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Fondul Proprietatea posts record profit, on asset sales

January 16, 2015 03:07 pm

Fondul Proprietatea posts record profit, on asset sales

Romanian investment fund Fondul Proprietatea (FP) ended 2014 with a record net profit of EUR 228 million, up by 48% compared to 2013, when the company’s profit amounted to EUR 151.1 million.

Most of this profit came from dividends paid by companies in which FP holds stakes, as well as from the fund’s asset sales, which reached EUR 240 million in 2014. The fund sold several significant stakes last year, in gas producer Romgaz, electricity transport company Transelectrica and oil pipe operator Conpet.

The fund’s profit is less relevant for investors, as fund manager Franklin Templeton convinced FP’s shareholders to give up on dividends. In return, FP will repay them some of the fund’s share capital, amounting to RON 0.5 per share, which is tax free, unlike dividends which are taxed with a 16% flat rate in Romania.

Fondul Proprietatea’s net asset value amounted to EUR 2.95 billion at the end of December, down by 11.8% from EUR 3.35 billion in December last year, according to a report sent by FP to the Bucharest Stock Exchange (BVB).

This was mainly influenced by the decline registered by OMV Petrom shares, which went down by 13% last year. The 19% stake held in OMV Petrom is FP’s largest individual holding, representing a third of its net asset value. Part of the fund’s net asset decline was also determined by the payments made by the fund to its own shareholders, either via capital returns or via share repurchase programs.

Fondul Proprietatea last year cancelled 1.34 billion of its own shares, which it had bought back in previous years and started a new buyback program for 990 million of its owns shares. As part of this program, the fund also made a buyback offer for 750 million shares, paying EUR 186 million to shareholders. The price in the offer was higher than the market price by about 18%.

These buyback programs are aimed at reducing the discount for which the fund’s shares are traded on the Bucharest Stock Exchange (BVB) compared to its net asset value per share, which is the main indicator investors follow.

FP’s shares are currently trading at RON 0.84/share, as of Friday, January 16, compared to a NAV per share of RON 1.2125/share, on December 31, 2014. This stands for a 30% discount.

Andrei Chirileasa, andrei@romania-insider.com

Getinge – time to profit

On 12 January 2015, GETIB announced that the current CEO, Johann Malmquist, had informed the Board that he would like to resign from his current assignment. As a result the Board had decided to appoint Alex Myers as the new President and CEO of the Getinge Group, effective 25 March 2015. Mr Myers is currently President and CEO of Hilding Anders, a global leader within the bedding industry with a turnover of SEK9bn and 8,000 employees. Mr Myers has previous experience with GETIB, having been the Executive VP for the Extended Care business during 2009-2013.

Under the leadership of Johan Malmquist, GETIB has undergone a successful growth phase over the past 18 years, turning the company into a major supplier of medical capital equipment and consumables. However the last 2-3 years have been more challenging, with several earnings disappointments and more recently a material FDA uncertainty within its Medical Systems division. Investor feedback over the past 6-12 months made it increasingly clear, that these disappointments have resulted in a major stock overhang, with reduced investor interest in GETIB. The announcement yeasterday resulted  in further price weakness.

Morgan Stanley research, parts of which are quoted here, claims that they had discussion with GETIB post the press release, that did not suggest that business has become incrementally more challenging or that the FDA negotiations around its Medical Systems division have become more problematic. Johan Malmquist was quoted in the press that he expects resolution of the FDA investigation by late January / early February. If so, than the current price weakness caused by Malmquist resignation is a good time to buy.

See below my detailed analysis why Getinge is a good opportunity at current price levels

Fondul Proprietatea to distributte EUR 137 mln to investors

Romanian investment fund Fondul Proprietatea (FP) has proposed a reduction of its share capital by RON 610 million (EUR 137 million) and the distribution of this amount to its shareholders, according to an announcement posted on the Bucharest Stock Exchange (BVB).

Each shareholder would receive RON 0.05 per share. The distribution of cash is about 5.3% of the price for which its shares were traded on Tuesday (November 18), which was of RON 0.9395.

“The decrease is motivated by the optimization of the fund’s share capital” reads the FP report. This would be the second capital distribution made by the fund.

The fund also has a buyback public offer ongoing for 750 million of its own shares (representing 6% of its capital) at a price of RON 1.11 per share. With this offer, the fund will pay its shareholders another EUR 186 million. The offer ends on December 2.

The fund is currently valued on the Bucharest Stock Exchange at EUR 2.64 billion.

Fondul Proprietatea – how to make money in tender offer


Fondul Proprietatea, the largest closed end fund in the world, has been under pressure from its activist investors. The largest shareholder in the fund is Paul Singer´s Elliot Associates, who has 15.2% stake in the fund valued at USD 550 mil. It is Paul Singer´s third largest position.

