Romania's Most Valuable Government Company Finally Set to IPO 1

Romanian equity has returned 25% over a year

Romania’s stock market has been largely outperforming frontier markets since last year. Over the past one year, Romania’s Bucharest Stock Exchange Trading Index has returned about 24.5%, while the broad MSCI Frontier Markets index (FRN) (FM) has returned almost 12% (as charted below).

Stocks of companies such Banca Transilvania SA, Transgaz SA Medias, Transelectrica SA, ROMGAZ SA, OMV Petrom SA, and Fondul Proprietatea SA/Fund, are up over 30% over the past 1 year (as of February 14).

TickerNameWeightSharesPrice1 Year Total Return – Current
TLV RE EquityBanca Transilvania SA18.812176.692.4651.80472
TGN RE EquityTransgaz SA Medias6.765.89327.0043.18035
TEL RE EquityTranselectrica SA4.2036.6532.6032.77653
SNG RE EquityROMGAZ SA11.15115.6327.4531.57254
SNP RE EquityOMV Petrom SA16.9216993.230.2831.55452
FP RE EquityFondul Proprietatea SA/Fund20.336504.110.8930.8405


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Romania is on the last mile to be upgraded to EM

Romania’s Bucharest Stock Exchange CEO Ludwik Sobolewski believes that his country is on the last mile to be upgraded to the emerging market (EEM) (VWO) status. “The Romanian capital market has now a chance, maybe for the first time, to have a big quick win because the upgrade of the whole environment into the family of Emerging Markets is now very close. We have this paramount objective which we need to tackle: to upgrade Romania to Emerging Market status,” said Sobolewski.

According to the Chairman of the exchange, Lucian Anghel, “funds who are 20-25 larger than current ones will be allowed to invest in Romania once the market gets upgraded.”

Hidroelectrica listing is crucial for Romania

However, the local stock market still needs big companies listed with a high free-float to fulfill all criteria for attaining the emerging market status. For example, the listing of the state companies could help towards that goal.

Now, electricity producer Hidroelectrica, the state’s most valuable company, is expected to carry out an initial public offering (IPO) this year. Hidroelectrica’s listing should really help Romania in complying with the free-float criterion in being declared as an emerging market.

The country is already on the FTSE Russell watch list for an upgrade to emerging market. Listing of Hidroelectrica on the stock exchange might just ensure a place for the Bucharest-listed equities in the MSCI emerging market basket.

Valuations favor Romania

On the valuations front, Romanian equity appears cheaper than broad frontier and emerging markets (as charted below).

Moreover, earnings are on the rise, while the price is on a declining trend currently, making the Romanian stock market attractive on an absolute basis (see chart below).

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