The Bucharest Stock Exchange (BVB) has been setting record after record in recent months. Not only has its main index, the BET, soared past its peak before the global financial crisis to reach a new all-time high, there has also been intense activity on AoRO, the dedicated market for smaller companies that has seen a string of new listings and bond issues. The chairman of the board of the BVB, Radu Hanga, talked to bne IntelliNews about the reasons behind the surge in activity. 

In April, the BET exceeded the threshold of 11,000 points for the first time in the exchange’s 23-year history, and has continued to rise, peaking at over 11,700 on May 12 and remaining over 11,600 since then. The BET-TR, which includes dividends, has also set new records. In the first three months of 2021, the two indices soared by 14% and over 12 months the BET rose 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 bourse data. 

This followed record levels of activity in 2020, when investors traded financial instruments amounting to RON18.3bn (€3.77bn), up by almost 25% on 2007, the previous high. 

Looking at the reasons for the strong performance, one is the Romanian capital market’s upgrade by FTSE Russel to emerging market status. In September 2020, the BVB held its first session as an emerging market, which put it into the universe targeted by a wider category of investors, namely emerging markets funds that together have billions of euros under management. 

“The upgrade to emerging market status is one factor which increased the visibility of the market for foreign investors,” says Hanga. 

“On the other hand we have the local ecosystem with higher liquidity and lower interest rates, which creates attractiveness for alternative investments like the Bucharest Stock Exchange.”

He explains: “There is an excess of liquidity in the market coupled with very low financing costs. If you look at the banking sector, lending is growing but at a slower rate compared to the deposit base. In Romania, we see banks accumulating cash in deposits, a low interest rate for deposits, and a decline in the loan to deposit ratio.” That has allowed banks to be more selective in picking solvent companies that are well capitalised to lend to. 

“Here we come into the picture as exactly the channel that feeds capital into companies. The local financial sector is developing now, standing not only on bank financing but also on the capital market,” adds Hanga. 

This is part of a global trend, and markets around the world have continued to rise since the “vaccine bump” last autumn, when breakthroughs by major pharma companies indicated the end of the coronavirus (COVID-19) pandemic had come a bit closer. However, BVB was the first of the stock exchanges in the eastern EU member states whose main index (not including dividends) outperformed the boom years before the previous crisis. 

There’s a virtuous circle as the current high valuations of companies on the BVB make the market more attractive for other companies. “Of course companies are now looking at the stock exchange as a financing route in connection to the valuations they expect. Now we have quite interesting valuations that increase our visibility and attractiveness as a financing route,” Hanga says, reporting a strong pipeline of companies at various stages of addressing both the main market and AeRO. 

The biggest IPO in the pipeline is that of state-controlled hydropower company Hidroelectrica. Anticipated for years and put back multiple times, the latest from the company’s management is that Hidroelectrica will launch on the exchange potentially as soon as the end of this year. Given the sheer size of the company – its market value is estimated by minority shareholder Fondul Proprietatea at over €5bn – this is an important event for the Romanian capital market. 

“We are doing our best in order 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 do this step," says Hanga. "We rely on the fact that given the very good performance of the already listed state-owned companies we are going to see steps made by the state in this direction. If this is going to happen, it will help us in order to obtain the emerging market status also from MSCI. But we are not relying only on Hidroelectrica. We have two IPOs on the main market in the pipeline and we see the picture already improving in this area.”

Meanwhile, there has been a positive evolution in the AeRO market over the last two to three years. AeRO was launched in 2015, taking over from the former Rasdaq platform that hosted smaller, mainly former state-owned companies following the mass privatisations of the 1990s. Recently, however, it has been the go-to source of financing for smaller Romanian companies; the requirements for AeRO are less stringent than for the BVB main market. 

“We see the ecosystem improving. The smaller companies are looking with greater interest towards capital market financing and of course that translated into a lot of new listings, especially on the AeRO market. We see this tend accelerating, in terms of liquidity and the market capitalisation of the AeRO market, which is reaching new highs,” Hanga tells bne IntelliNews. 

“In 2019-21, more and more private entrepreneurial local companies have been using the platform as a way of financing. Companies are raising capital in the form of debt, through bond issues, and companies are raising equity using the AeRO market. The numbers are quite spectacular: in the first four months of this year alone, there have been nine bond issues on AeRO and seven companies listing. A few weeks ago there was a period when we had almost daily events with companies coming to the market. We see this trend continuing going forward. 

“The information we have from the brokerage community is that there is a strong pipeline of companies at different stages of accessing the market, not only for AeRO; we also have a smaller companies addressing the main market through IPOs.” 

While the BVB is open to companies from all sectors, it has been actively working with certain sectors that are better represented in the Romanian economy and have strong growth potential, specifically technology and agriculture. The exchange is getting closer to the two sectors to raise its visibility as a financing opportunity. 

IT, says Hanga, has been a strong driver of the economy in the last few years, and to tap into its potential the BVB signed a memorandum of understanding with the highly successful local equity crowdfunding investment platform Seedblink in March. The two will work together to ease access to financial capital for companies, for example by supporting promising tech start-ups from SeedBlink’s portfolio to assess the opportunity to go public.

The first company to list on AeRO back in 2015 was from the IT sector. Six years later, Bittnet Systems announced it was entering the FTSE Global Micro Cap and FTSE Total-Cap indices. More recent companies to tap the market were online furniture and home decor retailer Vivre Deco and cyber-security company Safetech. 

Agroland, operator of the largest network of agricultural stores in Romania, was listed on the AeRO market on March 1. The company’s shares soared over four times in the first trading day when its market capitalisation reached RON244mn. The very latest listing was by dairy company Laptaria cu Caimac, which went public on May 21. 

The next goal 

Asked what the BVB’s new goal is after achieving its long-held ambition to be elevated to emerging market status – the driving force behind multiple reforms in the last few years – Hanga says there is still a lot to do to grow the importance of the BVB as a financing route for the local market. 

“Our target is to increase the presence and the importance of the Bucharest Stock Exchange as a financing source for the Romanian economy. This is a story that is not going to end. One of the strategic pillars for the Bucharest Stock Exchange is to increase the market capitalisation of the exchange towards 20% of Romania's GDP."

The fourth edition of the 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 aim of the scheme is to increase the visibility of the local entrepreneurial system, and bring together entrepreneurs, investors, brokerage houses and advisers.

Around 600 comparnies have taken part in Made in Romania, out of which some have issued bonds and others have ended up listing. The financing rounds that companies in the programme have carried out in recent years through the BVB have a total value of around €80mn. 

Once the pandemic recedes, the BVB plans to step up its efforts among retail investors. In addition, the bourse recently launched an initiative to improve research for companies that again will help to raise the visibility of listed companies.

The BVB’s management are also looking at diversifying revenues streams and its product portfolio, for example by becoming more active in the data vending area. Probably the most important development is 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 co-operation will bring into the market derivatives not only on stocks and indices, but also on energy products.