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April 23, 2021

Director of Bucharest Stock Exchange Sobolewski: I hope that for 2017 we will see a wave of this inspiration from the private entrepreneurial world

The Bucharest Airports National Company (CNAB) should be listed on the stock market because air traffic will increase and the current capacity is insufficient, international investors already manifesting their interest to buy shares of this company, the director of the Bucharest Stock Exchange (BVB), Ludwik Sobolewski, says in an interview for AGERPRES.

He also claims that the listing of Hidroelectrica would transform the Romanian capital market in an emerging market, and the Government that will do so “will have a historic merit”

Sobolewski also speaks in the interview about the development of the capital market in 2016, the launch of an Initial Public Offering (IPO) on the stock market in the coming weeks, the possible listing of the Port of Constanta, a company that “fits on the capital market”, as well as about the merger between BVB and Sibex.


How was 2016 on the Bucharest Stock Exchange (BVB)?


A lot of good things happened, one of the best was that the stock exchange, but not only the stock exchange, I would say the whole Romanian economy and Romania was put on the so-called ‘watchlist’ by one of the global agencies that look at country and markets, and they are responsible for classifying them and our goal is to become a so-called emerging market, which is very, very close to the aristocracy among these global markets which are developed markets. Now, Romania is merely a frontier market, so it’s not a very prestigious brand. And we are striving to be upgraded.

One of these agencies decided to put Romania and the capital market of Romania on this monitoring list – emerging market monitoring list – so we are not yet within this category of emerging markets but for the first time since, I would say, always, someone noticed the modernization of the Romanian capital market and they decided to make this step. So we expect that this would be followed by other steps because it depends on whether we will successfully continue our internal work in Romania, and it depends on whether the Romanian Government finally decides to send one of the largest or the largest Romanian company – Hidroelectrica – to the market. If it happens, then we can reasonably count on Romania being, at last, an emerging market, a new one, even this year, in the second half of this year. So, moving Romania from this “black hole” of frontier markets in September last year and putting it on this review list by the FTSE, this is the agency I was speaking about, a company of the London Stock Exchange was one of the more significant events as regards last year.

So the stock exchange, as I said, on the one hand, is a quite sophisticated organization, based on technology and regulation but, on the other hand, we can only exist, successfully, if we have this sort of engagement in the affairs of people and entrepreneurs. So our efforts are focused on this and, in that regard, 2016 was quite good because we were continuing our campaign for better financial literacy and better financial education in Romania. 2016 is when we significantly increased the visibility of the market for financial instruments, and the presence of this market in the minds of people and business in Romania is much greater than, say, 3 years ago.


Do you think we will see other IPOs of state-owned enterprises this year? Because on the Social Democrat Party’s (PSD) programme there was nothing about that.


I think this is more than reasonable for any government, and I have very clear hopes with respect to the new Government to make state-owned companies public entities, so to make them listed on the Bucharest Stock Exchange, at least for two main reasons.

I’ll start with something which is not that much a financial objective. It is of great importance, and I think everybody is aware of that, to improve the quality of the management of state-owned enterprises. It is very important to make state-owned companies more efficient, in the economic sense, and more productive. Romania still ranks very, very low when it comes to productivity of business in general, not only in Europe, but in our region of Central Eastern Europe, so this is very important. The stock exchange, any stock exchange, maybe I should say any well-organized stock exchange and stock market, which is based on rules, on the rules of corporate governance which all listed companies must obey, serves this purpose because it puts a company under the oversight of the public market. And this public market is not an abstract concept. It is composed of institutions and real people which vote by using their money and by stepping in and stepping out, so it is a good deal, it’s something that has a very strong rationale for the public authority to send a company to the public market.

The government does not have to lose control over this company in order to have these benefits and these advantages. It is sort of like a free upgrade of my assets. I don’t need to hire consultants, I don’t need to spend money on anything. I only need to put this company on the public market and the market will generate these positive changes for my assets.

And the second is something which can be an objective of the state, who is the shareholder, but is the objective of any shareholder, that a company can have access to financing, the company can simply develop using different sources of financing. It doesn’t really matter that much that some companies are explicitly mentioned in any governmental papers, even though I was always advocating a need to have a sort of developed privatization programme, but in essence it doesn’t matter that much, because I think one of the elements of this progress that we are witnessing, and to which we are contributing, is that there is a general view of the political class that the Bucharest Stock Exchange does exist and there is a set of benefits and advantages that can be obtained if state companies have something notably to do with the stock market in Romania.

