Fondul Proprietatea (FP.) has announced that, based on the preliminary data held by AIFM (Franklin Templeton International Services S.À R.L.), there is a high probability that the next reported NAV will be at least 5% lower than the most recent NAV as of 31 May 2023 (which was published by the fund on 15 June 2023). The company says that the NAV discrepancy is mainly due to an update in the valuation for S.P.E.E.H. Hidroelectrica S.A. (Hidroelectrica), based on the final offer price in the initial public offering by the fund of Hidroelectrica’s shares (click here to see more on our coverage of the IPO announcement). The offer closed on 4 July 2023 and the final offer price was RON 104 per share, which is just above the midpoint of the indicative price range that was set at the outset of the offer of between RON 94 and RON 112 per share.
[QD comment: this will likely come as a surprise to the market as the IPO pricing came in towards the middle of its target range. If the NAV had been computed properly, it would have taken a conservative estimate of the price and allowed for costs associated with the issue. At this stage, no other information has been provided and it is difficult to see what has gone wrong. Regardless, it should be remembered that Hidroelectrica was Fondul Proprietatea’s largest holding, accounting for around 75% of the fund, which will now be in cash. From what we have read so far, we cannot find any indication from the fund as to what it proposes to do with the cash proceeds but, based on past experience, we would expect the proceeds to be returned to shareholders, which is also consistent with the fund’s reason for being (the fund was established by the Romanian Government in 2005 to compensate people who lost property under former communist governments, with claimants awarded shares in Fondul Proprietatea in lieu of compensation). Of course, assuming that the cash from the sale is disbursed as hoped, the remaining fund will be much smaller (all things being equal, its market cap should fall from around £1.78bn to around £440m) and will be an eclectic mix of smaller investments. The most significant of which is its holding in CN Aeroporturi Bucuresti SA, which provides airports services for passengers, cargo and mail transportation and will account for around 20% of the remaining fund. It is possible that a smaller fund that does not have the benefit of the expectation of a large influx of cash, may well trade at a wider discount to NAV ]
Fondul Proprietatea says that it will publish the NAV report for 30 June 2023 no later than 14 July 2023.