The Proprietatea Fund (FP) will pay 1 leu per share in the program to buy back 4.35% of its own shares, at a price which is 34.22% higher than the current price in the stock market, meaning that the offer amounts to 600 million lei (134.4 million Euros).
Yesterday, the Financial Oversight Authority (ASF) has approved the request of Franklin Templeton to speed up the buyback program, through a public buying offer.
The offer will take place between October 15th - November 4th, through BCR and brokerage firm Wood&Company Financial Services. After the public offer is completed, FP intends to cancel the bought back shares and to reduce the share capital by the accounting value of the cancelled shares.
The operation of buying back its own shares appears paradoxical.
On one hand, the reduction of the number of outstanding shares, as well as the fact that there is a constant buyer (the Fund itself) together, logically lead to the rise of the price of the stock market, on one hand; on the other, the proposal to the General Shareholder Meeting is to cut the face value of the stock.
Since the face value is 1 leu/share, and the stock market price is 0.77 lei, the combination of the two actions means that the price of the stock in the market and its face value are converging.
But if we remember the reason why the Fund was created in the first place and we consider its current use, we will find an interesting story.
The idea of the Proprietatea Fund started from the idea of the Ministry of Finance led by Ionuţ Popescu in 2005. The authorities have invented an absolutely "original" mechanism to allegedly pay damages to the citizens robbed by the communist regime.
People who, over 50 decades of communism, were forced to move into the servants' rooms in their own homes, and even more, to pay rent for that to the Romanian state, h
