Books on Romania
% of GDP
Soviet occupation following World War II led to the formation of a communist "peoples republic" in 1947 and the abdication of the king. The decades-long rule of President Nicolae CEAUSESCU became increasingly draconian through the 1980s. He was overthrown and executed in late 1989. Former communists dominated the government until 1996 when they were swept from power. Much economic restructuring remains to be carried out before Romania can achieve its hope of joining the
Update No: 086 - (30/06/04)
Polls hold the key
Romanians went to the polls on June 20th for the second round of municipal elections, seen as a key test ahead of legislative and presidential elections six months away. Candidates were vying for a total of 1,843 mayoral seats with 1,294 others already attributed during the first round on June
Romania's ruling Social Democrats were trying to win control of major cities, previously in the hands of the opposition. But they suffered a major setback. The centrist Democratic-Liberal Alliance came out ahead in most of Romania's major cities and won the largest number of votes overall.
In Cluj, former Interior Minister Ioan Rus lost to the alliance's candidate, Emil Boc. Following Foreign Minister Mircea Geoana's defeat two weeks ago in Bucharest, Rus quit his cabinet post to commit himself totally to the campaign. Despite that all-out effort, and despite support from the Hungarian minority, he finished with 13 per cent fewer votes than Boc.
The ruling party was trounced in Bacau, considered a left-wing stronghold. Mayor Dumitru Sechelariu, a prominent local party baron, received only 37 per cent of the vote; victory went to the Romanian Humanist Party. In Iassy, however, the PSD mayor defeated the Democrat-Liberal candidate.
In Bucharest, the opposition easily won four of the five districts where a second round took place
The meaning of the result
Prime Minister Adrian Nastase said he understood "the warning signs coming from the people". He asked all parties "to surpass the temptation of extending the campaign" and to co-operate for the benefit of European integration.
"It is the first time Romania has a factual alternative to the Social-Democrat Party," said Traian Basescu, co-president of the alliance. Theodor Stolojan, who is expected to face Nastase in the upcoming presidential election, said the results of the local vote show that "PSD can no longer manipulate Romania."
The PSD now approaches the November election with its prospects clouded. It fell short of the Democrat-Liberal alliance in the overall vote, with returns showing the PSD receiving 32 per cent to the alliance's 33 per cent. That puts the opposition in a strong position to come out ahead in the presidential and parliamentary races.
If that happens, PSD would be forced to rely on smaller parties to stay in power. Two of the party's main pillars -- the "Cluj unit", which provided four ministers, and Bacau - have suffered embarrassing defeats. Paradoxically, the main source of regeneration for the PSD seems to be its aging founder, 74-year-old President Ion Iliescu, who has announced plans to continue his political career.
One undoubted success story
The Romanians are notching up one success in attracting foreign direct investment (FDI) in large numbers. This does not win elections, but benefits the country hugely in the long run.
FDI now exceeds US$11bn, with over 100,000 firms having foreign contributions to their subscribed capital. One third of the capital is invested in Bucharest, which has just been declared Europe's cheapest city. No coincidence. Indeed it occupies the 129th place worldwide among 144 cities in terms of low costs.
Romanian aircraft company to be split into three firms
IAR [Romanian Aircraft Company] Ghimbav Brasov will be split into three different companies, two of which are to build and repair aircraft, while the third will specialise in the making of PVC windows, Mediafax News Agency reported.
"The division will be part of a wider company restructuring programme started a few years ago," Ion Dumitrescu, economic and finance manager of IAR, said. He stated that the third company - that will keep the IAR Ghimbav name - will continue to produce helicopters, and that the other two firms' separation from the present structure would take place in the near future.
IAR Ghimbav, the main company left after the division, will have a share capital of 471.9bn lei, and will build, repair and condition rotating wing aircraft (helicopters).
Aircraft Building will specialised in building, repairing, and conditioning fixed-wing aircraft.
The third firm will be called Top Therm and will produce PVC windows. The three companies will have the same shareholders' structure as the IAR. Thus, the Ministry of Economy and Commerce (MEC) will hold a share stock at every firm representing 64.8 per cent of the share capital, while the rest of the shares will be in the possession of the shareholders left after the mass privatisation programme.
The IAR's participation in the Eurocopter Romania joint company, made in 2002 with the French-German company Eurocopter, will be transferred to the future company IAR Ghimbav.
Most of the US$7.3m debt State Assets Resolution Agency(AVAS) will be almost totally taken over, in equal shares, by Constructii Aeronautice and Top Therm, and assigned to MEC in order to make these two companies' privatisation easier.
IAR will take over and return a US$52,000 debt resulting from a contract of receivables' transfer concluded with ex-Bancorex. At present, the IAR has a share capital of 477bn lei. After the division, Constructii Aeronautice and Top Therm will have a share capital of 2.3bn and, respectively, 2.4bn lei.
