GABRIEL DUMITRAŞCU, THE DEPARTMENT FOR ENERGY:"The closing price of the Electrica IPO was fair"

Recorded by Alina Toma Vereha (translated by Cosmin Ghidoveanu)
Ziarul BURSA #English Section / 30 iunie 2014

"The closing price of the Electrica IPO was fair"

The official says that the lower limit of the price range at which the IPO was closed has been carefully considered and justified

"The context in which the IPO took place was not the best"

The lower end of the price range which the Electrica IPO has closed at has been well considered and argued, said Gabriel Dumitraşcu, the head of the Privatization Division of the Energy Department, who says that the price is not low; quite the contrary, it is high, but fair. The price is offset by the size of the business generated by Electrica and by the business plan, which once implemented, will increase the profitability of the company, said Mr. Dumitraşcu. The official told us that the allocation of shares in the Electrica IPO was done within optimal delays, which were not longer than in other IPOs. Discussing the activity of the underwriters of the IPO so far, Gabriel Dumitraşcu states that it could have been better.

Reporter: Are you pleased with the outcome of the IPO of Electrica? Please discuss it extensively.

Gabriel Dumitraşcu: The IPO of Electrica has been considered the event of the year and was awaited by the entire stock market in Romania and more. Like I was anticipating, the Romanian stock market had the potential to become the new attraction of the Central and Eastern European region, provided the IPO of Electrica succeeded.

The context in which the IPO unfolded was not the most favorable. 20 other IPOs were held in Europe at the same time as that of Electrica and they had made it their goal to raise over 200 million each. Some of them failed. The most notorious such case is that of Wizz Air.

In this context, it is a good thing to point out that Electrica is a success and it comes as a confirmation of the fact that in terms of new listings, Romania is on a growing trend. The IPO of Electrica further reinforces and confirms the good evolution of the Romanian stock market

From a technical point of view, the statement that the IPO has concluded successfully relies on the fact that it has generated a demand of over 396 million shares for a supply of 177,188,744 shares. I also hope that with the listing of Electrica, we will fulfill one last quantitative criterion for the Romanian stock market to enter the emerging markets region, which would be a great success because we would get access to major global investors.

All of the aforementioned elements give me the certainty that the IPO of Electrica has been a great success, being the biggest IPO in the history of our stock market and the first privatization of a majority stake implemented through the stock exchange. Which is not an easy thing to do in the case of a holding company. The privatization of a holding has never been tried before and there is no prior experience in that area in Romania. I think that the listing of Electrica can not be compared to any of the previous listings and privatizations, given its complexity.

As for the closing price, I have explained from the very moment that the price range was set that Romania wants to make listings and privatizations, but not at any price and under any circumstances.

The lower end of the price range at which the IPO was closed has been well though out and justified and I think that it is not low; instead it is high, but fair. Many specialists are of the same opinion that the minimum price at Electrica was not low. That price is covered by the size of the business generated by Electrica and by the business plan, which, once implemented, will lead to an increase in the profitability of the company.

Reporter: What made the allocations and of the negotiations at the end of the IPO difficult and why did the final price of the IPO take so long to be announced?

Gabriel Dumitraşcu: The allocation and the setting of the price are always taking place in parallel.

The allocation seeks to achieve specific concrete objectives, which, from the perspective of the one that still holds 49% of the company (ed. note: the Romanian government), must ensure a constant good performance of the company, focused on performance. The parties involved in the transaction - the intermediary, the issuer and the investors, each have different expectations and one must find a balance between them.

Allocation is part science, part feeling, and part the art of negotiating with the underwriters. The underwriters represent their own interests, as well as those of investors.

I think that the allocation at Electrica was made within an optimal delay of time, which was not longer than it was in other offerings.

Reporter: What was, in the end, the subscription rate on the tier for institutional investors?

Gabriel Dumitraşcu: As to what concerns the subscriptions of the institutional investors, the standards in the field do not allow us to provide additional details. But I can tell you that overall, we have reached our goal to have the demand exceed the supply at least twice.

Reporter: Have you been pleased with the organization of the IPO and the activity of the underwriters? What is your comment on the amending of the prospectus?

Gabriel Dumitraşcu: The activity of the underwriters isn't over yet. The procedures are ongoing. Their activity will complete after the stabilization period. After that, we will have a final report. So far, I can tell you that things could have been better. We have expected and we expect a lot better from the underwriters.

During the IPO, the prospectus was amended. It is a common thing, which is stipulated in the procedures and in the standards. It shouldn't be considered an unusual fact.

Reporter: What is your comment on the fact that it wasn't clear in the prospectus that investors had the right to receive both the guaranteed number of shares and the discount granted to small tier investors?

Gabriel Dumitraşcu: Any prospectus is a technical document. Anybody can read it, but not everybody can understand it. That is why the recommendation that small investors read it and discuss it with the brokers and specialists exists. For me, the prospectus was clear, just like it was for all those familiar with this type of vocabulary.

Reporter: Why did you decide to allocate more of the redistribution to the tier of small investors and fewer shares to the tier of big investors?

Gabriel Dumitraşcu: The final result of the allocation was that we transferred 6% from the tier of institutional investors to that of retail ones. This additional allocation was done separately, after the optimal allocation ratios were identified. We have distributed 4% to the tier of small unguaranteed investors and 2% to the tier of big investors. Thus, in the end, 21% of the IPO went to the entire retail tier.

We have opted for an additional allocation of the additional share of 6% based on the subscription registry. Thus, the subscriptions in the beginning of the second week on the tier for small investors amounted to 38 million shares. At the end of the period, we had a demand of 42.2 million shares on that tier. This proves that small investors arrived early and in force, with a lot of courage, and they have supported and boosted the Electrica IPO.

At the end of the first week of the IPO, on the tier of big retail investors the demand was 6.5 million shares. Two days later, at the end of the period, on that tier we had a demand of more than 120 million shares, 20 times higher than the one that what it was two days before, which proves that the end of the IPO was spectacular, as demand was inflated by the investors' access to loans. So I decided to provide a bonus to those who helped the IPO start off well, namely, the small investors, rather than encourage the spectacular finish. Furthermore, through the manner of allocation, we have sent a message that the good practices for subscribing in an IPO were restored.

Reporter: What are the lessons that should be learned from the Electrica IPO?

Gabriel Dumitraşcu: We have improved after every IPO, we have a analyzed and evaluated the good aspects, as well as the mistakes, and we have tried to find solutions to fix the negative factors. The IPO isn't over yet. In the end, after two weeks, we will have a meeting with all those involved, to see what went well and what went wrong in this IPO and see what we can improve from now on.

Reporter: Thank you!

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