It’s in everyone's best interest to come out stronger from this challenge caused by the pandemic

It’s in everyone's best interest to come out stronger from this challenge caused by the pandemic

Interview with Radu Hanga, President, BUCHAREST Stock Exchange

Q: How do you see the Romanian economy at this moment and what are the major challenges it faces? 

R.H. The pandemic transformed 2020 in an atypical year for  all  sectors  of  the  economy.  As  in  the  previous  crises, we have casualties, but there are winners, as well.  The  pandemic  came  with  many  uncertainties,  as well with opportunities.  We  must  see  that  beyond  all  problems,  this  health  crisis  and  its  limitations  in  the  area  of  traffic  have  led us to give more importance to local business, to understand  that  we  must  rely  on  what  we  have  around  us  and  at  the  same  time,  that  we  must  support  the  Made  in  Romania  business.  We  have  seen  many  Romanian  entrepreneurs  reinventing  themselves during this period, on one hand, to help their peers and, at the same time, for their business to    survive    this    situation.    We    saw    a    tighter    cooperation between the business environment and authorities, as all of us had to fight this pandemic. One  of  the  first  steps  in  reinventing  the  business  environment,     where     it     was     possible,     was     digitalization.  We  witnessed  a  digital  revolution,  with  many  businesses  going  online  in  order  to  survive.    If    before    the    pandemic,    for    many    companies going online was a ”nice to have” topic, the  pandemic  reshuffled  the  priorities,  thus  going  online  moved  to  ”mandatory”  and  it  meant  the  survival of the business itself. Now, we see farmers and  other  manufacturers  selling  their  products  online.  As  well,  many  companies  that  were  online  even before the pandemic rose their market share. The  same  is  for  the  courier  companies  which  had  to accelerate their growth in order to comply to all the orders.If  we  look  at  the  global  picture,  the  International  Monetary Fund (IMF) autumn forecasts indicate a decline in international trade by 10.4% year / year in  2020,  followed  by  an  increase  of  8.3%  year  /  year in 2021.

For  world  GDP,  the  IMF  forecasts  a  decrease  of  4.4% year / year in 2020, followed by revitalization by 5.2% year / year in 2021.Now we understand that the support for the Made in  Romania  business  must  come,  first  of  all,  from  us, those who live in Romania, because globally the situation does not look that good.

Q: The pandemic has certainly repositioned priorities.  How  do  you  feel  the  attitude  of      Romanian      companies      towards      Bucharest Stock Exchange, compared to the pre-Covid19   crisis   period?   What   trends   can   you   identify  in  this  direction?  How  can  Bucharest  Stock Exchange support Romanian entrepreneurs that need financing for their projects?

R.H. As  we  have  seen  in  history,  any  crisis  comes  with  opportunities,  and  in  the  current  context,  I  think  that   one   of   the   opportunities   is   to   support   Romanian   businesses,   so   that   they   develop,   to   become formidable players. The   capital   market   is   a   real   support   for   all   companies,  because  on  the  stock  exchange  they  can  find  the  necessary  capital  for  development  and, at the same time, they can attract new clients, or  convert  the  current  clients  to  become  as  well  their  shareholders.  Investors  are  more  inclined  to  consume the products or services of a company in which    they    are    shareholders,    having    more    confidence in them. This opportunity is a two-way highway,   as   the   customer   is   more   inclined   to   become   a   shareholder   of   a   company   whose   products and services he/she uses.We  have  examples  even  this  year  marked  by  the  pandemic,   in   which   we   saw   financing   rounds   successfully  carried  out  by  Romanian  companies,  but also by the Romanian State, and the values are impressive, because we are talking about over EUR 500mn,  money  attracted  via  the  capital  market  investors.    The    amounts    ranged    from    several    hundred thousand euros to hundreds of millions of euros. They are small and medium companies, but also  large  companies.  All  these  financing  rounds  were   a   success   because   investors   are   always   attentive  to  the  opportunities  that  arise  and  are  willing  to  place  some  of  their  money  in  these  companies,     whether     we     are     talking     about     companies that access the money by selling shares or issuing bonds.In  the  last  two  years  alone,  we  have  witnessed  almost 30 rounds of financing through bond issues, with   a   cumulative   value   of   EUR   1.5bn,   which   strengthens  the  fact  that  money  is  not  a  problem  on   the   capital   market,   but   they   expect   only   opportunities  to  be  placed.  This  year  only,  there  were  listed  12  bonds  issues,  worth  EUR  538mn,  and  we  witnessed  the  listing  of  two  companies,  both from agribusiness. Other financing rounds are carried out even when we speak, as there are about 15  companies  in  the  pipeline,  and  these  are  only  based on the information publicly available. So,  we  could  conclude  that  the  Romanian  capital  market  is  seen  better  and  better  by  Romanian  entrepreneurs as it provides an unlimited access to finance even in times of uncertainty. 

