Alexandros Ignatiadis, co- founder & shareholder OCTAGON: Construction companies could gain capitalization and financing through Bucharest Stock Exchange listing

The research team of OCTAGON CONTRACTING & ENGINEERING has made an analysis of the

construction market between 2009- 2014, to study the evolution of the sector during the five years and has emphasized the main issues the market has been facing.  “We have compiled five top 100 construction companies, following this analysis, taking into account turnover, profit and shared capital, reported by these companies within the mention time period.  The novelty element brought by this analysis is the fact that, compared to other rankings, which have been published so far and which include companies selected upon one NACE code or upon the main construction NACE codes, we have taken into account all the existing codes.”, said Alexandros Ignatiadis during the conference “Financing, Guarantee and Insurance - Classic versus Innovation towards 2020”, organized by the magazine “Masini si Utilaje pentru Constructii” .

The share of foreign construction companies on the Romanian market is too high

Top 100 for 2014 includes 35 foreign companies which totaled a turnover of approximately 4 billion euro, accounting for 40% of the total turnover reported by the 100 companies present in the top. These 35 companies have also reached 65% of the total profit and own 17% of the total share capital. This tendency, with small changes, has been present in all the five analyzed years.

“Basically the share of foreign construction companies in the Romanian market is around 30%. 

Considering that the construction business should be mostly local, in any country, this share is too high and raises concerns.

In Romania there are around 35,000 construction companies, and the companies present in the rankings that we have compiled have made 90% of the total construction sector turnover.” said Alexandros Ignatiadis.

The burden of banking guarantees is too high for the companies

For a total turnover of 180 bln euro the companies must provide banking guarantees worth 1.8 billion euro- 10% of the total turnover. The major issue is the fact that the 1.8 billion euro represent the double of the total share capital of these companies. Besides the guarantees for the ongoing projects, the construction companies must also provide post- execution guarantees of at least 5%. “Considering that the profitability of the area does not exceed 6%, the burden of banking guarantees is too high for the construction companies.” added Alexandros Ignatiadis.

A major issue is the weak capitalization of construction companies, generated by the fact that funds are blocked in banking guarantees.  “Romanian companies must find financing and capitalization solutions and this could only be done through listing on Bucharest Stock Exchange. Another solution to unblock the capitals would be to set- up employers’ associations or a guarantee fund, which could provide funds for eligible construction companies. 

We all know that these guarantees are not payment, but insurance instruments, that we give to the beneficiaries. In order to solve this issue the National Bank of Romania could also relax the prudential rules and allow the constructors to guarantee with insurance contracts. We could then use these insurance contracts to obtain guarantees from the bank.” concluded Alexandros Ignatiadis.

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The Construction Agenda: OCTAGON- 2 million euro works for large scale infrastructure projects

Octagon Contracting & Engineering, one of the main constructors of special foundations in Romania is  working on three large scale infrastructure projects in Romania. The total value of the projects is around  2 million euro. Octagon will cash 600,000 euro for geotechnical works performed at the underground passage from Presei Libere Square in Bucharest.  Another important project is the rehabilitation of Brasov – Simeria railway,  Coslariu – Sighisoara section, Micasasa – Coslariu sector, worth 260,000 euro. "In this project we were subcontracted by the Greek contractor Aktor. We also executed bored piles for sections A, D and E of the second sector of  Lugoj – Deva highway, a  5 million lei (1.14 milion euro) project,  as the subcontractor of Salini Impregilo ", said Alexandros Ignatiadis, co-founder and shareholder of Octagon C&E.

 Poor management of public investments blocks the infrastructure development

According to the manager the main issue the local infrastructure and public works market is facing is the poor management, which triggers poor results in the area. "Delivery terms are extended three times on average and these delays generate financial loses. We have major delays in each stage of a project’s  development, starting with the feasibility stage and continuing with the launching of the specifications book, which is contested several times. A lot of time is wasted trying to solve the contestations, after which a new bid the results of which are contested again is announced.” said the shareholder of Octagon.

The new rules for the awarding of public contracts, voted by the European Parliament on January 15^th  2014, have not solved the issues of the Romanian legislation either. "Maintaining the lowest price as the main awarding criteria can significantly impact the quality of delivered projects. We need a more detailed approach and deep changes in this respect.”  explained Alexandros Ignatiadis.

Video: Execution of diaphragm walls, bored piles and concrete structure for residential complex Maresal Averescu 159

     2008 was the year when many construction companies started being negatively impacted by the decline of the real estate market.  But OCTAGON kept working on important projects in terms of size and value. One of these projects is the residential complex Maresal Averescu 159, located in Bucharest on the boulevard with the same name. OCTAGON built diaphragm walls, bored piles and the concrete structure of the three buildings within the complex.  Watch the video below to see images from various construction stages: 

https://www.youtube.com/watch?v=n29QhEzM6f4