EVEN THOUGH THE FUND MANAGER DID NOT MEET THE 15% NAV DISCOUNT TARGET,Franklin Templeton hopes that the strategy of cash distributions will bring it a new term at the Proprietatea Fund

ADINA ARDELEANU (translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 9 octombrie 2015

Franklin Templeton hopes that the strategy of cash distributions will bring it a new term at the Proprietatea Fund

(Interview with Greg Konieczny, the manager of the Proprietatea Fund)

"The fight against corruption is something that should complete the Revolution which began in 1989 and turn the country into a better place"

Franklin Templeton is asking the shareholders of the Proprietatea Fund for an extension of its term by two more years, an issue which is on the Agenda of the General Shareholder Meeting of October 29th.

Greg Konieczny, the manager of the Proprietatea Fund, hopes that the history of the fund management firm and its promise to maintain its strategy to generate returns and reduce the NAV discount will allow it to stay at the helm of the Fund.

"In the five years, we've generated returns of almost 70% for the shareholders, the NAV per share has increased almost 30%, we have paid out to shareholders more than 6 billion lei, either through cash distributions or through buybacks", Greg Konieczny said in the interview.

Reporter: How would you describe your five years of mandate of Franklin Templeton as manager of the Proprietatea Fund?

Greg Konieczny: I have to say that five years is a long time. To any fund manager, the most important thing is the return generated for shareholders. In spite of a weaker performance this year, which is a reflection on the evolution of the market, in the five years, we have generated returns of almost 70% to shareholders, the NAV (the net asset value) per share has increased almost 30%, we have distributed to shareholders over 6 billion lei, either through cash distributions or through buybacks.

We have also succeeded in significantly reducing the discount (ed. note: between the price and the net asset value), from over 55%, in the first year, to 30% now. Year by year, the discount fell and we are hoping that trend will continue and pick up speed.

We have listed the Fund on the London Stock Exchange, which had a stimulating effect on the Romanian market. The GDR facility (global receipt depositories) is almost completely used, which means that it was necessary, that there existed demand for GDRs. Through these instruments, we have opened the Fund to a larger investor base and we are seeing that new investors have entered the shareholder structure of the Fund.

Also, we have adjusted the portfolio. When we started we had 90 companies, now we have less than 50. We will continue this process. We have also cut the number of unlisted companies in the portfolio, with their weight falling from over 60%, to 50%, currently. This decrease was achieved when considering that we have sold some of the listed companies, so it needs to be praised even more.

From the point of view of the local market, we think that we have helped put Romania on the map for foreign investors, not only of those dedicated to frontier markets, but of those dedicated to emerging markets as well and those who look at closed-end funds, on a global level.

We have done a lot and we would like to do even more, that is why we are asking our shareholders to extend our term.

Reporter: Do you think that these results are enough?

Greg Konieczny: We have a history and the promise is to maintain the strategy of generating returns and reducing the discount.

Reporter: Many voices in the market raise the objection that Franklin Templeton did nothing but sell portfolio holdings. How would you answer them?

Greg Konieczny: From our point of view, the shareholders' interest comes first. We would like to make new investments, but we need to be able to justify them. Now, when the discount is 30%, through the buyback of our own stock, we are immediately generating a return of approximately 50% in relation to the NAV per share. It is hard to beat any other new investment in Romania or anywhere else.

We will be able to justify new investments only when the discount falls to a level that is in line with our investment policy, of 15%. Before that, it will be very difficult for us to spend money on anything else but our own shares.

Reporter: Lawyer Remus Borza said that you are in exclusive talks for the sale of 25% of Polisano.

Greg Konieczny: There have been some rumors in the media and we do not comment on those rumors. I can say that we are looking at various market opportunities and that is it. Like I said, we are not going to make investments until we reduce the discount.

Reporter: What are the criteria for an investment?

Greg Konieczny: Given the size of the Fund, of 3 billion Euros, any new investment would need to amount to at least 1% of the Fund, meaning 30 million Euros or more. Otherwise, it would have no impact on the performance of the total NAV. Looking at the listed companies, we have limited options, because we are already significant shareholders in many of them. Thus, we can look at big private companies, which can become candidates for listing in the future. But, like I said, this is only possible provided the discount gets reduced.

Reporter: By how much?

Greg Konieczny: The target in the investment policy is 15%. The possibility to succeed also depends on the market conditions. We do not have full control over that aspect, but we want to continue our corporate actions.

Reporter: What do you think is the biggest achievement?

Greg Konieczny: The returns generated for our shareholders. Almost 70% in five years is not a bad result, considering the performance of the market and the difficulties that we have faced in the beginning. The level that we started from was very low. Now, I think we have succeeded in proving that, through a proactive approach, at the level of the companies in our portfolio - if we look at the top ten companies in the portfolio - we have managed to significantly improve the financial results.

If we look at the state-owned companies in the portfolio, the net profits have also doubled in these five years. Had somebody told you that this would be the case, five years ago, no one would have believed it, but we succeeded.