Q: Beyond   the   pandemic   situation,   this   year   also   brought   good   news   for   the   Romanian   capital   market,   which   was   recently  upgraded  to  emergent  market.  What  exactly    does    this    mean    for    the    Romanian    business environment?

R.H. September  21st,  2020  is  a  historical  moment  for  the   Romanian   capital   market   as   it   marks   the   upgrade  to  Secondary  Emerging  status,  by  the  international indices provider FTSE Russell.By entering the category of Emerging Markets, we have access to a much larger investment universe, which  in  terms  of  money  means  about  EU  250bn.  Now, Romania has a small share in the FTSE Russell indices for Emerging Markets, but it is up to us as a market to increase this share and to have as many companies as possible in these indices. Banca   Transilvania   (TLV)   and   Nuclearelectrica   (SNN) are the first two Romanian companies to be included in the Emerging Markets indices, and this access   has   brought   other   benefits   to   the   local   capital market, so that other listed companies will be able to enter FTSE Russell indices, and the first example  is  the  TeraPlast  (TRP)  company.  OMV  Petrom  (SNP)  and  BRD-Groupe  Societe  Generale  (BRD) are the other two Romanian companies that The support for the Made in Romania business must come, first of all, from us, those who live in Romania.

13have   chances   to   enter   the   FTSE   indices   for   Emerging Markets next year.We  hope  to  have  at  least  one  more  important  company   included   in   the   indices   at   the   next   rebalancing decision, which will be taken by FTSE Russell in March 2021. And following our goal, we are in discussions with other companies that may qualify  to  be  included  in  the  FTSE  Russell  indices  and present them with several solutions to improve liquidity and make them more visible to investors. We  can  say  that  at  the  moment,  we  have  a  capital  market  in  which  a  much  stronger  community  of  individual  and  institutional  investors  operates,  a  market that is much more attractive for companies already listed or who want to be listed in terms of financing  costs  through  the  market  of  capital.  A  larger   number   of   investors   leads   to   a   higher   demand    for    financial    instruments    issued    by    Romanian  companies,  and  the  effect  is  a  better  assessment   of   them   and,   implicitly,   access   to   finance  at  lower  costs.  We  already  see  that  more  and  more  Romanian  companies  are  starting  to  realize  this  created  opportunity  and  consider  the  financing  through  the  capital  market  as  the  main  solution  for  the  development  strategies  they  have  in mind.Along  with  joining  the  Emerging  Markets  league,  our  objectives  have  been  raised  and  we  must  aim  even  higher,  and  for  an  improvement  in  liquidity  we  are  working  on  several  levels,  we  want  to  implement ESG standards among listed companies, we  are  considering  a  wider  coverage  of  issuers  through analysis reports and a number of projects for   both   issuers   and   investors   are   still   being   prepared.The upgrade to Secondary Emerging Market status by  FTSE  Russell  is  a  first  step  towards  the  next  upgrade, that by MSCI, but for this we still need to increase  at  least  in  terms  of  liquidity.  There  are  currently  4  companies  that  have  chances  to  meet  the   criteria   imposed   by   MSCI,   namely   Banca   Transilvania  (TLV),  Romgaz  (SNG),  BRD  –  Groupe  Societe  Generale  (BRD)  and  OMV  Petrom  (SNP).  Unfortunately, only Banca Transilvania meets them consistently, the other three mentioned companies still have certain months in which they do not meet at  least  one  of  the  imposed  criteria.  However,  it  must  be  said  that  in  this  context,  a  listing  of  an  important company such as Hidorelectrica, would significantly  help  to  meet  the  criteria  imposed  by  MSCI.

Q: Are  investors  more  careful  now,  given  the  pandemic  context,  or  do  they  seize  more opportunities in time of crisis?

