JOHAN MEYER, FONDUL PROPRIETATEA: "In order to be promoted to the MSCI emerging market status we need to have Hidroelectrica listed"

JULIA PANDI (Translated by Cosmin Ghidoveanu)
English Section / 28 mai 2021

"In order to be promoted to the MSCI emerging market status we need to have Hidroelectrica listed"

Meyer defends the approval of the dividends at Hidroelectrica: "We are not leaving the company without the ability to invest; that is simply not true"

For the Bucharest Stock Exchange (BVB) to be promoted to the status of an emerging market according to the rules of index provider MSCI, the listing of Hidroelectrica is needed, said Johan Meyer, CEO of Franklin Templeton Bucharest and Portfolio Manager of Fondul Proprietatea. Meyer said yesterday that Hidroelectrica's IPO could be the biggest in Central and Eastern Europe for many years and defended the approval of the 2.3 billion lei dividend payout by the company, stating that it was not true that shareholders are depriving the company of its ability to invest. "That is simply not true," Meyer said.

The FP portfolio manager said: "As Franklin Templeton we have been in Romania for 11 years, managing Fondul Proprietatea. We have been major supporters of capital market development, we have had a number of listings of companies in our portfolio and, of course, the IPO of Fondul Proprietatea in January 2011.

We managed to attract a large number of foreign investors in the country, with 1.8 billion euros in total portfolio flows from abroad, amounts that went to Fondul Proprietatea, which is a positive thing for us and, of course, plays a important role in the general interest of the capital market. But we have not finished the job yet, major obstacles that need to be overcome still exist, but there are also major opportunities.

The biggest obstacle for Fondul Proprietatea at the moment is law 173, which prevents the sale of state assets for a period of time and which is currently in Parliament to be abrogated.

We encourage our colleagues in Parliament to complete the process as soon as possible in order to be able to encourage shareholders to participate in the Hidroelectrica IPO.

The message we need to convey here is that investors are very eager to participate in any IPO, not just Hidroelectrica. But to do that they need the ability to participate. With a legislation that is still in our way, unfortunately, this is impossible. I think that the shareholders, the board and the management team (of Hidroelectrica) are all very eager to continue the process but this requires the appropriate legislative framework that allows the continuation of the IPO procedure.

The potential is huge, it could be one of the biggest IPOs in Central and Eastern Europe for many years, which has the potential to raise Romania's capital market to the next level".

FP has among its largest institutional shareholders the pension funds, so the dividend income from Hidroelectrica reaches Romanian pensioners in the long term", said Johan Meyer

FP has among its largest institutional shareholders the pension funds, so the dividend income from Hidroelectrica reaches Romanian pensioners in the long-term", said Johan Meyer

Already, we have reached the status of a secondary emerging market according to FTSE Russell rules, but in order to achieve the MSCI emerging market rating, the listing of Hidroelectrica is absolutely needed, Meyer said. The portfolio manager of FP also discussed the accusations in the press against the shareholders of Hidroelectrica, which concern the fact that the shareholders leave the company without investment money by paying out dividends amounting to 1.3 billion lei from the 2020 profit and taking out 1 billion lei from the company's reserves.

"It would be a very positive development if we make further progress and take concrete steps to add another listed company to the stock market. Also on the subject of Hidroelectrica, because for us it is clearly a very important company since it represents more than half of Fondul Proprietatea, we were unpleasantly surprised in recent weeks to read certain press articles about the distribution of the special dividend, articles which unfortunately, denoted a lack of understanding of the financing structure of certain companies and criticized the shareholders for leaving the company without the ability to invest, which is simply not true.

It is important to point out that, despite the approval of the dividend distribution, the company still has net cash on its balance sheet and has the ability to access bank financing for any investment opportunity. Also important, in terms of capital structure, it is much more efficient for a company to use debt financing as part of its investment structure to benefit from the tax deduction applied to the interest paid on those investments. I think it is important to clarify this. Hidroelectrica has a very good ability to make investments and also to generate profit and pay that profit to shareholders through dividends", said Johan Meyer.

He added that Fondul Proprietatea "has among the largest institutional shareholders the pension funds, so those incomes reach the Romanian pensioners in the long-term".

Meyer also stated: "Of course, we don't only have Hidroelectrica in our portfolio and we also have a few other big companies that can play a major role in the capital markets from now on, and when I say that I'm thinking of companies like Bucharest Airports and the Constanta Port that have the ability to be listed, companies that face some problems in this pandemic scenario where we see Bucharest Airports operating at only 20% of capacity. I think it is important that companies continue to manage their basic costs very carefully in order to maintain a sound financial position for a possible future listing".

Applying the principles of corporate governance is critical to attracting investors and giving them the confidence to invest in stocks on the Bucharest Stock Exchange, said the CEO of Franklin Templeton Bucharest.

"Regarding the state of the capital market in general, there are still many opportunities despite (...) the fact that valuations are now higher than ever. Based on the economic growth and economic recovery that countries are experiencing, as we go through the phases of the pandemic impact, it is very encouraging to see that economies are reopening, that people can move around and that economic growth continues. This creates an opportunity for development in the capital markets. It is a very positive thing for us," Johan Meyer concluded.

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