In September shareholders passed a resolution based on which the Franklin Templeton faces termination of the management contract if the NAV discount does not decrease to 15% (from current 25%) in two thirds of trading sessions between October 1, 2014 and June 30, 2015. To comply with this the Fondul share price needs to rice another 13% to 1.07 Ron per share.

Templeton is working hard to achieve this mission. At the moment they have announced three steps strategy to increase the Fondul share price: (i) the fund started the tender offer in which it will buy 6.4% of its shares at 18% premium to the market price, (ii) after completion the fund will start 6th round of buyback in which it will buy 2% of its shares, (iii) the fund announced it will list its shares in London to promote liquidity.

This is the second tender offer; the first tender offer was competed one year ago. It had a slightly smaller size (600 mln shares vs 750 mln shares), but was done at a higher premium to the market (38% vs 18%). The result of the tender was a significant gain for Fondul shareholders – they sold 5% of their stake at substantial premium to the market and saw their remaining shares appreciate by 19%. In total the tender offer delivered 21% return to shareholders over 2 months period. Below are the main data points:

Summary of the First Tender Offer

DATE Action Share price
24/9/2013 Pre announcement share price 0.72
25/9/2013 Announcement of the intention to purchase

600,000,000 through tender offer

10/10/2013 Announcement of the regulatory approval and buyback details 0.78
15/10/2013 Buyback starts 0.78
4/11/2013 Buyback completed 0.81
3/12/2013 One month after the buybakc 0.86

The current tender offer was announced on 20. 10. 2014. The pre announcement share price was 0.90. Since the announcement the share price moved to 0.94 – which represents 4.4% gain. During the previous tender offer the share price increased by 19%. Most of the increase came after the end of the tender – when the investors were buying back the shares they sold in the tender. Of course the terms of the tender offers are not identical and therefore magnitude of the share price growth may differ. If the situation would repeat again, there is still 15% on the table. Not bad two months return. Taking into account the other planned activities (buyback and London listing) I believe that it is very likely that Templeton will achieve its mission and will be able to retain the management contract.

Largest closed end fund makes a tender offer for its shares


Acceleration of the fourth buy-back programme by means of a Public Tender Offer initiated by Fondul Proprietatea SA

Franklin Templeton Investment Management Ltd. United Kingdom Bucharest Branch (“the Fund Manager”), in its capacity as Sole Administrator and Fund Manager of Fondul Proprietatea SA (“the Fund”), informed shareholders that today it has submitted for approval to the Financial Supervisory Authority (the “FSA”) the application for a buy-back tender offer for the purposes of carrying out the fourth buy-back programme approved through the Shareholders’ Resolution no. 9/28 April 2014. The Fund Manager would also like to inform shareholders and investors that it has contracted Raiffeisen Bank S.A. to assist in the execution of this operation.

For this offer, the Fund intends to repurchase 750,000,000 shares from its shareholders.

Full details of the offer will be announced after receiving the approval from the FSA, which should take place within 10 business days according to the regulations in force.

In light of this development, the Fund would also like to report that the daily execution of the buy-back programme on the regulated market has been suspended from 16 October 2014; any restart after the closing of the offer will be announced in due course.


The rummor is that the tender will be at 1.05 RON per share – at 13% premium to current share price. It is another attempt by the manager to narrow the NAV discount that currently stands at 25%. The fund manager faces termination, if it fails to narrow the discount below 15%.



  • Two weeks ago short fund Kerrisdale started a campaign against GSAT. Their presentation was a good show but disappointing on facts.
  • GSAT shares are oversold – down more than 50% in last two weeks.
  • Good opportunity to buy before the forthcoming catalysts.

What happened?

On Wednesday 1/10 a rumor was circulated that Kerrisdale, a prominent short fund, would host a presentation on its Globalstar (NYSEMKT:GSAT) short position on Monday 6/10. Based on the rumor the shares went down by 20%. Kerrisdale delivered a good show, which pushed the share price down by an additional 20%. GSAT management than had their presentation on 9 October. The presentation came in the midst of global sell off and failed to lift the price.

Introduction to Globalstar

Globalstar is the fourth largest global satellite phone company. It has invested over 1 bln into global satellite network. Prior to Kerrisdale attack, it had market value of 5 bln and debt of 700 mln USD. Its annual EBIT is about 20 mln USD.

Since 2004 Globalstar is controlled byThermo Capital Partners, who has around 70% stake in GSAT. Thermo invested over 600 mln USD in Globalstar and Thermo chairman Jay Monroe, is Executive Chairman & Chief Executive Officer at Globalstar.

The current satellite phone business does not justify the GSAT valuation. The whole value of the company may be in its Terrestrial Low Power Service (TLPS) – it is as Kerrisdale puts it “nothing more than one exclusive, licensable Wi-Fi channel”. GSAT is expecting a green light from FCC to execute the project by the end of the year.