I would say, of course, there are very solid grounds and reasons for Hidroelectrica to be listed. And once again, if Hidroelectrica is listed, the Government which will do that will have a historical merit, really. And this may be done once in a lifetime so this upgrade of Romania to a totally different family of markets which will generate a lot of benefits, not only strictly speaking in the field of the capital market.


What do you believe of the listing of Henri Coanda Bucharest Airport?


Every time I’m checking in at Henri Coanda Airport I’m wondering why this company, I mean the operator of the airport, is not yet listed. I mean, we don’t have to be experts when it comes to aviation traffic to be fully convinced that the traffic is indeed growing and the capacity of this airport is not meeting this not only future flow of people, but even currently the capacity is too reduced. And we know that international investors already expressed their interest in buying the shares of the airport in Bucharest. So this is another example of a potential great deal for the Romanian Government to make the IPO of this company, to improve the branding and the visibility and the recognition of Romania in the eyes of international investors, so people who have money, and maybe we will need these people and their money for other things in the future. So it does make sense to keep an ongoing contact with them and to simply raise funds in order to improve the state of this infrastructure because a lot of people are flying to Bucharest and a lot of people who are also important for Romanian economy.

And I’m not only speaking of VIPs in finance and economy, but also tourism. Tourism is one of the chances of Romania, but tourism is hard to be developed if the main airport in the country is that underdeveloped. I’m trying to show that the capital market is not an abstract thing in the Universe, but if you have an efficient capital market, it can trigger very positive effects for the economy at large.

Maybe the owners of hotels on the Black Sea coast will not be aware that they can have 2, 3, 5 percent increases of people sleeping in this hotels year-on-year but it’s an indirect effect of the fact that the airport of Bucharest is listed. It’s a good company, it’s a company which has the capability to develop, it’s a company that has the money in order to ensure its development. That’s why capital market generally is something that is important for the development of the whole economy.


Is a listing of the Port of Constanta on the Bucharest Stock Exchange feasible?


Another gateway of Romania, the importance of which will grow, is the Port of Constanta. This is also a company that, I would say, fits very naturally the stock exchange and the stock market in Romania. We also think that it is a very good time for private entrepreneurs to come to the stock exchange. Those private entrepreneurs could benefit from the rapid growth of this economy, from the fact that people have a better purchasing power. Of course, still, there is a lot of people with no money, relatively poor or just poor, but generally the income per capita and all these indicators show us that this country becomes wealthier. It is a good opportunity for private businesses established during this transformation in Romania, which started around 25 years ago. These businesses especially offer goods and services to the population.

Infrastructure is for investors that have the appetite to sleep calmly, that’s why they like the Airport of Bucharest, because for them it’s one of the guaranteed success stories. But we can very easily have investors with a taste for more commercial products or assets, or as we call it consumer stocks. Anything related to consumption can be very popular among investors. This is my message for the entrepreneurial world. I hope that they will also be inspired by the example of MedLife. I hope that for 2017 we will see a wave of this inspiration from the private entrepreneurial world which will to a greater extent understand they can also make history for themselves by entering the market and following this example of MedLife. 2017 definitely is the year when the Romanian Government will be really engaged in the historic mission to ensure a better future for Romania and to improve the position of Romania among the most developed nations in Europe, when it comes to the quality of the financial infrastructure.


Do you think we will see this year private IPOs on the stock market?


I think so. We can expect one in this quarter, even in the upcoming weeks. We mentioned about talking with business people, but this does not rely only on talking to them, even if the stock exchange is people’s business and it is indispensable to be in real contact with real people, but you also create instruments that really offer new conditions for a company that decides to go public. For instance, we have a growing number of market makers. In modern stock markets a lot of the trading comes not from these independent decisions of people and financial institutions that decide to invest, but a lot of the trading comes from professionalized, specialized institutions that do trading from the trading itself and gaining some benefits from the market operator for that. So, building the network of these market makers gives to these new entrants, to these new companies to have the turnover, to have the trading in their shares.

At the beginning of our work, there was a quite frequent situation: we already had these companies more or less contemplating to be listed, but there was a lack of investors and, whether we want it or don’t these two elements must go together. Now I think the situation is much better. We have a greater interest from investors, we are even sometimes confronted with the eagerness to know from us what could be rising in the market, because they want to put up some money into companies that would be arriving to the market. Now the situation is much, much better than it was and I think it will only improve.


When will the merger between BVB and Sibex happen?


