Radu Hanga, BVB: “The Stock Exchange is maturing and is fulfilling its role as the main financing channel for local companies”
“For 2021 we see a spectacular start of the year, probably the best in Bucharest Stock Exchange’s history, and we expect this trend to continue. We want to increase the representativeness of the local capital market, targeting a market capitalization of all the companies listed on BVB of at least 30% of GDP (from the current level of 15%). We believe that this goal is achievable over the next decade,” Radu Hanga, president of the Bucharest Stock Exchange (BVB) told The Diplomat-Bucharest.
“Cooperation with the authorities is very important for us, and during this period we work very well with the Financial Supervisory Authority and the Ministry of Finance to simplify investors’ access to the capital market because it means easier access to capital for local companies.”
Which are your expectations for the Romanian business and macroeconomic scene in 2021, anticipated challenges?
Globally, we see that the balance sheets of the major central banks continue to grow due to the quantitative easing measures taken around the world. Together with the increase in the balance sheets, we see that monetary policy interest rates are staying close to 0, and inflation expectations indicate that this regime at low interest rates will continue in the future. Locally we see the same situation, while interest rates have fallen, bank deposits have continued to rise. The policy rate of the National Bank of Romania is 1.25% p.a., and if we look at the household deposits, we see that they continued to increase, reaching a record level of almost 262.5 billion lei. At the same time, we see that both the estimates of the authorities and of the IMF are optimistic regarding the evolution of the Romanian economy. Thus, the IMF estimates a growth rate of 6% this year (compared to the forecast of 4.6% in October 2020), the Government estimates an increase of 4.3%, and Romanian economic analysts have an average estimate of 5%.
In this context, the capital market is positioned as a viable channel for financing the economy, private and state-owned companies, as well as an attractive investment for those seeking a better return for their money.
In terms of listings, in the last two and a half years we have witnessed 46 bond issues, with a cumulative value of over 2.4 billion euros, and the listing of 10 new entrepreneurial companies, whose capitalization totals almost 200 million euros. For 2021 we see a spectacular start of the year, probably the best in Bucharest Stock Exchange’s history, and we expect this trend to continue.
If we look from the investor’s perspective, we see that the average dividend yield for companies in the BET-BK index is 5.4%. Compared to interest rates on deposits, investing in stocks or bonds offers a much higher return.
What are the objectives of BVB for this year?
I like to talk about challenges, not concerns, because I think we are going through a period full of opportunities and it depends only on us how we manage to capitalize them.
We want to increase the representativeness of the local capital market, targeting a market capitalization of all the companies listed on BVB of at least 30% of GDP (from the current level of 15%). We believe that this goal is achievable over the next decade.
It is very important that the primary market, the market for new instrument listings, has been activated. It is still very important to develop the community of investors, to increase the liquidity of the market and make it more and more attractive for entrepreneurs in terms of financing costs.
Cooperation with the authorities is very important for us, and during this period we work very well with the Financial Supervisory Authority and the Ministry of Finance to simplify investors’ access to the capital market because it means easier access to capital for local companies.
We also focus on projects that aim to better promote local issuers, both internally and externally, by improving coverage with fundamental analysis, as well as by implementing reporting standards for responsible investments, the so-called ESG standards, which are becoming increasingly important to the community of local and foreign institutional investors.
Another important direction that we are already exploring is the efficiency of the secondary market, in the sense of creating products necessary to implement the various strategies that investors can consider, the relaunch of the derivatives market being at the center of this initiative. In this approach, the Central Counterparty project is very important, and we want CCP.RO to be authorized and operational within the next year.
The year 2021 started on an optimistic note for the Bucharest Stock Exchange. What are the predictions for the second half of 2021?
At the end of last year, we said that in 2021 we will have at least 20 rounds of financing through bonds or shares that will come to BVB. Only in the first 104 days of 2021, we witnessed the listing of 17 rounds of financing, of which 3 are issues of government bonds for individual investors, 8 are issues of corporate bonds and another 6 are shares issued by newcomers to BVB. At the same time, we see new companies announcing their intention to come to Bucharest Stock Exchange to attract financing, so we can say that from the public information alone there are almost 20 more companies in various stages of preparing to come to BVB. There are also other new listings on the pipeline which have not yet been announced publicly.
We are glad to see that Bucharest Stock Exchange is maturing and is fulfilling its role as the main financing channel for local companies.
How would you describe the evolution of companies listed on the AeRO segment of BVB?
AeRO is a market launched by BVB specifically for smaller companies, to allow them to take advantage of all the opportunities that the capital market offers.
We know that for a company to mature, it must have the conditions to finance its growth. We at the Bucharest Stock Exchange want to position ourselves at the center of the financing ecosystem for local companies, to bring them close to a wide range of options and to offer them support, together with the local brokerage industry, to choose the most suitable solution.
Of course, the amounts attracted through the AeRO market are slightly smaller compared to an IPO conducted on BVB’s Regulated Market, but they are very useful to allow the development of companies. The financing rounds through bond issues carried out on AeRO since 2019 until now accumulate almost 220 million lei (45 million euros), and the financing rounds carried out through the sale of shares total over 60 million lei (13 million euros).
We have also seen listed companies that have carried out capital increases through cash contributions from investors, which means money in addition to the amounts mentioned above. This money was used by companies for development, which was seen in the financial results, as well as in their evaluation by investors, through the perspective of price evolution.
A company listed on the AeRO market has the opportunity to grow, gain the trust of investors and attract their interest, and later to move to the Regulated Market. Just last year we witnessed such an upgrade, when Bittnet moved to the Regulated Market, five years after it was listed on AeRO. During all this time, Bittnet’s capitalization increased 23 times and the company carried out several rounds of financing with a cumulative value of 57 million lei. Bittnet becomes one of the benchmark stories for Bucharest Stock Exchange, because in its six years of presence on the capital market it has used to the maximum the market mechanisms, both to attract financing, to increase visibility, but especially to expand, and as of March, its shares have been included in the FTSE Global Micro Cap and FTSE Total-Cap indices, along with TeraPlast shares.
How many Romanian companies will we see on the FTSE Russell assessments list for 2021?
Much has already been said about BVB’s upgrade to Emerging Market status by FTSE Russell, which is a very important event for our capital market. We can summarize that it is an achievement that puts Romanian companies, the Romanian economy as a whole, on the radars of larger international investors and it creates much more attractive conditions for financing local companies through the capital market. Starting with March 2021, Romania has four shares in the FTSE Russell indices: Bittnet Systems (BNET) and TeraPlast (TRP) in the FTSE Global Micro Cap and FTSE Total-Cap indices, and Banca Transilvania (TLV) and Nuclearelectrica (SNN) in the indices for Emerging Markets.
Of course, we want to have as many companies as possible in the FTSE Russell indices and, thus, to increase Romania’s stake in these indices, and we are taking steps towards improving the liquidity of the listed shares. We see companies that turn to brokers to support the increase of their share’s liquidity, through the Issuer’s Market Making activities, we have launched a service through which more listed companies can be covered by brokers through analysis reports. At the same time, we started a project for the introduction of ESG standards by listed companies, in the context in which these standards are becoming increasingly important in the investment decisions of institutional investors.