bne IntelliNews – Bucharest Stock Exchange sets new records for ignoring coronacrisis
The Bucharest Stock Exchange (BVB) has set record after record in recent months. Not only did its main index, BET, surpass its pre-global financial crisis peak to reach a new all-time high, there was also intense activity on AoRO, the dedicated small business marketplace that has seen a series of new registrations and bond issues. BVB Board Chairman Radu Hanga spoke to bne IntelliNews on the reasons for the boom in activity.
In April, BET crossed the 11,000 point threshold for the first time in the 23-year history of the exchange and continued to rise, peaking at over 11,700 points on May 12 and remaining above 11,600 since then. . BET-TR, which includes dividends, also set new records. In the first three months of 2021, both indexes climbed 14% and over 12 months BET increased by 46.7% and BET-TR by 54.4%. The value of transactions with all types of financial instruments increased by 30.4% at the end of the first three months of 2021 compared to the same period last year, according to data from the exchange.
This follows record levels of activity in 2020, when investors traded financial instruments worth RON 18.3 billion (€ 3.77 billion), up almost 25% from to 2007, the previous peak.
Looking at the reasons for the good performance, one is the upgrade of the Romanian capital market by FTSE Russel to emerging market status. In September 2020, the BVB held its first session as an emerging market, which placed it in the universe targeted by a broader category of investors, namely emerging market funds which together have billion euros under management.
“The shift to emerging market status is one of the factors that has increased the visibility of the market for foreign investors,” Hanga says.
“On the other hand, we have the local ecosystem with higher liquidity and lower interest rates, which creates an attraction for alternative investments like the Bucharest Stock Exchange.”
He explains: “There is excess liquidity in the market coupled with very low financing costs. If you look at the banking industry, loans are increasing but at a slower pace relative to the deposit base. In Romania, we see banks accumulating liquidity in deposits, a low interest rate for deposits and a falling loan-to-deposit ratio. This has allowed banks to be more selective in choosing solvent companies that are well capitalized to lend.
“Here we come into the picture as exactly the channel that feeds capital into companies. The local financial sector is currently developing, relying not only on bank financing but also on the capital market, ”adds Hanga.
It’s part of a global trend, and markets around the world have continued to rise since the ‘vaccine surge’ last fall, when breakthroughs by big pharmaceutical companies signaled the end of the coronavirus pandemic (COVID -19) had come a little closer. However, BVB was the first of the stock exchanges in Eastern EU Member States whose main index (not counting dividends) outperformed the boom years before the previous crisis.
There is a virtuous circle as the current high valuations of companies at BVB make the market more attractive to other companies. “Of course, companies now see the stock market as a financing channel linked to the valuations they expect. Now we have some pretty interesting valuations that increase our visibility and attractiveness as a funding channel, ”says Hanga, noting a strong portfolio of companies at different stages to address both core market and AeRO.
The largest ongoing IPO is that of state-controlled hydroelectric company Hidroelectrica. Anticipated for years and postponed several times, the latest news from the management of the company is that Hidroelectrica will potentially go public at the end of this year. Given the size of the company – its market value is estimated by the minority shareholder Fondul Proprietatea at more than € 5 billion – it is an important event for the Romanian capital market.
“We are doing our best to prove that the Bucharest Stock Exchange is the best place to be for Hidroelectrica, in order to increase the transparency, the image of the government if it decides to take this step,” says Hanga. “We are counting on the fact that given the very good performance of public companies already listed on the stock exchange, we will see measures taken by the State in this direction. If that happens, it will help us achieve emerging market status from MSCI as well. But we don’t just rely on Hidroelectrica. We have two IPOs in the main market going on and we are already seeing the situation improve in this area. “
Meanwhile, there has been a positive development in the AeRO market over the past two to three years. AeRO was launched in 2015, succeeding the old Rasdaq platform which hosted smaller, mostly former state-owned enterprises, following the massive privatizations of the 1990s. Recently, however, it has been the source of funding. privileged for small Romanian companies; the requirements for AeRO are less stringent than for BVB’s main market.
“We see the ecosystem improving. Small businesses are looking with greater interest in capital market financing and of course this has resulted in many new listings, especially in the AeRO market. We see this trend accelerating, in terms of liquidity and market capitalization of the AeRO market, which is reaching new heights, ”says Hanga. bne IntelliNews.
“In 2019-21, more and more local private entrepreneurial companies used the platform as a means of financing. Companies raise capital in the form of debt, through bond issues, and companies raise equity using the AeRO marketplace. The numbers are pretty spectacular: in the first four months of this year alone, there have been nine bond issues on AeRO and seven listed companies. A few weeks ago there was a period where we had almost daily events with companies coming into the market. We see this trend continuing.
“The information we have from the brokerage community is that there is a strong pipeline of companies at different stages of market entry, not just for AeRO; we also have a smaller company that caters to the mainstream market through IPOs.
While the BVB is open to companies from all sectors, it works actively with certain sectors better represented in the Romanian economy and with high growth potential, in particular technology and agriculture. The exchange draws closer to both sectors to increase its visibility as a funding opportunity.
IT has been a powerful engine of the economy in recent years, Hanga says, and to harness its potential, BVB signed a memorandum of understanding with local crowdfunding investment platform Seedblink in March. The two will work together to facilitate access to financial capital for companies, for example by supporting promising technology start-ups in SeedBlink’s portfolio to assess the opportunity to go public.
The first company to appear on AeRO in 2015 came from the IT industry. Six years later, Bittnet Systems announced its entry the FTSE Global Micro Cap and the FTSE Total-Cap clues. The most recent companies to tap into the market were online home furnishings and decor retailer Vivre Deco and cybersecurity firm Safetech.
Agroland, operator of the largest network of agricultural stores in Romania, was listed on the AeRO market March 1. The company’s shares soared more than four times in the first day of trading when its market cap hit 244 million rupees. The latest announcement was made by dairy company Laptaria cu Caimac, which went public on May 21.
The next goal
Asked about BVB’s new goal after achieving its long-standing ambition to be elevated to emerging market status – the driving force behind multiple reforms in recent years – Hanga says there is still a long way to go to increase the importance of BVB as a funding channel for the local market.
“Our goal is to increase the presence and importance of the Bucharest Stock Exchange as a source of funding for the Romanian economy. It is a story that will not end. One of the strategic pillars of the Bucharest Stock Exchange is to increase the market capitalization of the stock exchange up to 20% of Romania’s GDP. “
The fourth edition of BVB’s Made in Romania – aimed at the development and promotion of the Romanian entrepreneurial environment – launched in April, for the first time using a new platform developed in partnership with Microsoft Romania. The objective of the program is to increase the visibility of the local entrepreneurial system and to bring together entrepreneurs, investors, brokerage houses and advisers.
Around 600 comparisons took part in Made in Romania, some of which issued bonds and others ended up being listed. The rounds of funding that the companies in the program have made in recent years through the BVB have a total value of around 80 million euros.
Once the pandemic has receded, the BVB plans to step up its efforts with retail investors. In addition, the exchange recently launched an initiative to improve research for companies which will once again help to increase the visibility of listed companies.
BVB management is also looking to diversify revenue streams and its product portfolio, for example by becoming more active in the field of data sales. The most important development is probably the central counterparty. This is being built by the Bucharest Stock Exchange in partnership with OPCOM, the operator of the Romanian electricity and gas markets. This cooperation will bring to the market derivatives not only on stocks and indices, but also on energy products.