The current president of the Warsaw Stock Exchange (WSE), Ludwik Sobolewski, who took over command of the bourse from its erstwhile chairman and co-founder, Wiesław Rozłucki, believes that the investors‘ party might last for two more years.
„Change is the stock market‘s intrinsic characteristic. That‘s obvious. The important thing is whether the bull market has got healthy foundations. Undoubtedly in this case it does and they are present in the entire economy, which is developing very dynamically at the moment,” Sobolewski told WBJ.
Gathering steam
As is usually the case in times of long-term share-price increases, the prospects of a promising return on invested capital attracts more and more players. Individual investors don‘t always know how to move around the complicated bourse environment, so they buy shares through an investment-fund intermediary.
But while the indices are skyrocketing throughout the region - Prague‘s PX went up 1.8 percent over just five days in December, and Moscow‘s RTS broke records through seven consecutive sessions - what makes the Warsaw bourse really stand out is the number of IPOs.
„Unless something really unexpected happens, we should end the year with 38 debuts, 12 of which will have been from foreign companies. Just after New Year‘s Eve, more entities, whose IPO preparations are currently in the final phase, will appear on the bourse,” Sobolewski says.
Debutante‘s ball
Helping companies raise capital through public offerings is every bourse‘s primary purpose, so these firms‘ decision to debut should come as no surprise. Still, last year the WSE was second in Europe in terms of the number of debuts, surpassed only by the London bourse, and this year it is close to reaching the same number. In contrast, the stock exchange in Prague saw its first IPO only in 2004 and is hoping for just five in 2007; Budapest‘s bourse might witness more de-listings than debuts in the upcoming year.
According to Marcin Materna, head of the analysis department at Millenium brokerage house, the high number of debuts in Warsaw is due to the bullish market and the fact that there are simply more private companies in Poland than in the neighboring countries, due to the size of its market.
Piotr Kuczyński, chief analyst at Xelion, concurs. „The markets are bullish all over the CEE region, but our economy is the biggest and the Warsaw bourse‘s capitalization is a couple of times higher than that of the stock exchanges in Prague and Budapest. Besides, in Poland there are both more potential investors and very strong pension funds, which serve as great sources of capital,” he told WBJ.
Private party
This year‘s smallest IPO, at zł.5 million, came from Netmedia, an e-commerce company, and reflects a trend in 2006. While in 2004 and 2005 the value of IPO offerings amounted to some zł.11 and zł.7 billion respectively, this year the value of the 31 debuts to date amounts to just over zł.3 billion. One reason for the lower figure is a lack of privatizations this year - when PGNiG, PKO BP or Lotos went public in the previous years, investors‘ enthusiasm was manifestly evident.
The current government, however, is not a big fan of privatizations and even though it had planned to obtain as much as zł.5 billion from them, it wasn‘t until the very end of the year that an announcement was made concerning the flotations of press distributor Ruch and national airline Lot.
„We can only hope that they won‘t be the last offers of this kind in the near future and that the process of privatization via the stock exchange will be renewed for good. Otherwise, we cannot hope for Warsaw to take a leading position in the region when it comes to IPO value, as in the years 2004-2005,” said Jacek Socha, a partner and deputy president at PricewaterhouseCoopers. „One has to bear in mind that for the development of the market, the value of IPOs is more important than the number,” he added.
Spreading the word
For Ludwik Sobolewski, making the WSE a vital market regionally is a major strategic goal. To that end, the WSE has launched an information campaign abroad.
„We are working on spreading information in other countries about the possibility of obtaining capital through the WSE. Knowledge and information are preliminary conditions for foreign companies considering it,” Sobolewski says. He adds that next year he expects to see the debuts of companies from Ukraine, the Czech Republic and Slovakia. „I can‘t say for the time being which sector the debutants will represent, because the talks are confidential, but they will surely be interesting offers for investors.”
Acquired tastes
The WSE is also considering acquisitions in the region and is now eyeing the Sofia bourse, of which a 44-percent stake is up for grabs. Obtaining it won‘t be easy, however, as the Swedish OMX, as well as the Frankfurt and Vienna bourses are all interested.
„A capital alliance with other stock exchanges in the region is another way of strengthening our position in the region, and that‘s why we‘re interested in the acquisition. In this project our main goal would be to boost the development of the Bulgarian market. So, even if we manage to seize this opportunity, the WSE will strengthen its position in the region only if the Sofia bourse is successful, and depending on the extent to which it is successful,” Sobolewski says.
Whether or not the WSE gets to buy into the Bulgarian stock exchange, the fact that the Warsaw bourse is still state-owned does not work its favor. But even though experts concur that the WSE should be privatized, there is little hope of this happening in the near future. Its current president does not put this task high on the bourse‘s list of priorities, as a lack of political will is a major handicap.
Aiming for ease
A brand new concept that he put forward, however, is to create an alternative, less regulated market in Warsaw, similar to the London-based AIM, which has proven very successful in attracting new IPOs. The idea is to free the process of bourse-listing from more stringent regulatory requirements.
„It will resemble AIM, but in many respects it will be a totally different market, adjusted to the needs of those entrepreneurs and investment projects in Poland and the region that have problems obtaining financial support from the banking sector or the regulated stock exchange,” Sobolewski explains. „Certainly, we wouldn‘t take up such a project if the bulk of participants on the financial market did not believe it was necessary. But there are other opinions as well,” he adds.
Xelion‘s Kuczyński is one of those with a different opinion. He believes that Polish companies are not ready for a market that is less regulated as well as less secure.
„Surely, there will be companies that would want to debut there and investors that would want to invest. But our country‘s experience with financial markets is still too short, so I‘d rather the market was strongly regulated. An AIM-type market would be too likely to encourage all types of irregularities in the listed firms,” Kuczyński says.
Warsaw‘s AIM-like bourse is likely to launch in H1 2007 and time will tell whether or not it will be a success. If the current situation on the stock market continues, it could generate a lot of interest. Moreover, analysts see the bullish market continuing for some time longer, although a small correction is expected at the beginning of the new year.
The Warsaw bourse is the IPO champion in the CEE region. The WSE‘s president, Ludwik Sobolewski, sees it as a regional giant and wants to fortify the bourse‘s already strong position in the region by acquisitions, and the creation of a second, less-regulated market in Warsaw could keep it top of the IPO pile.
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