Filling a capital gap
E-muzyka, a firm operating on the digital music market, and Blumberg PRE IPO, a private equity investment firm, debuted on New Connect, the Warsaw Stock Exchange's alternative trading platform, in early December. Five more companies - Holiday Planet, Makolab, Alumast, Organic and Blue Tax Group - also scheduled New Connect debuts before the end of the year.
The origin of New Connect
New Connect opened for trading on August 30, 2007. It caters specially for those companies which have dynamic growth potential, are not more than three or four years old or have just been established and have a capitalization of less than zł.20 million. New Connect mainly targets companies active in fields of innovative business, such as IT, electronic media, telecommunications, biotechnology or modern services - but companies from other sectors are eligible to join.
"It is really good that there is a diversification of branches on New Connect and not just new technology companies, as was expected before it opened," said Marcin Sójka, an analyst from brokerage PKO BP.
According to Dariusz Marszałek, the spokesperson of the WSE, companies which debut on New Connect are expected to use it as a springboard to the bourse. "New Connect is dedicated to young companies, which usually have problems raising funds for their activities. Banks are reluctant to lend to companies which face a risky future. EU funds are also running out and, at the moment, there are almost no funds for SMEs. There is peculiar capital gap," said Marszałek.
"Analizing the number of companies on the New Connect market and those which plan to debut, we fill the capital gap and our presence is necesssary," he added.
Present and future
By the middle of December, there were 23 companies on the New Connect bourse. "New Connect seems to be very interesting for developing companies," Marszałek told WBJ. "New Connect plans to have 100 companies by the end of 2008," he added.
"New Connect is developing dynamically, and the main success is the number of companies," PKO BP's Sójka said. Companies on New Connect have a lot of potential, but investors have to be aware of the high risk in exchange for the high return rate. Both institutional and individual investors can invest on the trading platform.
Since its opening the New Connect index has risen by around 10 percent. Its capitalization amounted to zł.822.3 million in December 2007. "New Connect's opening was quite bad, as investors were abandoning the WSE [at that time]. And all skeptics, including me, expected that it would just stagnate, but nothing like that has happened. There is something going on, new companies are debuting, new investors are interested," Sójka said.
"New Connect's surge will last for the next one to two years. After that it should have a stable number of companies. Some companies will collapse, and some of them, hopefully, will move to the regular WSE market. And some of them will return to private ownership," explained Sójka.
