Vol. 3 No.1  

The future of Municipal bonds in Romania

Edgar Jakab, attorney at law at Norr Stiefenhofer Lutz maps out the legal state of play regarding municipal bonds

     Compared to similar markets in central and eastern Europe, the growth in the municipal bonds market in Romania in the past years has been relatively strong and there is every reason to believe that this will continue in the near future.
     This article shall briefly summarise the main relevant aspects of the legislative background for issuing municipal bonds in Romania.

I. Legislative framework. The concept of local public debt

     In addition to the Capital Market regulations, the provisions of Public Financing Law and of Law on public finance are to be taken into consideration, when issuing debt.
     According to the public finance regulations, the local public debt represents a general obligation, which must be reimbursed by the municipalities from their own income resulting from taxes, fees or contributions. In this regard, municipal bonds are regarded as an instrument of the local public debt.
     However, local public debt does not represent an obligation of the Romanian Government and thus it shall be paid only from the local budget or from loans contracted for the re-financing of the local public debt. Thus, municipal bonds are guaranteed only by the taxing power and tax revenues of the municipality issuing bonds.
     In order to prevent defaults and associated financial crises, municipalities are not allowed to access additional debt, if the total debt amount representing due instalments to outstanding loans, including interest and commissions, exceeds the limit of 30 per cent of the total income of the respective municipality.

II. Conditions for municipal bonds

     In order to perform activities associated with the issuance of municipal bonds, municipalities shall contract a financial intermediary/a bank authorised to perform financial services. The authorisation is granted by the National Securities Commission (NSC). Equivalent financial intermediaries or credit institutions from one of the EU Member States are required to register with the NSC’s public register to be able to provide financial services in connection with the issuance of municipal bonds to Romanian municipalities.

III. The public offering

     Pursuant to the relevant Capital Market regulations, public trading of municipal bonds on the Stock Exchange (i.e. secondary trading) is conditional upon their public offering to a wide range of investors, connected to their registration in the records of the Central Securities Depository. Further to this, debt securities subject to admission to public trading on the Stock Exchange must be freely negotiable and fully paid for.

1. The prospectus

     Municipalities wishing to initiate a public offering shall submit to NSC an application for the approval of the prospectus. The prospectus shall contain all information which, according to the particular nature of the issuer and of the securities offered to the public, are necessary to enable investors to make an informed assessment of the assets and liabilities, financial position, profit and loss, and prospects of the issuer.

2. Approval of the prospectus

     The NSC shall approve the prospectus within ten working days from submission of the draft prospectus or within 20 working days if the public offering of securities refers to securities issued by an issuer whose securities have not yet been admitted to trading on a regulated market and who has not publicly offered securities until the day of submission of the application for approval of the prospectus. Not meeting the abovementioned time limits shall not constitute an approval of the prospectus.
     Every new important fact, objective error or inaccuracy with regard to the information in the prospectus must be stated in a supplement to the prospectus. NSC has a period of up to seven working days to approve the supplement.

3. Validity period of the prospectus and subscription

     The prospectus approved by NSC shall be valid for a period of 12 months after its publication, and may be used for several bond issues during this period provided that its information is updated. The Capital Market regulations provide for several ways in making the prospectus available to the public.
     The stage of primary sale of securities begins after six working days from the publication of the announcement, whereby the prospectus must be made available to the public, in the form and with the content approved by NSC. The duration of the public offering must be of minimum five working days and no longer than 12 months.


     The capital market shall serve undoubtedly as a place for municipalities in Romania to acquire long-term capital, thus transforming municipal bonds into a key part of their infrastructure finances.

Edgar Jakab
Str. General Constantin Budisteanu
nr. 28 C, sector 1
RO-010775 Bucuresti
Tel. ++40-(0)21-3 12 58 88
Fax ++40-(0)21-3 12 58 89
E-Mail: edgar.jakab@noerr.com
Web: www.noerr.com