Context  

Analysts’ previous optimistic forecasts, supported by the economic growth and positive results of recent years, have been somewhat invalidated by the financial decline felt during 2009 - this, after a period of economic boom and speculative investment, was particularly notable in the real estate field. Nonetheless, compared to its neighbours, Romania was not too severely affected by the financial crisis. It is likely that the effects of the global crisis will eventually reach Romania, considering that it is a state undergoing a process of economic development. But the fact that the Romanian state has one of the smallest commercial deficits of the European Union proves an unexpected economic strength. It is also worth noting the salutary intervention of the National Bank of Romania in implementing constructive financial measures to mitigate the effects of the crisis.

The first domains affected by the shockwaves of the global crisis were construction and real estate, as well as the loan market.

Trends  

Last year for Romania was a year for stabilisation of market positions for the companies that proved to be resourceful and innovative enough to overcome the global financial crisis. For the weaker businesses, creating a false appearance of successful models during the economic boom, it represented a ‘natural selection’ phase resulting in their insolvency or bankruptcy, leading to their disappearance from the economic landscape. As statistics issued by the Romanian Trade Registry Office have shown, the number of companies acting in the construction domain which filed for insolvency has visibly increased this year.

2009 could hardly be considered as a year of M&A transactions. Despite this, there are expectations for the revival of the Romanian M&A market and it would be fair to say that a number of investors benefiting from economic power and healthy cash flow consider this period an excellent time to expand their business. Thus, there were some notable acquisitions on the market and also some intelligent corporate moves enabling the participants not only to overcome the inherent financial issues, but also to keep their position or even to acquire a higher one. Although not very numerous, closings that were generated raised various challenges for all parties involved, from the participant companies to law firms and other consultants.

As the crisis struck the Romanian economy, the loan market started to feel the first signs of fragility, becoming less accessible, whilst credit became more expensive and subject to harder conditions. Currently, lenders seem more concerned in maintaining relationships already established. Investors are now often facing difficulties in obtaining credit, as lenders are taking a more conservative approach when allocating their capital and are more careful when evaluating the risks and returns in lending. In certain cases, banks overreacted to a difficult economic environment and took advantage of favourable contractual provisions in an attempt to reconsider the financing terms and conditions. During these challenging financial times, there is no doubt that law firms will play a very important role in reconciling parties.

Remedies  

The Romanian state has also shown its willingness to help individuals access funds and obtain secured credits. The first-house buying programme was launched by the Romanian government in 2009 and is currently ongoing in Romania. The program -helps young families who do not own a house and is meant to guarantee the loans contracted for the purchase or construction of their first home. In the real estate market, the period to come should be the ‘time for buyers’, as prices on the market have slowly started to drop, whilst rental renegotiations are widespread and some of the tenants have successfully renegotiated existing leases.

At present, more and more companies are accessing European funds with a view to starting or enlarging their business. However, sometimes the procedure for obtaining European funds may prove to be complex and excessively bureaucratic.

Recently, as part of the justice reform imposed by the EU accession treaty a new Civil Code was adopted by the Romanian authorities. The new Civil Code represents the alignment of civil legislation to modern business realities; it will bring substantial changes in real estate legislation and will be effective in the second half of 2010.

Forecasts  

Despite the difficult financial times, Romania continues to be attractive for foreign investors, as there is a great number of state-owned companies, operating mainly in the industrial field, which are on the verge of bankruptcy and waiting to be rebuilt to profitability. From an economic point of view, the Romanian real estate market is considered far from maturity and saturation and this is the reason why it provides wide investment opportunities. Infrastructure, agriculture, renewable energy and even real estate continue to be attractive areas for investors, considering these sectors still need to be developed to EU standards.

Professional analysts forecast a rapid recovery for Romania compared to other countries in the region, such as Bulgaria or the Baltic states, mainly due to the flexible exchange rate enabling the adjustment of the balance of trade, and the relatively small debt load of the private sector.