The first details about Transgaz SPO: Three tranches, discount of 3-5% for retail


The 15% stake in Transgaz to be sold on the stock exchange will be divided into three tranches, one of 85% for institutional investors and two for retail, totaling 15%, with a price established depending on the subscription for the large tranche, while small investors will benefit from a 3-5% discount. The category of institutional investors includes credit institutions, investment firms, undertakings for collective investment (investment funds, investment companies and/or investment management companies), insurance companies, pension funds and the companies managing such pension funds, traders and trust companies.

How will the price be set for institutional investors?

[cleeng_content id=”363972226″ description=”Buy this translation today. This article has 8991 characters with spaces. ” price=”12.99″ t=”article”]The sale price for institutional investors will be determined at the level of the lowest subscription price recorded in this tranche, if the total number of shares subscribed by them represents less than 150% of the number of shares allocated, or will be equal with the price at which the tranche is subscribed 150% or, if such a price does not exist, with the price at which the tranche is oversubscribed at the subscription level immediately inferior to the 150%, if the total number of shares subscribed by them represents 150% or more of the number of shares allocated for them, according to a document obtained by Mediafax. The price thus determined will be applied to all investors gaining shares within the institutional investors tranche.

How will the price be determined for retail investors?

The retail investors tranche will be divided depending on the size of subscriptions. Thus, 8% of the entire stake is destined to retail investors subscribing at least 1,001 shares and don’t have a maximum limit imposed. At the same time, a 7% stake is for the tranche of retail investors who subscribe between 10 and 1,000 titles. The size of tranches will be adjusted at the end of the offering period, to avoid an excessive discrepancy between the oversubscription level of the three tranches. In the institutional investors tranche, oversubscriptions can be performed at any price included in an interval with an inferior and a superior limit, which will be established, and for the subscription tranche starting from 1,001 shares all the subscriptions will be made at a price per share representing the superior limit of the interval established for the institutional investors. The sale price of shares within the tranche with subscriptions starting from 1,001 shares will be equal with the price at which the shares will be sold within the institutional investors tranche. For low subscriptions, all the subscriptions will be made at a price representing again the superior limit of the price interval established for institutional investors. The state will offer however to these small investors, with subscriptions for 10-1000 shares, a discount for the sale price of 5%, if they subscribe in the first three days of the offering, and 3% if they subscribe in the remaining offering period. Thus, the sale price of shares within the tranche of small subscriptions will account for 95% of the price established for the institutional investors, if it is subscribed in the first three working days, and for 97% if it’s subscribed as of the fourth working day of the offering period. “The superior limit of the price interval is an integral and indissoluble part of the offering structure included in the prospectus and represents the subscription price for the investors of the large subscriptions tranche and the small subscriptions tranche. The international practice is that the retail investors don’t participate to price determination, but they subscribe at a fixed price, while the shares are sold at the price established in the tranche of institutional investors, to which a discount can be applied. This practice is a consequence of the fact that the understanding and analysis capacity of institutional investors is significantly higher than that of the vast majority of the retail investors. Therefore, this practice establishes a protection mechanism for retail investors, to avoid the situation in which they acquire the shares sold in the offering at a higher price than that paid by institutional investors. Therefore, because the sale price of shares to retail investors is determined at the end of the offering, the price at which these investors subscribe in the offering period must be determined. For these reasons and in conditions in which, anyway, the price to be paid is determined in relation to the sale price established for the tranche of institutional investors, it’s not recommended and practical for the retail investors to be able to subscribe at any price, situation that would generate confusion and, therefore, a lower demand for the shares; a reference price must be indicated, i.e. a fixed subscription price”, the document explains.  It is thus shown that, lacking a price interval, thus a maximum price, the only price reference that could be indicated to retail investors would be the minimum price, but another element that must be considered at this moment is that subscriptions in the two retail tranches must be pre-funded (subscription is only valid in the situation in which its equivalent value is paid in the collection accounts), requirement set in order to eliminate the risk of unsettlement of the transaction. “Thus, it clearly results that, in the situation in which the price established in the tranche of institutional investors is higher than the minimum price, the settlement risk will not be covered. The only situation in which this risk is eliminated is the one in which the offering has a price interval (i.e. a minimum price and a maximum price), and the retail investors subscribe at the maximum price. Thus, we consider that the existence of a maximum price is imposed by transaction security reasons, to ensure the full collection of the amounts resulted from the offering, as well as to avoid situations that could be an image risk for the bidder”, the quoted source claims. The share allocation will be made by the pro-rata method, in accordance with the capital market regulations and the provisions of the offering prospectus. The document also shows that, following the pre-marketing campaign carried out by the intermediation union, there hasn’t been any indication of interest from institutional investors at an equal or higher price than the share market price and that the maximum limit of the price interval will be established at a comfortably higher level than the market price at the time of the offering, as to avoid actual limitations of the maximization potential by the state of the sale price. The collection of subscriptions in the tranche of institutional investors will be made according to the bookbuilding method, which involves a structured communication between the Intermediation Union and the institutional investors, so that the offering is subscribed as soon as possible near the minimum price of the interval and allow the accumulation of subscriptions at an average upward price and oversubscription of the offering over a wide range of prices, as well as the comfortable oversubscription of the offering as close as possible to the superior level of the price interval.

How long will the offering last?

The document also shows that the duration of the public offering will be set by exemption from the current privatization rules for companies, which establish a minimum duration of the public offering of 30 days, because the capital market legislation establishes a minimum duration of the public offering of 5 working days, so the duration of Transgaz SPO will be established in relation to the legal rules of the capital market legislation. The measure is argued by the fact that a duration of the offering of 30 days is excessively long in relation not only to the Romanian practice, but also to the international standards, and that a very long duration of the public offering is not likely to create its success chances, because investors of the retail tranches pay the price of shares upon subscription but would benefit from the shares only at the settlement of the public offerings. The authorities’ conclusion is therefore that, in relation to a 1-month duration of the offering, it results that the retail investor who paid the shares in the first day (as effect of subscription) will benefit from the shares after one month, in which context the investors would be discouraged to subscribe in the first days of the offering and thus will subscribe in the past days of the offering. The 15% stake in Transgaz that the Government will sell in the immediately following period by a SPO carried out on the Bucharest Stock Exchange will total 1,766,077 shares. The titles are currently valued at RON 374.4mln (EUR 84.8mln), depending on the latest price on BSE, of RON 212/share. Currently, the Ministry of Economy owns 73.51% in the company, which manages the natural gas transmission system. The Government has recently decided to transfer Transgaz Medias and Transelectrica Bucharest from the Ministry of Economy to the Ministry of Finance, to avoid an infringement by the European Commission, but the regulatory document hasn’t been published yet in the Official Gazette. The Government had initially promised to the International Monetary Fund to carry out the SPO at Transgaz for 15% of the shares by late 2012, but the sale did not take place because, in November 2012, President Traian Basescu and PM Victor Ponta agreed to postpone the procedure, believing that the time wasn’t opportune. The last term mentioned for beginning the sale on the stock exchange is mid-April. [/cleeng_content]

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