Lack of investor appetite leaves NIFs in the doldrums
By : Robert Wylot
The National Investment Funds (NIF) have consolidated into various equity groups during the past few years. But while some have invested in new-technology companies, most have decided to hold onto their money until the funds dissolve and cash is paid out to shareholders. Even so, whatever the strategy of an individual NIF, share prices for most look set to remain in the doldrums for the foreseeable future.
The NIFs are a product of the Mass Privatization Program (PPP) introduced in 1995 under which 512 state-owned firms were grouped into 14 funds. Their task was to privatize and restructure companies to make them viable on the free market. Since the plan's start-up, the Treasury Ministry's share in each of the funds has fallen from 100% to a little more than 10% in 2001. In total, some 7% of Poland's industrial assets were involved in the program.
For many loss-making companies, the program was a last chance to turn them around, but many firms were beyond repair, with dilapidated infrastructure, antiquated technology and archaic management structures.
In 1995, 60% of the companies participating in the program reported net losses, according to the National Investment Funds Association.
Six years later, many market watchers said most NIFs have withheld investments and aim to sell firms in their portfolio to accumulate cash. "Some NIFs are heading for their own liquidation and are collecting cash for the future payout to shareholders," said Maciej Wiewiorski, an analyst with Wood&Co. brokerage house.
But these plans still depend on decisions made by the new government after September's elections. "The current government has so far blocked the dissolution of the NIFs, but it seems that the new treasury minister will be more willing to agree to a liquidation," Wiewiorski said. Other politicians, however, are less certain of the funds' future. "I don't understand the strategy of the PZU NIF and the BRE Private Equity 1 (firms that manage six of the funds)," said Wieslaw Kaczmarek, founder of the PPP as privatization minister in 1995 and one of the leading figures in the Democratic Left Alliance (SLD) which looks set to win this autumn's elections. "Their moves have nothing in common with (any reasonable) industrial policy," he said.
Nevertheless, there have been relative success stories among NIFs. In the past four weeks, three NIFs Jupiter, Octava and Fortuna announced that Deutsche Banc Alex Brown Inc., a Deutsche Bank subsidiary, has upped its stake in each fund, with Jupiter now actively pursuing investments in new-technology stocks. "They (Jupiter) have made good investments in new technologies," Kaczmarek said. "Since March 2000, Jupiter has invested zl. 118 million ($29.5 million), or one-quarter of its assets, in Pro Futuro, originally a telephone operator, which provides ISP (Internet service provider) and data transmission services." Jupiter also holds stakes in Matrix.pl (a corporate management systems provider) and e-Katalyst (an Internet incubator).
Janusz Palucki, vice president of Jupiter, said the key to success for his fund was to diversify away from old-economy industries, "such as textile makers or mines, to new technologies." "We believe we will find an investor for Pro Futuro as early as this year and sell our shares at a much higher price than we invested." Palucki said the project should break even by 2003.
Magna Polonia has also placed funds into new-economy companies, and in June invested zl. 2.8 million ($700,000) in bizCentrum, owner of Serio.pl Internet service.
But many analysts remain skeptical. "It isn't the best time for risky investments in new technologies," Wiewiorski said. "The economy is stagnating and the funds may wait for years to recover their investments." Arkadiusz Chojnacki, an analyst at COK BH brokerage house, agreed. "I wouldn't like my money to be invested in new technologies," he said.
But regardless of the relative bullishness of some funds, NIF share prices on the Warsaw Stock Exchange (WSE) have been in permanent decline for years. The past year alone has witnessed a 10% drop in share prices. "We have a general depression on the stock exchange, so the value of the companies in the NIF portfolio is plunging as well," Chojnacki said.
A further drawback for NIFs is their lack of transparency. "The funds have always had a non-transparent structure, which has put buyers off," Chojnacki said. "It naturally increases the uncertainty and investment risk levels."
Meanwhile, the future of NIFs remains bleak. "The economy will be going through a difficult period, and so will NIFs," Chojnacki added.
