Hidden Gem in Paul Singer Portfolio

Summary:

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

 

Introduction to Fondul

The fund was created by the Romanian state to reimburse Romanian citizens for the assets that were taken from them by the communist regime. Since 2010 the fund is managed by Franklin Templeton 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 32% discount to NAV. Since the listing the discount has been narrowing. In the last 12 months Paul Singer recorded USD gain of 47% on this investment and collected 7% dividend.

There are two main reasons for the NAV discount:

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

Why the fund will make you money

Portfolio restructuring – As stated above the unlisted equities represent 42% of the portfolio. The largest unlised postion 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 represents stakes in local electricity distribution companies. Most of them already have foreign majority owners. Fondul has retained investment banks to advice 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. Fondul is very actively buying back its own shares. On the 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.

Romainan economy strong – the fund owns only energy companies. Energy companies are proxy to Romanian economy. Romania has been one of the best performin EU countries, growing at 3.5% in 2013. In 2013 the good macro situation was reflected on the performance of the companies in Fondul portfolio causing Fondul to report the best dividend income ever.

Investors follow Paul Singer activities. It would be a mistake to neglect this one.

 

http://fondulproprietatea.ro/sites/default/files/fp_june_2014_factsheet.pdf

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