The Romanian capital market, like other European markets, is susceptible to macroeconomic volatility. Significant legislative changes, such as the recent Emergency Ordinance no. 114/2018, which introduces a tax on banks' financial assets and new taxes on turnover in the energy and telecommunications sector, as well as additional capital requirements for private pension fund managers (the most important institutional investors on the stock exchange) may affect investor confidence in the Romanian economy as a whole. We consider that the concerns expressed by investors about the long-term effects of Emergency Ordinance no. 114/2018 do not necessarily reflect a lack of confidence in trading on the stock exchange, but rather a natural reaction to the uncertainty created in fiscal and economic regulations nationally.
The stock exchange can be considered a barometer of the performance of the Romanian economy because, broadly speaking, it reflects the tendencies and developments relating to the financing of Romanian entrepreneurs. Moreover, beyond the role of an objective barometer, the relationship between the stock exchange and the investment climate is a symbiotic one, because the stock exchange facilitates the trading of liquid financial products, thereby attracting investors who wish to benefit from a return that can be converted at any time into cash.
2019 could be the optimal moment for companies to initiate a realistic access plan towards the next level of development, through a stock exchange listing within a predictable and controlled time frame. In Romania, some entrepreneurs are hesitant about listing their companies for reasons that are not necessarily well-founded, including concerns that their company is too small or that they will lose control over their business. In order to clarify such matters and to present a realistic and feasible choice for development through a stock exchange listing, KPMG has compiled the Guide to Listing on the BSE with the aim of addressing the key aspects of a listing decision, preparation of the offer, actual listing and post-listing obligations.
A strong performance of stock exchange-listed financial products may promote more investments in companies that issue the relevant shares or bonds. This is because investors are taking into account the prior performance of financial products and consider the sustainability of companies on the basis of factors including return on stock exchange investments, corporate governance and investor relations. In turn, investments on the stock exchange attract significant financing, including foreign capital inflows, which can help to develop companies and, by implication, the Romanian economy.
In a study conducted by the United Nations Conference on Trade and Development (UNCTAD) in 2017, The Role of Stock Exchanges in Fostering Economic Growth and Sustainable Development, it is demonstrated that the financial services economy affects the “real” economy through its impact on productivity, the efficient allocation of resources and increased rates of competition and innovation. Moreover, the transfer and sharing of risk facilitates the mobilisation of capital. The study shows that the size of the capital market (as measured by stock market capitalisation) can be less important than market liquidity.
The recent listings described in the Guide illustrate that, in addition to attracting considerable financing, the benefits of listing include business efficiency and growth, at both national and international level, through the implementation of the corporate governance procedures required by the BSE following admission to trading. Investors and issuers anticipate the benefits that may be generated following a potential reclassification in the near future into the emerging market category, which would confer the status of "investment grade".
The Guide offers Romanian companies an overview of the main features of listing on the BSE. The Guide considers the stages of listing in a holistic way, starting with the listing decision and reaching the post-listing reporting requirements. KPMG supports this contextual approach because a successful listing requires careful preparation, including changes in corporate governance.
“Listing on the stock exchange can be an important journey in the development of a company, but this journey towards being a mature business requires considerable preparation. As a preliminary listing stage, companies should carry out a self-assessment of their level of preparedness, and start to be managed like a listed company just before going through the public offer process, by implementing internal control and financial reporting systems and by introducing a corporate governance structure, in order to assess in advance their ability to meet investor and regulatory requirements. Romanian businesses will benefit from the internal control processes and strong financing and governance structures that a listing can bring, because these will increase their competitiveness” said Cezar Furtună, Partner, Head of Audit and Asssurance, KPMG in Romania.
The Guide emphasises that the benefits of listing can be enhanced if the entrepreneur forms a team with strong expertise in order to implement the necessary operations. The team members may include the CEO, financial director, intermediaries, lawyers, auditors, tax consultants and valuers. The team requires a lasting strategy because team members need to get involved in the listing process starting with the company’s first preparatory steps for listing, in preparing the necessary documentation, and up until the implementation of post-listing strategies.
While listing offers significant benefits to well-prepared companies, one should not overlook the challenges of listing, including closer monitoring, additional formalities for decision-making and the dilution of control. To help meet such challenges, the Guide covers the key questions that should be posed by an entrepreneur who is considering a listing.
“As with any other initiative that brings long-term rewards, the stock exchange listing process is not without challenges. However, you can confidently confront these challenges by managing their impact if you are well informed and prepared for them. Examples from other Eastern European countries, like Poland, show that listing can help you reach a different league, and consequently we find no reasons for Romanian companies not to be important players at local and regional level. Listing on the stock exchange can help increase the transparency and visibility of companies that aim towards an accelerated development. We have compiled this publication in order to help you gain an overview of the process. We trust that you will find this Guide a useful reference when you commence this journey,” stated Laura Toncescu, Partner KPMG, Head of KPMG Legal.
Key themes covered by the Guide:
- Listing can help create a lucrative mix of financing based on credit (debt finance) and own capital (equity finance);
- Financing obtained through the stock exchange can enable the company to invest in innovations, technologies and work practices that could bring you a competitive advantage;
- Admission to trading on the BSE is realised through an initial public offering, a private placement or a technical listing;
- The stages of listing, namely the decision, preparation, listing and post-listing;
- The process of admission to trading implies the fulfilment of certain technical conditions and administrative formalities, including those relating to free-float;
- Potential investors, including investment funds, pension funds, financial institutions, listed and unlisted companies;
- The costs of listing, including the administrative tariffs imposed by the BSE and the FSA;
- In the course of a listing, prospective investors will accord a heightened attention to the level of trust conveyed by the structure and composition of the company’s corporate governance;
- The prospective reclassification in September 2019 of the Romanian capital market into the emerging market category would help the market to be targeted by foreign investment funds with considerable capital;
- The public offer prospectus, although complex, follows a structure that is well-defined by Romanian and European legislation.