Fitch places SNP Petrom on rating watch positive
Fitch Ratings recently said it placed SNP Petrom and its €125m issue of Eurobond to BB- (BB minus) ratings on rating watch positive, New Europe reported.
The short-term rating is B. The rating agency noted that no firm timetable has been given to the negotiation between OMV and the Romanian authorities over the privatisation of Petrom.
The analysts from Fitch warned that, due to previous experiences, a delay in signing the contract might be possible and execution risk is present.
"Nevertheless, it is becoming increasingly likely that the privatisation will be concluded in the short-term and that the associated share capital increase will strengthen Petrom's stand-alone credit profile, possibly allowing a rating upgrade," said Fitch.
This is reflected in the Rating Watch Positive, Fitch noted. The agency reviews Petrom's internal restructuring efforts of the past three years ahead of privatisation as credit positive; however, the company's efficiency continues to rank behind its internal industry peers.
Fitch believes that the vertically integrated OMV may contribute to a further rationalisation of Petrom's upstream assets. OMV also operates one of the strongest retail franchises in Central and Eastern Europe with an aggressive expansionary strategy, in which Petrom is likely to play a significant role. Although liberalised, the Romanian retail market is dominated by Petrom (with competition from only a few international brands, including OMV), who is currently politically motivated to keep retail prices low and hence retail margins tight relative to EU countries. This is likely to change, in Fitch's opinion, following the privatisation, which would benefit Petrom's overall profitability.
While the business profile improvements are likely to materialise over the medium- to long-term, the privatisation may significantly improve Petrom's financial profile in the short-term.
Fitch noted that the terms and conditions of the 125m bonds include a put option for privatisation and for the event should Petrom cease to produce crude oil. Fitch said that Petrom's audited financials for 2003 are not yet available, but its credit ratios are expected to remain strong and comparable to 2002 when it recorded gross debt to earnings before interest, taxes, depreciation and amortisation (EBITDA) of 0.8x and gross interest cover of 10.5x. Petrom generated EBITDA of US$385m (compared to OMV's USD830m) on revenues of US$2.4bn (OMV: US$7.4bn) in 2002. Fitch said it will continue to monitor the Petrom's privatisation process.
Austria's OMV is expected to pay a combined 1.5bn Euro to take over the Romania's national oil company SNP Petrom, Ziarul Financiar reported recently, quoting sources from oil market. The paper estimated that OMV might pay up to €850m for the 33.34% stake in Petrom with the rest financing a share capital increase to 51% and the Romanian company upgrading and restructuring.
MOL Romania boosts capital
MOL Romania, the subsidiary of Hungary's oil group MOL, said recently it had increased its share capital by 108.2bn lei (2.7m Euro) to 2,148bn lei (53.6m Euro) to finance some investments. The general manager of MOL Romania, Karoly Robak, said that the capital increase has nothing to do with last year's acquisition of 23 filling stations from Shell Romania. MOL Romania has 53 petrol station and will operate 80 outlets by the end of the year. The company plans to expand its network toward 129 units in the next three years.
Petrom and Honeywell in tie-up
US industrial giant Honeywell has signed a US$20m contract with the Romanian oil concern Petrom, under which starting this autumn the former will provide equipment to upgrade Arpechim refinery of Pitesti (southern Romania), New Europe reported recently. According to sources within Petrom, the equipment provided by Honeywell so far exceeds US$60-70m. The European Bank for Reconstruction and Development will provide funds for the investment scheme conducted at Arpechim Pitesti, which includes the equipment purchased by Petrom. Also part of the same upgrading project is the US$43m contract signed by the Romanian company with two South Korean companies.
FOOD & DRINK
SABMiller to buy 90% of Aurora
The British-based brewer SABMiller said recently it agreed to acquire a controlling interest in Romanian brewing company Aurora at a cost of US$16.2m (13.7m Euro), AFP reported.
SABMiller, formerly South African Breweries until it bought the Miller brand in 2002, has agreed to acquire a controlling interest of 81.1%, while the expected purchase of additional shares prior to closing will increase the brewer's share-holding to at least 90%, it said in a statement to the London Stock Exchange. "The acquisition is conditional upon Romanian Competition Council approval and fulfilment of certain technical requirements," SABMiller said.
FREE TRADE ZONE
Coindu, Eclipse eye Curtici-Arad
Portuguese and Dutch companies have expressed interest in investing in the free trade zone of Curtici-Arad, western Romania, Rompres News Agency reported.
