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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