Hoop IPO foiled at last moment

One analyst's allegations enough to delay public stock offering, highlighting problems with domestic financial system, but concerns over Hoop finances could be legitimate

By Timothy Sifert

The recently failed first attempt by drinks producer Hoop to float an initial public offering (IPO) on the Warsaw Stock Exchange has exposed a host of flaws in the country's capital markets, calling into question the viability of existing laws and regulations, as well as the research and companies that make markets move.

As Hoop executives sought to set the company's IPO price last Wednesday, Jarosław Supłacz, an independent analyst, published a report via the Internet valuing the company at less than zł. 5 per share, well below other analysts' expectations of zł. 26 per share. He also suggested that Hoop's existing shareholders might be guilty of stripping the company of assets, and that the company was on the verge of bankruptcy.

Hoop had intended to raise as much as zł. 120 million (€26.8 million) through the IPO. But the report inevitably sent potential investors roiling, leaving Hoop little time to calm local investor concerns while reassuring investors in Germany, Austria and the U.K., where the company also marketed the deal. After some explanation to investors - even providing them with information Supłacz criticized it for omitting - Hoop pulled the IPO and announced it would file a lawsuit against Supłacz with the public prosecutor.

Hoop plans to announce a new offering date on July 23.

Market watchers were quick to note that Hoop's woes are not those that would occur in a mature capital market. Unfortunately for the country, this is not a one-off. Last year, ITI Holdings was forced to withdraw its IPO, partly owing to wide pricing discrepancies among equity analysts.

The upshot is that Hoop, the Polish Securities and Exchange Commission (KPWG), analysts and the Polish legal system are all now being pushed to do more to ensure the success of this offering.

An investment analyst, who asked not to be named, said Hoop was unable to float its IPO because of the dearth of information it provided in its prospectus about its intended investment in Russian drinks company Megapak. The bulk of the IPO proceeds would be invested into that company.

"If one analyst can stop an offering it means the issue was weak in itself," he said.

Robert Niczewski, Hoop's advisor to the management, counters this claim by saying that immediately after the Supłacz report - which pointed out a lack of information on Megapak - Hoop immediately informed investors of the Russian company's earnings. "We will be as transparent as possible," he said, referring to Hoop executives' plans to revisit investors this week to address the problem.

While criticizing the IPO prospectus, Supłacz also censured the practices of other analysts of the offering.

"After reading the BRE report I was struck by the inconsistencies between its contents and the issuance prospectus," he said. "It seemed to me that the report was overly favorable to the company; it was strange that the company could be priced at five time its book value: perhaps the company has gotten used to too much praise."

Hoop also said Supłacz did not act alone, because compiling a report based on a 500-page prospectus is too difficult for one person in so short a time. "It is not possible," Niczewski said.

Supłacz replied: "I'd like to thank Hoop for that praise."

Certainly not alone in its dismay, Hoop has also lamented the Polish securities law (which is in the process of being amended) as so ineffective that it allowed this financing dilemma. "This is unlikely to happen somewhere on a grown-up stock market," Niczewski said. A new law needs to be put in place, he added.

In response to the Hoop affair, the KPWG also chimed in last Thursday with its own press release. "We examined the report and (Hoop's) prospectus and agreed it was correct, within all laws and regulations," said Piotr Biernacki, KPWG's deputy spokesman. He said that the draft proposal of the new law addressed the issue of negative information being published in the media directly before an offering. Should this proposal be put into effect, he said, Supłacz would find himself to be in violation of the law.