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A new frontier: CEE IPO candidates hope to see more international demand after Hidroelectrica success

The IPO of state-backed Romanian power producer Hidroelectrica [BVB:H2O] has showcased the potential of the CEE region as a hub for ECM activity, however, more work to engage international investors would help bulk up the investor base.

So far this year, there has been USD 1.78bn of CEE IPO paper from two deals, one being Hidroelectrica itself. While 2022 IPO issuance was negligible, 2021 and 2020 averaged between USD 2.7bn and USD 3.3bn respectively, on par with more traditional European IPO markets, according to Dealogic data. Between 2016 and 2018, deal value was steadily over the billion-dollar mark, according to the same data.

Issuance is strong, although it is still expected to be below the wave of privatisation deals that followed the fall of the Iron Curtain of the 1990s, when stock market liberalisation in the early 2000s accompanied the installation of democratic societies, an ECM lawyer noted.

But privatisations are back on the agenda.

Successful past IPOs of state-owned enterprises encourage local governments to consider further listing candidates, added Estonia-based Aare Tammemäe, partner and board member at Redgate Capital. Energy and asset heavy-industry companies, which are planning investments, are weighing equity capital markets also because of increased corporate debt costs, he added.

Advisers noted a steady pipeline of opportunities in Poland, Romania, Czech Republic, as well as in Baltic countries such as Latvia and Estonia.

In Latvia, some of these include state and municipal-backed companies looking to tap capital markets in the medium term for their sustainable development goals, said Māris Vainovskis, senior partner at Eversheds Sutherland’s Riga office.

Moldova's largest lender maib, formerly Moldova Agroindbank, is also pressing ahead with plans to list on the Bucharest Stock Exchange, as reported.

In the Baltics, Infortar, an Estonian diversified investment company active in shipping, real estate and energy sectors, is considering an IPO later this year, while Alexela is looking to raise a pre-IPO investment ahead of listing in 2024.

The Hidroelectrica IPO was largely a local affair but, for the moment, home support largely makes up for the lack of foreign interest and other issuers in the region are hoping for a similar reception.

While foreign investors are not in the mood to invest in small Baltic markets due to the geopolitical environment and economic uncertainties, there is an appetite for new investment opportunities from local pension funds, family offices and retail investors, especially in the markets with increased household savings over the past few years, Redgate Capital’s Tammemäe explained.

But at some point, more international demand might be needed to bulk up local demand, especially in the case of more specialised offerings that might not appeal to individual investors.

Agricover Holding, a privately held Romanian agribusiness company, for example, aborted an IPO due to a lack of interest from retail investors. Exonia, a Romanian biodegradable plastic and paper packaging company, is postponing its IPO because most of the local investor attention was already devoted to Hidrolectrica, according to an announcement.

Greater international interest from investors with this type of asset exposure would present a deeper market for more esoteric offerings than companies like Hidroelectrica.

But these relationships should be struck now, an ECM banker suggested, because investors that don’t engage with the region risk missing out on a broadening pipeline of deals.

Nobody wants to be last to the party.

Analytics by Raj Saiya