Hidroelectrica gets out of insolvency finally. Fondul Proprietatea calls for its swift IPO

The Bucharest Court decided on Tuesday, June 21, the closure of the insolvency proceedings of Hidroelectrica, said Remus Borza, head of Euro Insol, state-owned electricity producer’s trustee in bankruptcy.

“The decision is not final, but it is enforceable,” “he noted.

Hidroelectrica has been insolvent since February 2014. The company had previously been insolvent from June 2012 to June 2013.

During this period, the company has eliminated the damaging contracts with so-called ‘smart guys’ in the energy and reduced the company’s staff.

The company recorded in the first five months of this year a turnover of RON 1.29 billion, down by 18 percent compared to the same period last year, while gross profit fell by 12 percent to RON 560 million, due to reduced production and lower market prices.

However, Borza estimates that Hidroelectrica will register in 2016 a record profit of RON 1.3 billion, compared to RON 899.4 million in 2015.

Hidroelectrica’s insolvency exit has been intensely expected by the other shareholder, Fondul Proprietatea (FP), who evaluates its 20 percent stake to EUR 594 million (USD 676 million), indicating a value of EUR 2.97 billion for the whole company.

After a long period in insolvency, Hidroelectrica emerges as “a healthier and stronger company, prepared to capitalize on its enormous potential and to list on the stock exchange,” FP notes in a press release.

“We are concerned to see that even though the company’s exit from insolvency had been expected since last year, Hidroelectrica still does not have an independent Supervisory Board selected and appointed in accordance with Ordinance 109/2011. This might pose significant risks for the company in the near future. We urge the Ministry of Energy to accelerate the appointment process of the new Supervisory Board that should follow up with an appointment of professional executive management team. Especially now, after the insolvency exit, Hidroelectrica needs strong and determined management in order to protect the value that has been created during the process, to create further value for Hidroelectrica’s current and future shareholders as the next important milestone is to successfully list the company in Bucharest and London,” Greg Konieczny, Portfolio Manager of FP commented.

According to him, the closure of the insolvency proceedings opens the way towards Hidroelectrica’s initial public offering (IPO), the first listing of a Romanian state owned company in more than two years and the largest listing in the history of the local capital market.

FP advocates for Hidroelectrica’s dual listing on both the Bucharest Stock Exchange and the London Stock Exchange, which would benefit the Romanian capital market, as well as ensure access to a larger pool of demand at the time of the IPO and afterwards, as well as greater visibility for the company.

In order to contribute to a successful dual listing, FP has proposed to sell during the IPO a 5 percent stake out of its 20 percent holding in Hidroelectrica, and also a 3.74 percent stake representing the subscription rights the Fund has in the share capital increase process, besides the 15 percent stake the state intends to list.