KBC Securities, the biggest brokerage firm on the Bucharest Stock Exchange by traded value, has assessed the Property Fund (Fondul Proprietatea) at 16 billion RON (some 4.4 billion euros) or 1.13 RON/share, 88% more than the price at which the fund's shares are currently trading, approximately 0.6 RON/share.
This is the first valuation of the Property Fund ever done by a brokerage firm given that its floatation is expected for the first half of 2009. The report comes at a time when a series of major foreign investors have expressed interest in this business. US investment firm Cartesian Group bought 2.85% in the Property Fund a little while ago, and thus became its most important minority shareholder.
Property Fund shares have been trading on a sort of parallel market over the last few months, with the only transactions publicly revealed being two purchases by SIF Muntenia (SIF4) at a price of 0.6 RON/share.
"We estimate the current market price (for Property Fund shares i.e.) stands at some 60% of the par value of the fund's shares, that is 0.6% RON/share. We believe this is too low a price, given that the discount from the correct net asset value we calculated is around 61.5%," KBC Securities report reveals.
KBC analysts calculated a correct value of the net asset (NAV) of the Property Fund that stands at 22.16 billion RON (6.02 billion euros), compared with a value of 14.45 billion RON (3.8 billion euros), calculated according to the guidelines set by the National Securities Commission (CNVM), the same that are used for SIFs.
At this NAV value, KBC analysts applied a 27.1% discount, to cover risks such as low transparency, lack of liquidity and corporate governance problems, and arrived at 16.16 billion RON (4.4 billion euro) value of the fund.
The Property Fund has not published an official evaluation of the companies in its portfolio so far, with the value process still in progress. PricewaterhouseCoopers and Darian audit companies were hired to evaluate the main interests of the fund.
According to KBC, the main advantages of the Property Fund are the high exposure to the energy sector, which is increasingly more profitable, the growth potential of the companies in its portfolio once they have been privatised and the increase in visibility after floatation on the Stock Exchange.
KBC analysts say that the most valuable interests in the fund's portfolio are the 20% stake in Petrom, which they put at almost 8 billion RON (2.17 billion euros), and the similar stake held in the main energy producer, Hidroelectrica, whose value was established at 3.8 billion RON (1.03 billion euros).
Another valuable company in the fund's portfolio is natural gas producer Romgaz Medias, valued at 10.2 billion RON (2.77 billion euros), based on a scenario that takes into account the decline of domestic natural gas production and the increase of prices to bring them in line with those in the EU.
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