Who is right – longs or shorts?

The key question on which the longs and shorts disagree is: is TLPS an asset and if so, what is the value.

The GSAT management and the analysts argue the following:

  1. There is an increasing WIFI congestion in the USA
  2. TLPS is a cost efficient tool to address the issue
  3. TLPS could be very quickly put into operation
  4. TLPS should be attractive for certain big players, such as Google to operate a private WIFI network in the US
  5. TLPS is, therefore, clearly an asset. Odeon Capital in its April research listed six valuation methods to value TLPS, which generated a range of $3.38 to $10.19. Based on this they assigned buy rating with $5 price target.

Kerrisdale clearly argues that TLPS is not an asset, and even if it were, it would have a zero value. Their arguments can be simplified to four basic propositions:

  1. Nobody has ever made money in satellite communications and GSAT would not either.
  2. Nobody would pay for GSAT product.
  3. The TLPS 2.4 GHz is an obsolete technology due to arrival of 5 GHz technology.
  4. The network that GSAT is building has zero value mainly because it would be too costly to build.

After listening to all webcasts and reading all the research, my view on Kerrisdale arguments is:

  1. It might be true that others did not make money. On the other hand GSAT is coming up with a different business proposition – a new product (TLPS) that has never been available before. I would, therefore, be reluctant to put too much value on those past records.
  2. The idea, that nobody would pay for GSAT product is a key theme for Kerrisdale. They believe that WIFI is free in the US and therefore why would anybody pay for WIFI on TLPS. I counted at least 20 times they said this during the presentation. My experience is that there is nothing free in life. I do not know anybody, who would have a free WIFI. You always pay, directly or indirectly.
  3. They claim TLPS 2.4 GHz is an obsolete technology due to arrival of 5 GHz technology. The management argues that 5 GHz is a poor substitute for 2.4 GHz because it falls off faster and is more easily obstructed, making it more expensive than 2.4 GHz to cover a given area. The same view is shared by analysts covering the stock. SA discourages contributors to use strong judgments in the articles. I can, therefore, only state, that this is a good example of „inaccurate information” Kerrisdale is trying to present.
  4. They also claim TLPS network would have a zero value because it would be too costly to build. Kerrisdale put up a back of the envelope calculation, which comes to 3.5 trillion USD. A subsequent analyst report by Odeon Capital puts the construction costs at a small fraction of this. As an example Odean provides a calculation that it would costs only USD 50 mln to set up the system in the whole New York.

The Kerrisdale presentation was best summarized by Dan Wise from Credit Suisse, who wrote in his report: “We believe Kerrisdale’s short thesis to essentially be a collection of half-truths, apples-to-oranges examples and red herrings”.

Stock promotion vs. stock manipulation

Kerrisdale is asserting that GSAT valuation is a result of stock promotion – they call it a bubble that they want to burst and make money on this. That would be ok, but I am not sure if the way they went for it is legal. The way Kerrisdale marketed the „leaked story” looked like to me as a share manipulation. SEC is getting sensitive about such issues. The Securities and Exchange Commission’s thesis in the Herbalife insider-trading case was precisely that: That Bill Ackman’s plans to announce his short constituted material nonpublic information, even though he had no nonpublic information about Herbalife. The SEC calls it market-moving information. Market moving information must be handled with care. I am not sure, if the Kerrisdale actions met such standard. I am sure SEC will be looking at this. I did file a motion to SEC to do so, and I am sure many others did too.

Another interesting fact is the timing of Kerrisdale attack. Jay Monroe is the controlling shareholder and has been buying GSAT share during 2014. As mentioned before Kerrisdale timed the announcement to happen during the blackout period, when Monroe is prevented from buying the shares. It just shows how Kerrisdale is trying hard to achieve its mission. On the call Jay Monroe already indicated, that he would be buying more shares if they stay in the current level after the blackout expires.


There will be several catalysts that should help to lift up the GSAT share price:

  1. Insider purchases – Jay Monroe indicated on the call that he might buy more shares when the blackout period expires on 13 November. He has been buying GSAT shares during 2014 at higher prices. This should help the stock
  2. FCC ruling on TMPS – GSAT claims that the ruling is eminent, and they expect this ruling by the end of the year. Again this should be helpful for GSAT share price.
  3. Partner announcement – GSAT has stated that it is in discussions with several potential partners on the development of TMPS. After the FCC ruling on TMPS announcement of a partnership could be expected.


After listening to Kerrisdale and management webcasts and reading subsequent analyst’s reports, I believe that Kerrisdale short theses fail on common sense grounds. I am sure its actions will be subject of SEC review as Pershing´s actions on Herbalife were. GSAT shares are 50% down since the attack begun two weeks ago. I expect rerating plus further upside after the catalysts materialize. Pity we can not short Kerrisdale.

Making money is about great ideas.