Romanian Hidroelectrica not insolvent, IPO to follow soon

Hidroelectrica, Romania’s largest power producer is officially solvent, as stated in the final court decision. This move will enable stock-market trade with Hidroeletrica’s shares.

Court’s decision is final, and it will unblock Initial Public Offer (IPO) sale of 15% of company’s share. Remus Borza from Euro Insol, court appointed administrator of Hidroelectrica, expects that this share will reach value of EUR 1,06 billion.

“The closing of the insolvency procedure means we are heading towards listing Hidroelectrica. If the government will change its privatization methodology, the selling of a 15% stake in the company will bring EUR 1 billion into the finance ministry’s treasury, an amount which would allow the government to fit in the 3% deficit target assumed for 2017,” according to Borza.

According to the current methodology, the proceeds from IPO would go to Hidroelectrica’s account, and not to state budget, says Borza, adding that company does not need that money.

Bad contracts and overpaid staff

Hidroelectrica’s troubles were caused by 11 contracts of electricity supply which were detrimental for the company: due to unfavorable clauses, those contracts could not have been ended. Second cause were Hidroelectrica’s purchase of electricity contracts, by which the company was buying electricity from other producers for higher prices, and finally, the company was criticized for EUR 100 millions spent on staff while the losses and debts were piling up.

Court proceeding was initialized five years ago and its intent was to contest Initial Public Offer (IPO) for the sale of 15% of the Hidroelectrica ownership. Company was declared solvent by the court in June 2016, but that decision only now became final. After coming back from the brink of bankruptcy and appropriate restructuring, Hidroelectrica announced investment of EUR 500 millions in modernization.

During the insolvency procedure, from 2013 to 2016, Hidroelectrica reported cumulative profit of EUR 1 billion and annual earnings before interest, depreciation and amortization of EUR 500 millions. The market value of company was doubled, from EUR 2 billions in 2012, up to EUR 4 billions in 2016. Gross Hidroelectrica’s profit in 2016. was EUR 352 millions, an year-to-year increase of 36%.

Romanian Government owns 80,06% of the company, while Restitution Fund is the owner of the remaining shares. The government intends dual-listing in stock-markets in Bucharest and in London. Those plans were constantly delayed because insolvency court procedure took more time than expected, despite company’s strong financial recovery. Hidroelectrica operates more than 207 hydropower plants, with total installed capacity of more than MW 6.432.