Capital market in 2007 had trebled, Info-Prim Neo interview with director of the Rating and Estimation Agency “Estimator-VM”, Natan Garstea

[How did the securities market develop last year?] 2007 was a special year for the capital market of Moldova because it seems that the market finally began to develop. The value of the transactions in 2007 was 1.2 billion lei, as against 343 million lei in 2006. This is the highest value in the past several years. The earliest record value was only 480 million lei. Also, the prices on the stock exchange and the exchange indicator EVM-Composite calculated by our agency, which shows the average level of prices, doubled last year. The indicator grew almost twice - from 1060 to 1990 points. The average prices of the shares listed on the exchange were calculated when assessing the initial value of the indicator and transformed into 1,000 points so that every growth of 100 point means a 10% increase in the prices of shares traded on the market. The twofold rise in share quotations during a year is amazing because others countries need decades to see the prices double. [Why did the share prices increase so spectacularly?] First of all, more foreign investors began to come to Moldova. After Romania and Bulgaria joined the European Union, a lot of investors that invested in these countries began to look further, beyond the EU borders. Therefore, Moldova is in the spotlight of many investors, both investment funds and individuals that invest their own money. The Moldovan banks were the first to attract the investors’ attention. Last year, we saw considerable rises in the prices of shares of most of the commercial banks. [Why the banks?] Our banks are profitable. The value of many banks’ assets in 2007 had doubled. This is a great success for a company achieved during a year. Besides profitability, the banks are rather transparent if we compare them with other segments of the economy about which we know not much or nothing. The banks permanently publish reports about their activity; important companies carry out audits at them so that the investors can trust their financial reports and have access to information about the banks. Many of our companies do not reveal information about their activity and of course nobody will invest in them. The owners of such companies are not mature enough to understand that in order to have a developing business, they must attract investors. But to attract them, they must be first of all transparent. Another explanation is that the shareholdings became concentrated only one or two years ago – after privatisation there were thousands of shareholders, but then some of the people began to consolidate the stocks. Such persons became company owners recently and are probably not psychologically ready to attract significant investors. They will need several years more to get used to the status of owner and to realise that they need investments to grow. A determining factor for the capital market of Moldova is that at the end of last year and the beginning of this year, more and more investors looked for other sectors to invest money, not only the banking one. The construction sector, processing industry and food industry are among the areas to enjoy new investments. [What were the most significant transactions on the stock market last year?] The most important transactions were the acquisition of a 20% stake in the commercial bank Moldova-Agroindbank, the trading of the shares in Unibank and Mobiasbanca. There were a lot of dealings in shares of road reconstruction companies, but they cannot bit the dealings in bank shares by value. I think that the investors will have a mounting interest in the shares of road building companies, especially because large investments are expected in infrastructure the next years. There is a growing tendency to trade large shareholdings. The holdings are already consolidated and they are traded as large packages. As a result, the value of transactions also rises. Not long ago, the companies would sell only 5-10% of their shares each year. Now they sell stakes of 60-70%. [How do the economic events influence the dealings?] For example, two-three years ago when talks on the price of gas were conducted with Gazprom at the start of the year, the shares of Moldova-Gaz SA were traded at different prices. Now we witness extremely different cases. When the ban on wine imports was imposed, the shares in wine companies practically stopped to be traded. The people expected to see what will happen so as to decided for what price to sell the shares. There had been very few dealings in wine companies’ shares last year, but I think the situation will change and their shares will sell. There is no strong connection between the economic events and transactions on the stock exchange in Moldova, as it happens abroad when a piece of news changes immediately the price of shares and everybody starts to sell or buy. Our market is not very liquid for the time being and there are a few transactions. But with the development of the market, the situation could change. [What are your forecasts for the capital market this year in the context of capital legalisation?] I think the prices of shares will continue to rise, even if not so spectacular as last year. The legalisation of capital is very important for improving market transparency. We had many cases when the shares were bought for other persons than the real buyers owing to the numerous restrictions related to inspection, insiders. The owners of large holdings were subjected to restrictions. Therefore, many investors tried to avoid such problems. For several years, they have been in a trap because if they wanted to transfer the shares they bought at very small prices from the name of the formal owner to their own names, they had to indicate the real prices and to pay large taxes. I see this legalisation possibility practically as a sole chance to put the business in order. Afterwards, the property will be more transparent; the investors will know with whom to discuss; it will be easier to administer the businesses as there will be no need to gather dozens of godsons to the general meeting of shareholders. I think that most of the legalisations will take place at the end of 2008, when the people will see that nothing happens to those that legalised the capital the first. Large volumes of capital will be legalised afterwards. One of the advantages of capitalisation is that the owners will be able to declare the real value of the shares and as a consequence, the prices of shares traded on the stock exchange will go up.

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