF) , which calls on the new leadership of the Financial Supervisory Authority (ASF) to defend the rights of all investors in our capital market.

The association argues that Blue Capital, which it claims is the largest real shareholder of Lion Capital, ended up having no power over the management of the former SIF, which in reality uses the company's money to, through intermediaries, controls the decisions of the shareholders' meeting, exclusively in its own interest. AISIF recalls the situation last year when Blue Capital also demanded dividends from Lion Capital, a company whose shares were trading at a huge discount to Net Asset Unit Value, which illustrated inefficient management. But, against the grain, the proposal was rejected - meaning that the shareholders with the largest voting power did not want to benefit from their investment, but to reward Lion's management.

AISIF: "The management of the SIFs receive votes through funds that own the SIFs' own shares"

According to the Association, the completion of the agenda for the ordinary and extraordinary general meetings at Lion Capital is a clear proof of what AISIF has been advocating for three years. "It is about the fact that the former financial investment companies SIF1, SIF4 and SIF5, which now have other names, are not interested in the shareholders at all. During the period when the legal shareholders did not have the right to hold more than 5% of the share capital, the management of SIF1 (which also controlled SIF4) managed to build a fictitious shareholding with the help of which they control the decisions of the General Assemblies, not only at Lion Capital , but also at SIF Muntenia (SIF4) and Infinity Capital Investmenst (former SIF5).

Under these conditions, Blue Capital, the largest real shareholder (after the funds directly or indirectly controlled by the management of Lion Capital) ended up being as powerless as the millions of couponers (and other small shareholders), in the hands of a management that pursues exclusively own interests. This year, just like the previous year, Blue Capital asked LION management to distribute dividends, but LION management wanted nothing more than share buybacks for themselves, that is, for the people in management. Counterintuitively and aberrantly, last year a large enough number of shareholders agreed with management's wish and voted that shareholders receive nothing. The discount on the LION share price compared to the net asset is approximately 70%, compared to Fondul Proprietatea where the discount is only 20%. This huge discount shows the total lack of investor confidence. However, LION "shareholders" voted in 2023 in favor of ineffective management and against legitimate and beneficial requests of the largest real shareholder.

This economic anomaly has existed for many years".

"The situation at Lion Capital, SIF Muntenia and Infinity Capital is detrimental to the entire Romanian capital market"

The association recalls that it has stated, on several occasions, that, in the context of an ineffective regulatory system, under the supervision of the Financial Supervisory Authority (ASF), the managements of the SIFs receive votes for their decisions - which do not correspond to the interests of the shareholders - through some funds that hold own shares of the SIFs.

"Thus, the managements of SIF Banat-Crişana (LION), SIF Muntenia (SIF4) and SIF Oltenia (INFINITY) ended up adopting decisions exclusively in their favor. This situation is not only to the detriment of the shareholders of these listed companies, but also to the detriment of the entire Romanian capital market. ASF could easily observe and assess the seriousness of the situation of shareholders in SIFs. Strong regulatory action is needed to create a strong capital market. We call on the new leadership of the Financial Supervisory Authority, as the market regulator, to take the necessary measures to protect the rights of all investors in the capital market".

Blue Capital: "Lion Capital is positioned as the main competitor in the unfortunate FIA top with the biggest discounts from BVB"

In Blue Capital's request, which was added to the agenda of Lion Capital shareholders on April 29, the shareholder requests that half of last year's profit, of 417.2 million lei, go to investors in the form of dividends. It also wants to buy back 50 million of its own shares, which will later be canceled so that the trading discount is reduced and earnings per share are increased. In contrast, Lion's management wants all profits to go to "Other reserves" and buy back 1.5 million shares to be offered to the company's management and employees.

As can be seen in the request available on the BVB website, the shareholder justifies his request with three arguments: (i) Lion Capital's dividend policy stated in the foundation documents of the fund; (ii) financial indicators of interest to existing or potential shareholders; (iii) restoring confidence in Lion Capital's management.

Very briefly, with regard to dividends, Blue Capital bets that the policy assumed by the former SIF Banat-Crisana shows that: "Lion Capital aims to maintain a balance between the remuneration of shareholders through dividends and the need to finance new investments from the reinvested profit obtained" . However, contrary to the stated policy, in the years 2022 and 2023, Lion's management did not propose dividends, even if the investment prospects were not certain at the beginning of the financial years. This year too, Lion's Revenue and Expenditure Budget does not contain specific elements of strategy or action, so the withholding of shareholders' capital, as requested, is not justified.

Related to parameters of interest to existing or potential shareholders, Blue Capital points out that last year Lion Capital's return on assets and return on equity (ROA and ROE) was similar to annual inflation of around 10%, while relevant indices of BVB had nominal increases of over 30%.

Regarding the investors' perception of the management of the former SIF Banat-Crişana, the shareholder Blue Capital mentions that an excessive discount between the market price and VUAN primarily reflects the lack of confidence of the investors in the management team. "With a discount of approximately 66%, Lion Capital positions itself as the main competitor in the unfortunate top of the FIA with the biggest discounts from BVB", the request states.

Blue Capital's dividend request last year was rejected by Lion Capital's AGM

Last year, Blue Capital requested that 69% of 2022 profits be distributed as dividends, based on essentially the same justifications as presented in this year's request. In addition, the shareholder said that the former SIF Banat-Crişana can use as a source of investment financing sums derived from the disinvestment of the money transferred to the administration of other entities OPCVM/FIA (n.r. investment funds), which in 2022 had generated losses for the company.

Some of these UCITS/FIA entities are the funds controlled directly or indirectly by the management of Lion Capital, to which AISIF refers in the press release.

Last year's dividend request of Blue Capital was rejected by the shareholders' meeting of the former SIF Banat-Crişana, most likely by the vote of such funds, financed by Lion Capital itself. AISIF and other investors accuse that in reality it is about a conflict of interests, hiding the real beneficiary, as well as that those shares are in reality own shares held through intermediaries. However, being own shares, they do not have voting rights.

Last year, Blue Capital was 65.85% owned by Macelia Investments from Cyprus, according to Behind Macelia is the Bîlteanu family.

Between 2015 and 2023, the former SIF Banat-Crişana granted dividends only once, in 2022, under the pressure of AISIF, including through court actions.

Six of the seven Pillar II funds had SIF Banat-Crişana titles in 2016; today, only one fund still owns a tiny block of shares

In recent years, private pension funds Pilon II have fled the shareholding of the group controlled by Lion Capital. Symptomatic is the case of the former SIF Oltenia (currently Infinity) whose shareholders, in December 2018, included five mandatory pension funds, which held 12% of the issuer's capital. After the hostile takeover of the company by SIF Banat-Crişana and SIF Muntenia (which is controlled by the former SIF1 through SAI Muntenia Invest) the Pilon II funds sold their holdings in the company, so that, at the end of last year, none of the pension funds obligees no longer had Infinity Capital Investments shares.

Nor is there any Pilon II fund in the SIF Muntenia shareholding, as can be seen in the reports.

At Lion Capital, in 2016, for example, six of the seven mandatory private pension funds owned shares in the company according to administrators' reports and BVB documents (including NN Pensii which had requested dividends from SIF). At the end of last year, only the Vital fund still had a minuscule number of around 14,700 shares, whereas, two or three years ago, it had seven or eight million SIF1 (currently LION) titles.

This, despite the fact that private pension fund managers claim that our capital market is too small for the money they receive every month, that they don't have enough companies to invest in, so they have to invest abroad.