INTERVIEW – Investors And Businesses Could Look To Fixed-Income Instruments During Current Crisis – Romanian Bourse CEO

“The presence of fixed-income instruments like corporate and treasury bonds in such a period [of crisis] will be beneficial and a good refuge for investors who want to avoid risk,” Farmache told SeeNews in a recent interview on the sidelines of the 2nd Southeast Europe Financial Services Forum in Bulgaria's capital Sofia, hosted by SeeNews.

“Probably now is the right moment for investors and companies who face funding difficulties because of stricter lending rules, low liquidity and a more prudent banking system to turn to bonds,” he said.

Brokers say trading with bonds has picked up recently as their selling price and yield are attractive, and investors cannot pass up a certain profit like that in the current market conditions. Trading with bonds accounted for 14% of BVB’s total turnover since the beginning of November.

Corporate and municipal bonds started trading on the BVB in 2001, while Romanian 3-,5-,7-,10, 12- and 15-year-government securities started trading in August this year.

“Investors incline to such fixed-income instruments but unfortunately the market is not that big and the liquidity is still low. We created the [bonds trading] market from ground zero, and such a market doesn’t become liquid overnight,” Farmache said.

The rising cost of credit could prompt companies to turn to corporate bonds as an alternative funding method. In this case the investment decision would belong to more than one investor, rather than the bank. “In this context we believe that corporate bonds can have success. Bonds convertible into shares could also have an advantageous effect.”

Romanian stocks have been racking up heavy losses recently alongside the major global financial markets in the aftermath of the crisis that hit several U.S. and European banks and its multiple side effects. BVB’s blue-chip BET index lost 70% in the first 11 months of this year, the BET-C composite index fell by 67% and the BET-FI index, which tracks Romania’s five regional investment funds, the SIFs, tumbled by 81%.

“It’s difficult to foresee which direction the market will take. It’s hard to be an optimist, in the best of cases we could be moderate optimists. It’s obvious that the recovery does not depend on internal, but rather on external factors,” Farmache said.

“But as the markets started to sharply fall, at a certain point they will find a level of stabilisation.”

BVB LISTING PLANS

The BVB will hold a general shareholders’ meeting on December 17, when it has on the agenda plans for listing its shares on the bourse.

“The shareholders will mandate the board of directors to draft a prospectus for BVB’s stock listing. If approved, such a process takes six to nine months. It could be an initial or a secondary public offering. Currently there are no further details,” Farmache said.

The listing of a stock exchange provides more favourable conditions for its future development and transparency for the investors. It also serves as a good example for other companies, the CEO said.

SEE REGIONAL STOCK MARKET

“We are thinking of a common trading system for the region. We have the technology and we have partners, but we are still not in talks with the other SEE bourses,” Farmache said.

Such a market would create higher liquidity, it will attract foreign investors who would be able to trade any stock from the region on a single platform. That would cut costs and be time-saving, Farmache added.