Reuters: Bankruptcy News: Leading Romanian privatisation target insolvent

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Leading Romanian privatisation target insolvent Jun 22nd 2012, 15:41 By Abhinav Ramnarayan Fri Jun 22, 2012 11:41am EDT LONDON, June 22 (IFR) - The Romanian government stunned the Bucharest market last week as privatisation target Hidroelectrica was declared insolvent, in a move that puts the rest of the privatisation programme into doubt. The energy company had been scheduled to list in Bucharest later this year to raise up to 450m euros, but the company applied for insolvency last Tuesday in what people involved described as a bid to tear up existing contracts and restructure its tariff regime. Remus Vulpescu, the chairman of the board, is a former barrister and expert in insolvency law. The strategy is a risky bid to change a tariff regime that effectively used the state-owned power firm to provide subsidies to major companies, including aluminium producer Alro and ArcelorMittal's local unit. "It's a very drastic nuclear option, and our shareholders are not happy with it," said Greg Konieczny, who manages the restitution fund Fondul Proprietatea, which owns 20% of Hidroelectrica. "The government has to be careful not to go the Hungarian way and scare everyone out of the country." The Bucharest court that declared the company insolvent last Wednesday said that Hidroelectrica must still honour all contracts, unless it can show that contracts were not signed in conditions of legality, efficiency and transparency. WATERLOGGED The hydro-power unit was the first of four privatisation deals planned for this year, with Fondul Proprietatea, Transgaz and Romgaz set to follow. The state had been hoping to raise 350m-450m euros from Hidroelectrica's IPO, led by Citigroup, Societe Generale, BRD and SSIF. It could now take until 2014 for the deal to be viable again, one local banker said. Three bankers mandated on the Romanian privatisations told IFR that the whole privatisation programme was now at risk. "We just have to hope that Vulpescu knows what he is doing," said one banker focused on the region. "And who knows - maybe it will pay off and will make the asset more attractive in the future." Hidroelectrica, which operates one of the largest hydro-power plants in Europe, has seen its business hit by drought and by last year's European Commission investigation into its complex and punitive tariff regime. The company should be Romania's most valuable firm, given the quality of the assets in its portfolio - instead it is among the least profitable in the energy sector, the local banker said. The insolvency also means that key shareholder Fondul Proprietatea had to write down the entire value of its stake in Hidroelectrica - a fifth of its previous net asset value - and will struggle to go ahead with a planned 1bn follow-on deal in Warsaw (see Equities for more). Apart from this, the move calls into question the Romanian state's managerial capacity and will make it very difficult for other privatisation targets to attract international investment, one CEE-focused ECM banker said. The government had been scheduled this year to sell a 15% stake in natural gas distributor Transgaz and launch the 200m-300m euros IPO of natural gas unit Romgaz. Romania is still under pressure from the IMF to go ahead with the privatisation programme, and one local analyst still believes that Transgaz will complete in September and Romgaz towards the end of the year. However, even if the transactions arrive, investors now have an excuse to trim valuations. (This story will be published in the June 23 issue of International Financing Review, a Thomson Reuters publication; www.ifre.com) (Reporting by Abhinav Ramnarayan; Editing by Matthew Davies) Link this Share this Digg this Email Reprints

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