Reporter: What is your biggest regret?

Greg Konieczny: I wish we could have moved faster. There have been many delays in various actions, such as the IPO schedule, the implementation of the Corporate Governance Code, in the country's energy strategy. All of these things have harmed us. At the same time, the first IPOs in Romania after a long time have been held, Romgaz and Nuclearelectrica. There are tangible results and it is obvious that things have changed. The domestic capital market, with a continuation of the IPOs, has a chance of increasing its weight among the frontier markets.

Reporter: As far as the Hidroelectrica is concerned, it would seem you will have to wait some more...

Greg Konieczny: Yes. That is one of the delays that is harming us. Hidroelectrica represents almost 20% of our NAV and of course, the IPO would help us significantly change the structure of the portfolio. It is a shame that the IPO is delayed, but we are pushing for the IPO process to progress and for the company to be ready for an offering as soon as it exits insolvency. It depends on the decisions of the courts.

Reporter: You have mentioned the returns for investors. But for many of the victims of the communist regime, the Proprietatea Fund represents a disappointment, because the value of the stock still hasn't reached 1 leu. What message do you have for them?

Greg Konieczny: I think that we have reached it (ed. note: the value of 1 leu), if we add up all the cash distributions (we are not talking about buybacks) with the current price of the stock, we get an amount that exceeds 1 leu. I want to remind you that when we started, before we became managers of the fund, the stock was trading at 0.3-0.4 lei. Thus, for them, the price has increased, two or three times.

Reporter: But the compensation process is now being investigated by the prosecutors. The president of the ANRP (the National Authority for the Restitution of Properties) has estimated that half of the Proprietatea Fund has been offered to people who didn't have that right.

Greg Konieczny: We have had no influence on the decisions of the ANRP. As managers, we have only been asked to record the shares offered through that restitution process. We had no knowledge of whether the process was fair or not. We have treated all the shareholders equally. In the five years, the shareholder structure underwent huge changes. We have succeeded in attracting more new investors, who have invested more than 1.2 billion Euros in the Proprietatea Fund. These investors have bought their shares from the market and they are legitimate shareholders.

Reporter: How long do you think it will be before the listing of Petrom in London is possible?

Greg Konieczny: It depends on Petrom. We salute this decision of the shareholders of Petrom. For us, it opens a new possibility to reduce our holdings in Petrom. But we will do it when the market conditions will be favorable and right now the time doesn't seem to be right.

Reporter: So do you plan to use the GDRs to sell some of your shares in Petrom?

Greg Konieczny?: It is an option that we are considering.

Reporter: What type of investments would you turn towards in these times of low interest rates?

Greg Konieczny: In times of low interest, shares are definitely very attractive, especially those of companies that pay dividends. In the regional context, the Romanian market offers the best dividend returns. It is an attractive market, at the present time. We are seeing that investors are still interested in Romania. The only problem is the absence of new listings. We think that all the market participants, including the government and the Bucharest Stock Exchange, should address this problem as soon as possible.

Of course, our priority is represented by the listings of companies in our portfolio, but any major companies in the market are welcome.

Reporter: Do you think there are any chances Salrom can still get listed?

Greg Konieczny: Yes, we believe so, because the Ministry of the Economy didn't say no, it has just asked for additional information on the costs of the listing, which we have provided to them. We are hoping that a new general shareholder meeting will take place soon, which will approve the listing, because it is in the Government's interest to have improved transparency in this company, and the market valuation should be higher than it is now. It is a win-win situation for the company and for us as shareholders. And for the market, of course.

Reporter: Elections for the management of the BSE are getting closer. Do you think there is a need for changes?

Greg Konieczny: I think that the BSE has made visible progress, but additional changes are necessary. I would like see the BSE to be more active when it comes to promoting IPOs.

Reporter: Do you intend to back a candidate in the BSE elections?

Greg Konieczny: We will see. Our stake in the BSE is smaller than it was in the past, it is below 5%, but we are interested in ensuring that the new board can continue the reform and increase the size of the BSE.

Reporter: What do you hope to obtain following the meeting with president Klaus Iohannis? And why did you meet in New York and not here?

Greg Konieczny: I am not saying that we haven't met with president Klaus Iohannis here as well. The event that we have organized in New York, called Power Lunch, was a meeting with 20-25 of the biggest investors in the United States. The main topics discussed were the future of the IMF agreement, issues concerning the capital market, IPOs, corporate governance in state-owned companies and what should be done to grow the stock market. Some investors have asked about the possibility of the creation of a sovereign investment fund in Romania, which would take over all the state-controlled companies and manage them in a unified manner, similar to the Norwegian fund Norges. That should speed up privatizations.

Reporter: What do you like about Romania, on a personal level?

Greg Konieczny: I like in the countryside. I like the people, I think that they are open, well-educated, they speak foreign languages. They are one of the country's biggest assets, both from a personal and from a business perspective.

From my point of view, currently, the fight against corruption is something that should complete the Revolution which began in 1989 and turn the country into a better place in which politicians are responsible for their actions.

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