Paul Singer’s Hidden $600 Million Romanian Gem

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  • Investment sites that follow Paul Singer´s portfolio usually only US listed securities. One of his largest positions, therefore remains largely unnoticed.
  • Elliot Associates owns a 15.2% stake in Romanian restitution fund Fondul Proprietatea. The market value of the position is approximately 550 mil USD.
  • In fact, Fondul is the third largest (after HES and put on IWX) equity stake in Elliot Associates´ portfolio.

Introduction to Fondul

Fondul was created by the Romanian state to reimburse Romanian citizens for the assets seized by the former Romanian communist regime. Since 2010, the fund is managed by Franklin Templeton (NYSE:BEN) and since 2011 the fund is listed on Bucharest Stock Exchange.

The fund is 85% invested in Romanian energy companies. The latest NAV of the fund is 1.25 Ron while the shares of the fund trade 0.85 Ron, which represents a 32% discount to NAV. Since the listing, the discount has been narrowing. In the last 12 months, Paul Singer recorded a USD gain of 47% on this investment and collected 7% dividend.

There are two main reasons for the large NAV discount:

  • Romanian citizens are gradually exiting from the fund as foreigners are buying. The oversupply of shares has been eliminated, and this is reflected in the recent share price performance
  • A substantial 42% of the portfolio is not listed

Why the fund could be a profitable purchase

Portfolio restructuring – As stated above the unlisted equities represent 42% of the portfolio. The largest unlisted position is a stake in Hydroelectrica, which accounts for 14% of the NAV of the fund. The government plans to IPO Hydroelectrica in early 2015. The remainder of the unlisted securities represent stakes in local electricity distribution companies – most of them are owned by foreign investors. Fondul has retained investment banks to advise on sale of those stakes. The goal of the fund is to exit from those investments by the end of 2015. This means that by the end of 2015, most of Fundul assets will be listed equities and cash.

Active buybacks – Elliot Associates is very active in Fondul. Elliot has a team of lawyers in Romania that pushes Templeton into active steps to narrow the NAV discount. Additionally, Fondul is actively buying back its own shares. On top of the buyback, the fund is paying out 7-8% dividends pa.

London listing in September – To broaden the investor universe Templeton is making steps to list the fund on LSE. The listing is scheduled for September.

Strong Romanian economy– the fund owns only energy companies. Energy companies are proxy to Romanian economy. Romania has been one of the best-performing EU economies, growing at 3.5% in 2013. In 2013, a good macro environment was reflected in the performance of the companies in Fondul portfolio causing Fondul to report the best dividend income ever.

For investors who follow Paul Singer activities it would be a mistake to neglect this one.

Disclosure: The author of this piece has a position in Fondul

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