SIF shares soar on new shareholder regulations

The maximum stake that can be bought in financial investment companies (SIF) was upped by the Government via an emergency ordinance last week, which took investors on the Stock Exchange by surprise and sent SIF quotes soaring.

The emergency ordinance stipulates that any investor will be able to own no more than 1% in any SIF, as opposed to the 0.1% cap currently set in the SIF”s operating documents.

SIF shares rose nearly 4% on Friday, before being suspended from trading due to the release about the raising of the interest cap issued by the Finance Ministry. News of this raise first surfaced on the market on Thursday, with SIFs gaining more than 7% over the last two days of trading last week.

Investors on the capital market had been asking insistently for the elimination or at least the upping of the SIF stake cap over the last few years, with this move almost enacted on several occasions.

The Government enacted the ordinance as proposed by the Finance Ministry during the last session of its term, together with about 200 normative acts. The Prime Minister announced he would resign today.

Some of the SIF managers have voiced harsh criticism of the provisions of the emergency ordinance and of how the Government rushed to adopt it, whilst others agree with the provisions.

“I cannot see what was so urgent about raising the SIF cap, given the problems caused by floods. The provisions were already being discussed by Parliament. The Finance minister has enough problems on his hands as it is, such as the flat tax, and cannot address them, but I see he is more concerned about SIFs,” stated Petre Szel, chairman of Muntenia Invest, the company that manages SIF Muntenia.

“We agreed to the 1% threshold. We submitted the issue to our shareholders for consultations and they, in their turn, agreed. We were unable to enact such a provision in our establishment documents for lack of quorum. One percent seems reasonable to me. This is what we had agreed upon when called by Parliament on this,” Sorin Turtoescu, SIF Moldova chairman says. He added the company had already sent the National Securities Commission (CNVM) for endorsement a draft document including the provision for a 1% cap, but CNVM had yet to express its views on this.

The investors on the Bucharest Stock Exchange, who had been requesting the cap to be removed or raised for a long time, were saying that the extremely fragmented shareholder structure of SIFs, imposed by the 0.1% cap, does not allow shareholders to have a say in how the SIFs” assets are managed, with managers being impossible to replace. Each of the five SIFs has about 8 million stockholders, and a group of stockholders that owns 20% could thus impose its view on how the SIF is run.

On the other hand, SIFs” managers were saying that the threshold prevented the major Stock Exchange investors from taking them over and that the SIFs had been created with the small investors in mind, who do not have enough money to build a diversified portfolio. A stake of 1% in a SIF is worth about 2 million euros on the Bucharest Stock Exchange at the moment.

Brokers say they are expecting significant increases for SIF shares soon, particularly because the shareholders will find it easier to replace the management, now that the cap has been upped. vlad.nicolaescu@zf.ro