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Romanian draft law on sovereign investment fund paving way for abuse - Fondul Proprietatea

Romanian draft law on sovereign investment fund paving way for abuse - Fondul Proprietatea Johan Meyer - Lead Portfolio of Fondul Proprietatea

BUCHAREST (Romania), October 3 (SeeNews) – Investment fund Fondul Proprietatea [BSE:FP] said on Wednesday that a draft law setting up the general framework applicable to Romania's Sovereign Fund for Development and Investments (FSDI) disregards corporate governance principles and transparency rules.

The Government Emergency Ordinance, which was made public by the finance ministry on September 29, provides no safeguards from potentially corrupt practices and abusive decisions resulting from political interference, Fondul Proprietatea said in a press release.

Fondul Proprietatea is mostly concerned with the possibility of portfolio companies in such a fund to be exempted from the corporate governance principles established in 2011. This means that state owned enterprises (SOEs) will no longer have the obligation to select a professional management and be transparent towards the general public, minority shareholders and the finance ministry.

Also, of utmost concern is the fact that these SOEs will cease to observe the rights of the minority shareholders, the fund said.

"Setting up a Sovereign Fund for Development and Investments is not necessarily a bad idea, but needs to be properly established so that it can help to develop and put into action a common vision of Romania’s development strategy through better management of SOEs to the advantage of all Romanians," Johan Meyer, CEO of Franklin Templeton Investments Limited and Portfolio Manager of Fondul Proprietatea, said.

"Just imagine how infinitely worse it would be to concentrate the control of the largest, most profitable SOEs in the hands of a few people, not transparently selected, nor accountable for their actions. Romanians cannot afford to let the political leadership play hide and seek with the country’s assets worth billions of euros," he went on to say.

Fondul Proprietatea has sent to the finance ministry a series of recommendations to amend the draft law. Thus, it recommends that the FSDI should comply with transparency rules similar to those applied to listed alternative investment funds, compulsory monthly reporting of the net asset value  and the transparent appointment of supervisory board and directorate members.

Also, it recommends that the remuneration of the fund's directorate and supervisory board members should be dependent on performance objectives, the prioritisation of the listing of FSDI companies and setting as main objectives the maximization of returns and the increase of portfolio companies’ share.

The government put up for debate the law again in the form of emergency draft law on Saturday after the previous one was ruled out as unconstitutional by the top court in July.

The Court ruled that the fund pooling 27 of the most profitable companies in which the government owns stakes should have been set up by a government decision rather than by a law.

The government announced its plan to set up the sovereign fund in August last year.

The fund is supposed to take the form of a joint stock financial intermediation company with the Romanian state as its sole shareholder. Among the companies in the fund's portfolio are Engie Romania, of which the Romanian state owns 34%, Electrica (48.78%), Delgaz Grid (13.51%), E.ON Energie Romania (31.82%), Biofarm (1.16%), Chimcomplex (12.89%), OMV Petrom (20.63%) and Antibiotice Iasi (53.02%).

The fund's share capital will consist of in-kind contributions, represented by share packages, and a cash contribution of 1.85 billion lei ($457 million/ 397 million euro), of which 50 million lei will be paid up for establishing the fund, the finance ministry said last year.

The sovereign will aim to directly support economic development by investing in competitive sectors and raising capital on the financial market, the ministry explained at the time.

Fondul Proprietatea's shares traded 0.32% higher at 0.9320 lei by 1414 CET on Wednesday on the Bucharest Stock Exchange.

(1 euro = 4.6643 lei)

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