An important business delegation of Portugal's Coindu company specialising in car parts production for Volvo, Chrysler, Saab and Peugeot recently visited the Curtici-Arad free trade zone administration. The head of the free trade zone administration, Mircea Pavel, was quoted as saying that the Portuguese delegation was impressed by the opportunities offered by the Curtici-Arad free trade zone and said they would soon take a final decision about investing in Romania.
Slovenian pharmaceutical company Lek, a part of Swiss Novartis, opened a new production facility in the Romanian city of Targu Mures recently, in an investment worth US$12m, einnews reported recently. Metod Dragonja, Lek's chief executive, meanwhile said that the new facility is part of Lek's plan to strengthen its position in Romania and become the leading pharmaceutical company on this fast-developing market. Stretching over 4,500 square metres, the facility will be producing macrolied antibiotics for the region as well as EU markets. First exports are expected at the end of 2005 or at the beginning of 2006. The Ljubljana-based Lek currently boasts a 3.9% share on the Romanian pharmaceutical market.
POSTelecom ups capital
Romanian-Chinese telecommunication joint venture POSTelecom said recently its shareholders had approved a capital increase by 397bn lei (some US$11.6m, €9.7m) to 495bn lei (about US$14.5m, €12.2m) in a move to ensure financing of future development, New Europe reported recently.
"The equity capital increase aims to consolidate the company and to help POSTelecom's development in the next years," said general manager Radu Cernov. Capital increase will be made through cash contribution by stakeholders, said the company in a press release. POSTelecom hopes to reach 50,000 subscribers at the end of first operational year.
Canadian Telesystem International to increase MobiFon stake
Telesysten International Wireless Inc, a Canadian operator of mobile telephone networks, said recently that it is paying about US$287.6m in cash and shares to boost its stake in MobiFon, a leading cell phone and Internet service provider in Romania, New Europe reported.
The Montreal-based Telesystem agreed to buy 15.5% of MobiFon from a group of private-equity investors that includes Deraso Holdings BV, a group of institutional investors led by JP Morgan Partners, the company said in a statement, cited by Business Wire. The transaction will raise Telesystem's ownership of Mobifon to 79%. The Mobifon investors will receive 28.4m Telesystem International shares, which are worth about CAD 342.2m (US$251m) at the current share price and US$36.6m in cash, the company said. Telesystem didn't say what share price it will use for the transaction. Bucharest-based MobiFon is Romania's biggest mobile telephone operator, the company said. MobiFon had about 3.7m subscribers at the end of March, giving it about 49% of the Romanian market. MobiFon also had more than 200,000 Internet subscribers. Telesystem International expects the purchase to close in the third quarter. A JP Morgan Chase & Co unit owns about 28% of Deraso, the company said. Other MobiFon shareholders include Vodafone Plc of the UK, the world's largest mobile-telephone company, which owns about 20%. The transaction is subject to right of first refusal of MobiFon's other major shareholder, Vodafone Plc of Britain.
Romanian premier opens first two segments of Bucharest-Constanta motorway
Prime Minister, Adrian Nastase, recently inaugurated the first two portions of the Bucharest-Constanta motorway, dubbed the Sun Motorway, an investment worth 121m euros, Rompres News Agency reported.
The portions already completed are the 26.5-km section connecting Bucharest to Fundulea, and the 29.2-km portion connecting Fundulea to Lehliu. Another 92 km of motorway covering Lehliu-Drajna, Drajna-Fetesti and Fetesti-Cernavoda will be built by 2005, with the final portion connecting Cernavoda to Constanta to be completed by 2006. According to Transport Minister, Miron Mitrea, the investment amounts to an overall 500m euro.
Nastase pointed out the importance of this motorway not only for passenger traffic to the Black Sea but also for the traffic of wares to and from the Constanta port. Once the new motorway is commissioned, going to Constanta from Bucharest will take much less time.
The head of the Romanian government underscored that this kind of project which trigger off Romania's modernization, should be carried out sooner and more often. In this context, the prime minister slammed the decision made by the former government in 1997 to halt works on the motorway.
"Conducting such investment in infrastructure is particularly important for Romania's economic development," Nastase said, adding that this way hauliers will be able to turn to the best account Romania's potential as well as the relations with European Union member countries. "In the long run, such projects are vital for Romania, although in the short run they do not have any spectacular, tangible results," the prime minister said.
The building of the Bucharest-Constanta motorway is part of the government's commitment to finalise a set of older projects in various stages of completion, among which the Bucharest-Bors motorway, the construction of a railway line connecting Videle to Ramnicu-Valcea, or the second reactor of the nuclear power plant in Cernavoda.
Our analysts and
editorial staff have many years experience in analysing and reporting
events in these nations. This knowledge is available in the form of
geopolitical and/or economic country reports on any individual or grouping
of countries. Such reports may be bespoke to the specification of clients
or by access to one of our existing specialised reports.
For further information email: