According to media writings, Fondul Proprietatea has urged the Romanian Government to reject Hidroelectrica’s request to submit a binding offer for potential acquisition of CEZ assets.

According to media writings, Fondul Proprietatea has urged the Romanian Government to reject Hidroelectrica’s request to submit a binding offer for potential acquisition of CEZ assets. The reason behind this is the belief that such actions would not create value for the company’s shareholders and would affect its listing process and potential valuation, which would hinder Romania’s chances of being upgraded to MSCI Emerging Market status.

To stipulate their stance, Fondul stated that acquiring CEZ’ assets risks diluting the overall value of Hidroelectrica, since the targeted electricity supply business and the renewables assets generally have a reduced profit margin, when compared to Hidroelectrica’s current hydro power operations. Furthermore, the company has no proven track record in managing these types of assets and dealing with subsequent integration challenges. Finally, regulatory risk plays a role here as well, since Hidroelectrica would take over the regulatory risk related to green certificates.

As a reminder, Hidroelectrica, the largest electricity producer and the most profitable state-owned company in Romania has only two shareholders – the Romanian State, with an 80% stake, and Fondul Proprietatea, with a 20% stake. Meanwhile, according to Foundul Proprietatea’s last NAV report, Hidroelectrica represents their largest individual holding, accounting for 42.7% of their total NAV. Therefore, the fund’s performance is largely dependant on the valuation and operating result of Hidroelectrica.