Sustainable Equity Issue: Hidroelectrica's L9.33bn IPO

IFR Awards 2023
2 min read
Robert Venes

Clean energy, new market

There had long been a debate over whether Romanian power producer Hidroelectrica should list in London or domestically. It opted for the latter, with the risk that might lose some investor attention in the IPO, and yet the L9.33bn (US$2.1bn) float was Europe's largest of the year, shares traded up and – particularly of note in 2023 – were still up at year-end.

Equity investors have no issues buying the steady stream of oil and gas IPOs in EMEA, while floats for alternative power companies have been harder to achieve. In ECM, the green story can only enhance the necessary strong fundamentals.

Operating 182 hydropower plants, five pumping stations and a wind farm, Hidroelectria is the number one power generator in Romania and its 100% green portfolio plays a critical role in national security of energy supply and transition. It accounts for 29% of the country’s electricity generation.

That translates into strong profitability and cash generation allowing for a sizeable 10.6% dividend at pricing. Over the three years from 2020–2022, Hidroelectrica delivered an average adjusted Ebitda margin of 69%, generated €2.1bn of cash from operations and distributed €1.6bn of dividends.

Hidroelectrica had been in the privatisation pipeline since 2008, interrupted by insolvency in 2012 that it only exited in mid-2016. In the event, the Romanian state didn't participate in the IPO, with Fondul Proprietatea selling its entire 19.94% stake at L104 per share.

A deal of this size and importance needed massive local buy-in but also international support from accounts that had never traded on the Bucharest exchange. Another complication that delayed bookbuilding was the resignations of the prime minister and minister of energy as part of the passing of positions between parties in Romania's ruling coalition.

There were approximately 1,200 meetings with 480 investors from more than 30 countries, providing 1,900 lines of feedback and three unnamed Romanian pension fund cornerstones committed L2.24bn. About 69% was allocated to long-only investors, while eight of the top 10 orders came from investors who were met six months ahead of launch.

Demand from locals and internationals was sufficient alone to cover the entire deal. Retail allocation was increased to 20% from 15%.

"This was not niche and went to absolutely every investor," said Luca Erpici, co-head of European ECM at joint global coordinator Jefferies, listing generalist funds, income investors, infrastructure funds and renewable and emerging market specialists among those involved.

Other joint global coordinators were Citigroup, Erste Group Bank and Morgan Stanley. Rothschild advised Fondul Proprietatea and STJ Advisors worked with Hidroelectrica.

Having priced above mid-range, shares closed up 5.9% on debut, 8.7% higher after a week and up 23% by end of 2023.

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