This is a transaction which should be described as a merger by absorption, so, in other words, we are taking over this company. It’s not a company which presents a big value for investors and entrepreneurs in Romania but we are quite determined to complete this transaction because we think this is like bringing things to normality. Romania certainly does not have enough place for two stock exchanges. Even markets much larger than Romania do not afford themselves to have more than one stock exchange, because the most important thing in our business is the liquidity and the concentration of this liquidity and, quite frankly, it doesn’t make sense for anybody to have one stock exchange and something else which claims also to be a stock exchange. I think that this will lead to a further improvement of the general market architecture in Romania and certainly will also enhance the perception of Romania outside because what we have now is a little bit of a bizarre situation. And international investors normally do not like bizarre situations. They may like exciting stories and a lot of risks, and adventure when it comes to what they could invest in but when it comes to infrastructure, it should come impeccably and without any anomalies. So my perception of this process which we are conducting with our colleagues from Sibex is in those terms and I hope that this will be successfully completed this year which would be a significant change, in this context, for the capital market of Romania.


Do you need to speak with the Competition Council about it?


Yes, but I don’t expect we will face any obstacles because the market share of Sibex is that small that it should not trigger any concerns with the Competition authority from the point of view of the concentration of the market.


Will we have this year new products from the BVB?


We are seeing a greater interest in bonds. Also because sometimes people – the owners of the business, the founders of the business think in this way: “I’m not that much prepared to share my business with new shareholders, but I have trust and my calculations prove that it is beneficial for me to finance myself through the market, but via bonds, because bonds do not give access to my corporation for the bond-holders but they give me money.” I think that we will see the interest maintaining from companies to issue bonds. However, I would like also, still in the context of the shares, to draw the attention of entrepreneurs to the following fact: Taking money from the banks is, we could at say at first sight, very, very easy, because banks have a lot of money and they have something which is called over-liquidity in the sector so they theoretically have now important capability to give loans to entrepreneurs, and moreover the cost of money is very low. However, the bankers themselves, of course they are professional people so they cannot give money that do not enough of the equity capital, that do not have their own capital. So companies should be aware of the fact that they may have problems in getting a loan because they are, as we say, undercapitalized. Sometimes, still they are not aware that in order to solve this problem, they could go to the stock exchange and to improve the balance sheet and to improve their own capital and then they can turn up at the doors of a bank and take the loan, probably even cheaper than ever. So I hope that also this awareness will grow in the future.

Other instruments… we offer structured products, this is something which is already an established instrument on the market, but we introduced something which is called “warrants”, very interesting instruments. It was one of our accomplishments, last year, that we convinced one of the Austrian Banks to be the issuer of these instruments and this instrument is now based on the shares of international and Romanian companies. It is traded on the stock exchange. A good instrument also for individual traders, individual investors. I think we will have even more of these warrants, meaning warrants that will be based on new shares.

I have the honor to say that the Romanian regulator demonstrated that the regulator is intelligent and the regulations which we have in Romania are very good ones. The short sale is available, but, still theoretically, because it is not very much offered by the brokers to their clients, it is available since August last year. And I think, speaking of 2017, and I hope, that this year will be the year when we see these type of transactions appearing in the market. It will be of great importance to enhance the attractiveness of the market because the stock exchange loves two categories of clients: those who think of “we are investors, we are medium-term, we are long-term investors, we look at the fundamentals, we look at the company, we try to understand what the company does, we try to understand the economic context, we try to link the political context with what will happen to prices in the market, so yes, investors. But the stock exchange also love people who enter the market not that much paying attention to what is behind the shares, but paying attention to the evolution of the prices, to how the prices evolve over ten seconds, or one minute, so the category of traders that we call speculators. Maybe this name is not very aristocratic, but they are very needed for every capital market, they are very useful in making any capital market an important source of financing for the companies. So this short-selling is exactly for these type of people.


How do you see the blockchain technology in the future?


The point is that in order to have a more developed market, we need to have more companies, we need to have more investors, among those new companies, once again, for the third or for the fourth time, I will mention Hidroelectrica for this strategic paramount importance for the future, but it is hinged on the existence of concrete instruments that the market can offer to these investors, such as short-sale, market makers, transparency driven by corporate governance, financial literacy, projects and a lot of things, and of course, I mentioned at the very beginning that we are a super technological company so a constant development in the technology field is crucial. I think that 2017 will also be the year when these topics will become even more important because many of us are aware that we live not only in the era of smartphones, but also we are starting to live in the era of blockchain technology, and this is something which is very disruptive and this can change, will likely change the way we function in business and everyday life. And something like blockchain which originally was the support for the bitcoins, something like blockchains is becoming extremely important for those pieces of infrastructures as the stock exchanges of international markets. 2017 and the next years will be extremely interesting because we will have to participate in this technological revolution, which is not about new gadgets, but this revolution is something very profound. I think that we have no way but to accept what the Chinese say: “We live in interesting times”.

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