Dawn of the Romanian Empire

By James Whitmore

Romania’s richest man, Dinu Patriciu, is taking advantage of the turmoil among small, London-listed companies to build a pan-European investment empire

There is nothing like a recession to shake up the listed property sector.

While the UK’s real estate investment trusts and the big European property companies have been refinancing their debt and carrying out discounted equity issues to bring in much-needed cash, the small London-listed overseas property funds – mainly listed on the London Stock Exchange’s junior AIM market – have been under fire from activist investors and subject to takeovers.

So far this year, of the 70 or so ‘tiddlers’, China Central Properties, Summit Germany, Bulgarian Property Developments and Fabian Romania have been taken over, Puma Brandenburg is in the process of being taken over, Rutley European and Spazio Investment have received takeover bids and Delek Global Real Estate and Canton Property Investment have delisted. Several other companies, such as Trikona Trinity, Hirco and Speymill Macau, have come under attack from activist investors and hedge funds.

The reason for all this activity is that these companies provide a great money-making opportunity. Their shares are ignored by analysts and utterly depressed. Invariably, they have run out of cash, are highly leveraged and have breached or are in danger of breaching loan covenants. Their external management structures are out of favour, the fees they charge are too high, and many are also developers in countries that once were emerging but are now submerging.

Of the companies that have or are about to be delisted, China Central, Summit Germany, Puma Brandenburg and Delek Global were taken private, at much lower prices, by the very shareholders that floated them in the boom years before the credit crunch.

Rich pickings

But the leading figure is Dinu Patriciu who, according to Forbes, is the richest man in Romania and the 397th richest person in the world, with a fortune of $1.8bn (£1.1bn).

Through a new company – Black Sea Global Properties, a subsidiary of his Swiss-domiciled company Rompetrol Holding – Patriciu has bought Fabian Romania, which owns €138m (£118m) of Romanian assets. He has also made an offer to buy Rutley European and is set to become the majority shareholder in Deutsche Land.

Before he made his offer to buy Fabian Romania on Christmas Eve last year, Patriciu was unknown in the property world outside his home country. He is by no means a conventional property investor. An architect by training, he taught architecture until 1989. And between 1990 and 1996, and again from 2000 to 2003, Patriciu served as a member of the Romanian parliament, and was a leader of the National Liberal Party’s parliamentary group.

‘My first business after ’89 was real estate,’ he says. ‘I did real estate for two years, then moved into energy, thinking that would be the first sector to take off in a transition economy. But I kept my real estate.’

Moving into energy proved a wise decision. He founded Rompetrol Group and turned it into the second largest oil company in Romania. In 2007, he sold a 75% stake to Kazakhstan’s state-owned energy operator, KazMunaiGaz, at a price that implied an enterprise value of $3.6bn (£2.2bn).

In Romania he still owns €100m (£85m) of property and is developing the €300m (£256m) Smart City scheme in northern Bucharest in a joint venture with Immorent, a subsidiary of Austrian banks Erste and Sparkassen. He added to this by buying Fabian Romania for €50.8m (£43m) after building up a 25.2% stake.

His offer of €1 a share through Black Sea Global reflected a 40% discount to Fabian Romania’s net asset value at 30 September 2008 of €1.66 a share. But Fabian argued that because of the lack of investment transactions in Romania, there could be ‘no certainty that the yields which were used in determining the NAV accurately reflected the open market’.

For the full article go to propertyweek.com/global