July 14, 2011 / 11:08 AM / 9 years ago

DEALTALK-Nervy markets to hit Romania privatisation drive

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* Romania has lagged neighbours in state sell-offs

* Sale of 10 pct Petrom stake key for more privatisations

* Demand good, but target of $840 mln looks unrealistic

By Sam Cage and Ioana Patran

BUCHAREST, July 14 (Reuters) - Jittery markets and a high asking price will hit the Romanian government’s $840 million sale of a stake in its top oil and gas group Petrom and may derail its ambitious privatisation programme.

Romania is selling 9.8 percent of Petrom in the largest ever transaction on its capital markets, but its target price is nearly 20 percent above the market.

“It is a buyer’s market, with a lot of volatility. If Italy explodes, maybe the stake cannot be sold,” said a source close to the transaction. “There is demand, but the demand is very sensitive to the price.”

Led by Poland and Russia, emerging Europe is seeking to sell state assets to boost public finances, attract investment and inject foreign expertise into moribund local industries.

Romania has been slow to act for fear of causing job losses, leaving it with inefficient assets draining hundreds of millions of euros a year. It has pledged to sell more under a new 5 billion euro ($7.1 billion) International Monetary Fund deal.

Investors are also closely watching debt-wracked Greece, which, under pressure from international lenders to sell stakes in state firms, aims to raise 50 billion euros from privatisations by 2015.

But a murkier global economic outlook means buyers are starting to balk at asking prices. Romania’s leu hit a seven-month low this week, and Bucharest stocks also fell on concern over Europe’s debt crisis.

That means Petrom is a key indicator of commitment and investor demand for a slew of other deals, including the sale of stakes in energy companies Transelectrica and Transgaz and the initial public offering of Romgaz.

Austria’s OMV holds a majority of Petrom, and the government has 21 percent. The sale is managed by Renaissance Capital, EFG Securities, BT Securities and Romcapital.

“There are two options now: they will sell below market price or they won’t sell at all and consequently postpone the sale,” said Wood & Co analyst Ovidiu Fer.

“If the government does not sell the Petrom stake this will send a bad signal for future privatisations, because either the state is unrealistic on price levels or the market has a low risk appetite,” Fer said.


Romania cut salaries and raised value added tax to narrow its budget gap under its old 20 billion euro IMF deal, and pushing state sales would show commitment to the new agreement.

For Fondul Proprietatea , an investment fund set up to compensate those dispossessed under communism and which holds 20 percent of Petrom and many other listed and unlisted Romanian companies, the deal is a test case for the whole programme.

“All we can wish for is for this transaction to be successful and perceived as a success here in Romania, because then it would be much easier for the government to continue with further offerings,” manager Grzegorz Konieczny told Reuters.

The maximum price is 0.46 lei per share or a total 2.56 billion lei ($838 million), compared with 0.389 at Wednesday’s close. The government may announce a minimum price next week.

“It ought to work. I don’t expect it to be wildly successful, but they’ll do it,” said Matei Paun, Bucharest-based managing partner at investment bank BAC. “I believe this is going to get done at a certain discount.”

Petrom shares have risen some 15 percent in 2011, outpacing a 3 percent rise in the wider index , and its market value of $7.2 billion is the largest in Romania.

It trades at about 8 times forecast 2012 earnings, in line with the STOXX Europe 600 Oil and Gas index , benefiting from low debt, its own upstream business and solid management. Most analysts rate it “hold” or “buy”.

Against that are the risks of business in Romania — unpredictable politics, a slow economic recovery and foreign exchange volatility — and low liquidity locking in buyers.

“Maybe there will be a few that will oversubscribe, but the majority of the bids will be below, at around 0.33-0.35 lei. The government should sell with a discount, like 10 percent below the market price,” said Wood & Co’s Fer. ($1 = 0.702 Euros) ($1=3.060 Lei) (Editing by Will Waterman)

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