Exbud, Drosed to delist from WSE

Exbud Skanska (ES) and Drosed have announced plans to leave the Warsaw Stock Exchange (WSE) following buyout bids this month, adding to the growing numbers of firms delisting from an exchange already suffering from a lack of liquidity, analysts said last week. Sweden-based construction firm Skanska, owner of 94% of ES shares, announced a buyout bid that ended Jan. 11 for the remaining 6% of the company's shares. Meanwhile, French poultry firm LDC is bidding for the remaining 1.56% of poultry producer Drosed. That bid ends Tuesday. The moves are a precursor to the firms' delisting, analysts said, adding that more delistings were likely this year, making matters worse for the Securities and Stock Exchange Commission (KPWiG). The KPWiG is concerned that as more cash trickles out of the WSE, there is little chance its liquidity will rise in the near term, according to Dariusz Górski, an analyst at ING Securities. "The market is relatively small and there are more local players, so liquidity plays an increasing role," he said. The WSE experienced a strong wave of gains last week, but it was mainly the highly traded blue chips that performed well. "The demand focuses on the biggest and most liquid companies now," Górski added. But even among the blue chips, the size of a stock's free float, and not its capitalization, provoked the biggest gains. "Those big, but less liquid stocks are rising less than other blue chips," Górski said. "Just take the example of ING BSK or Bank Handlowy, which gained less than the others." ING BSK and Bank Handlowy are majority owned by foreign parents, effectively leaving a relatively small number of shares available to other investors. At the same time, Poland's pension funds, which sprang to life after an overhaul of the pension system in 1999, have an increasing amount of cash to invest in stocks, resulting in even less liquidity on the market. "As the pension funds are forced into Warsaw's tiny pond, they may soon drive stock prices to absurd levels ... with no justification in the fundamentals," Górski said. "To put it straight, we see a lot of fish in a small pond," he said. Analysts said, however, that despite the current trend among companies to delist from the exchange, the departure of Exbud Skanska and Drosed will not be a major blow to the WSE's liquidity, as neither company had a particularly large free float. Exbud Skanska ranks No. 40 among 230 Warsaw-traded stocks, while Drosed comes in at No. 90. Aware of the liquidity problem, the KPWiG has tried to block efforts by strategic investors of WSE-listed companies to delist their subsidiaries. "The KPWiG is holding onto some bizarre policy of keeping companies on the stock exchange against the will of the primary shareholders," said Tomasz Mazurczak, head analyst at Dom Inwestycyjny BRE Banku brokerage. "If a parent company holds more than 90% of its listed subsidiary, there is no point in keeping the firm on the exchange because it imposes certain obligations on the firm," he said. With formal and financial obligations to consider, Mazurczak said subsidiaries like Exbud Skanska can draw few benefits from continuing to trade publicly. "If Skanska wanted ES to get a cash injection, it can provide capital from its own funds," Mazurczak said. "There is no need to keep ES on the exchange."