R.H. Volatility,   opportunities   and   maturity   are   the   words  that  can  characterize  2020  on  the  stock  market.We   are   talking   about   a   maturity   of   investors,   because  many  investors  saw  in  the  price  drops  back   in   February   –   March   some   very   good   opportunities to enter or re-enter the market. If we look only at the evolution in the first quarter, when the market reached the lows of the year, there were already  about  10%  (almost  1500  accounts)  more  active   accounts   than   at   the   end   of   2019.   The   number  of  accounts  continued  to  also  increase  when  the  market  trend  reversed  and  the  prices  started to grow, so we can say that volatility in the first half of the year has led to an increase of about 15%  -20%  in  the  number  of  new  or  reactivated  retail     accounts     (somewhere     around     3,000     investors), a trend similar to many of the developed markets.  At  the  same  time,  the  brokers  that  allow  the  online  opening  of  investment  accounts  have  had  an  important  contribution  to  this  evolution,  especially   in   these   times   when   the   sanitary   distance must be maintained. All    this    time,    we    have    witnessed    successful    financing rounds on the Romanian capital market, which   shows   that   despite   volatility,   fears   and   uncertainties, investors are paying attention to any investment opportunity arises. Therefore,  we  can  say  that  the  pandemic  brought  significant   opportunities   for   those   who   were careful to identify them and had the courage to take advantage  of  them.  And,  we  must  not  forget  one  thing: no matter how the markets evolve in the short term,  an  investor  must  not  give  up  the  discipline  of  investing   recurrently,   having   a   long   horizon   for   investment in the capital market

Q: Which   is   your   main   objective   now,   as   Chairman of Bucharest Stock Exchange?

R.H. Bucharest  stock  Exchange  is  a  team  and  it  always   was,   thus   I   will   speak   about   our   main   objectives:  to  have  more  companies  listed  and  to  have more active investors.Of  course,  from  these  two  objectives  derives  more  targets and so on. Despite the difficulties in the first half of the year, we can  say  that  2020  promises  to  be  a  year  with  many  projects   and   progress   for   BVB.   The   upgrade   to   Emerging    Market    status    is,    certainly,    the    most    significant  achievement  and,  without  a  doubt,  it  will  bring new foreign institutional investors to contribute to the financing of the Romanian economy. In the light of this upgrade, we will do our best to have more   Romanian   companies   included   in   the   FTSE   Russell   Indices   for   Emerging   Market.   Thus,   BVB   focuses  on  projects  that  aim  to  better  promote  local  issuers,  both  internally  and  externally,  by  improving  coverage     with     fundamental     analysis,     and     by     implementing   reporting   standards   for   responsible   investment,  the  so-called  ESG  standards,  which  are  becoming increasingly important for foreign investors.We  are  convinced  that  these  projects  will  have  a  visible positive impact in the medium term and will increase the interest in companies listed on BVB.

Q: What do you think that this Covid19 crisis has  to  teach  us?  Which  is  the  lesson  that  we  must  not  miss  from  this  atypical  and  unprecedented situation?

R.H. I  think  the  most  important  lesson  is  the  one  taught  by  the  listed  companies,  by  those  who  attracted  funding  through  the  capital  market,  including  the  Ministry  of  Public  Finance,  namely  that  the  stock  market  is  an  engine  of  the  economy,  it  is  a  channel  that  allows  the  transfer  of  money  from  those  who  own them and want to invest them in companies that need  that  money  to  grow.  We  are  talking  about  financing rounds of over EUR 500mn only this year, money that was placed by investors on the Bucharest Stock Exchange.We have noticed that some companies have put their development  plans  on  hold  as  a  result  of  the  crisis  caused  by  the  Covid-19  pandemic,  but  on  the  other  hand,  we  have  seen  companies  that  have  continued  to  grow  and  finance  this  development  through  the  capital market.In fact, previous crises have shown that such periods are  good  for  investment,  and  the  companies  and  investors   who   have   identified   the   opportunities   generated  by  the  crises  have  been  and  are  the  ones  to win.

Q: What’s  your  „Focus  on  ...“  advice  for  the  Romanian  entrepreneurs,  regarding  their  finances and investments?

R.H. The  focus  must  be  on  their  company  sustainable  development.    On  the  Stock  Exchange  we  see  more  and more young, entrepreneurial companies, which came  a  long  way  and  they  have  reached  a  certain  level   of   development.   Any   development   involves   several   stages,   the   entrepreneur   gets   to   a   point   where  he  has  to  make  a  decision  related  to  limiting  the  growth  of  the  company  to  the  resources  that  it  has  and  the  resources  that  the  entrepreneur  has  or  to  use  the  resources  of  other  people  to  accelerate  this growth. And this is the stage where the investors step in, either they are investors on the stock market, venture capital or private equity. But the entrepreneur should Focus on the investors, as well. The moment the entrepreneur turns to other people's money, he starts to be part of a team that is part  of  that  business,  a  team  of  shareholders  who  have invested money in the company, and governance, transparency,     communication,     are     starting     to     become key elements.

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