IFLR 1000
The Guide to the World's Leading Financial Law Firms

CONTEXT AND TRENDS
On October 1 2011, the new Romanian Civil Code came into force. It will take some time to gauge its full impact but the legislation aims to update the country's legal framework by refining existing legal concepts and adapting them to the present context....

CONTEXT AND TRENDS

On October 1 2011, the new Romanian Civil Code came into force. It will take some time to gauge its full impact but the legislation aims to update the country's legal framework by refining existing legal concepts and adapting them to the present context. However, the changes are wide ranging and will run from privacy, fiducia (trust like relationship) to strengthening bank financings and security provisions. "It reshuffles the old code. The old code was dated and enacted at the end of the 19th century. Times have changed and concepts are dated," one practitioner says. "In the last couple of years, university professors imported concepts from Canada, Italy and France. We'll see the real impact when the thing comes in front of the court."

In the last 12 months, banking and capital markets in Romania can be best described as sluggish. There is no doubt that a large part of this can be attributed to the political instability that besets the country. For example, in April 2012, Romania's government fell after the centre-right coalitions unpopular austerity measures. Consequently, in May, parliament approved a new centre-left government that promised to honour the €20 billion IMF, the EU and the World Bank rescue package and correct social imbalances.

The country was inspired by the Polish example in the equity capital markets when it decided to privatise and sell stakes of state owned companies through the Bucharest Stock Exchange (BSE). "Romania was inspired by Poland but there is a difference. The success of Poland was because of restrictive legislation that required some to list in Warsaw to give it its critical mass and some view this as anti-competitive," one partner says. However, in light of the turbulent market conditions, many of these IPOs and SPOs have been put on hold with only the completion, on March 28 2012, of Transelectrica's 15% stake and €38 million SPO on the narrow BSE. "We are now in the election year and everything has stopped on public matters," one commentator says. "There is the expectation that it will begin again [the privatisations]. It must happen; because of the gravity of the situation and the economy."

On the banking side, there has been little in terms of new money as banks continue to be tight and with non-performing loans dominating discourse, restructuring is the order of the day. However, the most interesting trend lies in the transfer of portfolio loans, which is expected to produce a significant amount of work. "Banks are ready to sell the bad loans they have in their portfolio at a discount," one partner says.

MAJOR LATERAL HIRES

Laura Toncescu
From: D&B David si Baias

Cristina Reichmann Virtopeanu
From: Nestor Nestor Diculescu Kingston Petersen
To: CMS Cameron McKenna

CONTEXT AND TRENDS
Of all the practice areas covered in Romania, M&A was the most lucrative. However, this is not to say that the sector boomed or bounced back from the crisis, but rather, it was the most constant in 2011....

CONTEXT AND TRENDS

Of all the practice areas covered in Romania, M&A was the most lucrative. However, this is not to say that the sector boomed or bounced back from the crisis, but rather, it was the most constant in 2011. "Most acquisitions are trade buyer style acquisitions. A big company with money pays a decent price for a good company. It's probably how it should be," one partner says. "And because the banks are skittish, they do acquisition finance with cash and there's no bank required." Despite this, political instability, the Eurozone crisis and the ensuing gap between the expectations of buyers and sellers conspired against the market as Romania was further affected by declining investment. "There hasn't been too much M&A in the last two years," one partner says. "In contrast, three or four years ago, when we were approached by buyers and sellers, we rejected them." Furthermore, the overall value of transactions decreased, and purchasers try to manage risk by drawing investments out over longer periods of time, including complex arrangements in the transactions until investors acquire full control over the target. "It's the usual suspects. Everyone focuses on energy projects and to some extent pharmaceuticals," one partner says. Additionally, smaller players tend to be more active in the market and most transactions do not go beyond the €10 million threshold.

Looking ahead, there is hope among practitioners of privatisations in the natural resources sector. "Overall, we're optimistic of the development of the M&A market this year," one partner says. "We have some resources in copper and coal, and so the mining sector becomes important." However, in April 2012, amid social unrest, the privatisation plan agreed with the IMF received a blow when the government shied away from selling the Cupru Min Abrud mine, the country's biggest mine to Canada's Roman Copper Corp. Furthermore, the Toronto Stock Exchange listed Gabriel Resources continues to struggle in its desired aim to make hay with Europe's largest gold deposit in the tiny village of Rosia Montana. It has received stiff opposition for 14 years and still struggles to get hold of an environmental permit. "We're in the election cycle and the Rosia Montana project is highly unpopular. Politicians are trying to get elected and if I were them, why would I support it?" one practitioner says. "Once they're elected, they may well change course because there's a substantial case for privatisation."

MAJOR LATERAL HIRES

Lucian Danilescu
From: Zamfirescu Racoti Predoiu
To: Mares Danilescu & Asociatii

Andrei Dumitrache
From: Pachiu & Associates

CONTEXT AND TRENDS
In the last 12 months, the market in project finance has been sedate with little in the way of new money. Banks continue to be very careful to extend credit and have a tendency to cherry pick projects....

CONTEXT AND TRENDS

In the last 12 months, the market in project finance has been sedate with little in the way of new money. Banks continue to be very careful to extend credit and have a tendency to cherry pick projects. "New money is concentrated in limited sectors and the star for sure is the energy sector," one partner says. "Renewables is the new real estate." Wind is particularly high on the agenda and Spain's Iberdrola has been constructing a 600MW wind-farm development in Dobrogea, by far Romania's largest wind energy investment. "This is the sector [renewable energy] where banks express interest," one practitioner says. "This will become more active because energy legislation is in the process of being amended and the amendments will be good for renewables. This will trigger the appetite for banks to finance." Nevertheless, despite added willingness to finance renewable energy, some banks won't lend at all unless an IFI is involved. Interestingly, as the drive towards wind and solar continues, it has been suggested that such activity exists in a bubble that is ready to burst. "Wind is only ever a top up," one partner says. "The government never wanted a private sector because they want to control the energy sector. They're more interested in Nuclear and quasi-renewable hydropower."

On the other hand, real estate has been met with a marked decline. "There have been very few transactions and only players with big names get money from banks," one partner says. It is a sector that has been affected for a few years now and looks certain to be in the foreseeable future. Nevertheless, we have witnessed the slightest of thaws among the many projects on ice.

The theme is much of the same when it comes to infrastructure. For quite some time now there has been talk of PPPs (public-private partnership) on the market and there have been a lot of problems in the past with pilot PPPs. In fact, rather than structure PPP transactions, the government seems to want to utilise EU funds. However, the government has declared the prospective €2 billion Bucharest Ring Road project as one of their top priorities. "We have been waiting for roads to be financed for a long time," one partner says. "Romania finances projects like roads via direct contracting. None of the risk is in the private sector. It's like having a contract with someone to paint your house."