Lonely giant
The Warsaw Stock Exchange is celebrating the 15th anniversary of its first post-communist session. The bourse has come a long way since 1991, when only five companies were listed - today's average daily trading reaches zł.1.1 billion. But while the WSE enjoys record highs on its home ground, its expansion beyond Poland's borders is being hampered by the government's reluctance to privatize the bourse.
The first session of the Warsaw Stock Exchange (WSE) following the fall of communism took place on April 16, 1991 in a very symbolic location - the former headquarters of the Polish Communist Party. Wiesław Rozłucki, the president of the WSE, who still manages the institution, wrote the names of five listed companies on a white board, Tonsil, Exbud, Krosno, Kable and Próchnik, all of them previously state-owned. The total stock turnover in the WSE's first year amounted to zł.30 million, a figure reached today after only three to four minutes of daily trading.
Early days
"The task I was given in 1990 was to start up a stock exchange as soon as possible, and six months later the WSE opened. Our strategic goals were turnover concentration, electronic calculation of transactions from day one and dematerialized shares in central deposits. This, together with high security standards, were extremely bold assumptions in the early post-communist era but but they haven't changed a bit and are still binding," Rozłucki recalls.
"The WSE has become the heart of the Polish economy, providing many entrepreneurs with capital for growth. It also made it possible to change the ownership of state-owned companies in a transparent way, and it is thanks to such privatizations as TP, Orlen, PKO BP and Pekao that turnover reached the value it has today. This is the major success from the 15-year perspective," says Piotr Kamiński, president of the WSE Council.
Rags to riches
At first, Polish investors, unacquainted with the rules of the free market, viewed the bourse with some distrust and apprehension, but after the first successes were reported in the media and the 1993 boom became common knowledge, individual investors started queuing up in front of brokerage houses to fill in their orders, with dreams of striking it rich. Unfortunately, many were to learn a bitter lesson during the slump of 1994, but the current list of the top 100 richest Poles abounds with successful investors.
Roman Karkosik, number five on the list, is a good example. In the 1970s he was a warehouse keeper in the Farmers' Cooperative in Czerników near Toruń. Today, with his wealth estimated at some zł.2.5 billion, he is one of the biggest stock-exchange players in the CEE region. His business ventures supposedly began when he set up a pub - the only place selling beer in his neighborhood. In 1993, he started playing the WSE, purchasing stocks of the privatized Bank Śląski. Karkosik now holds shares in the chemicals producer Grupa Boryszew, Impexmetal foundry, Skotan tannery and Alchemia, an investment company.
Triumph of entrepreneurship
"The 15 years of the WSE proved that Poles are a nation of risk-takers, which is not the case in every country. This is a great strength of our bourse. While in Budapest 80 percent of turnover is generated by foreign investors, in Poland domestic and individual shareholders are still very active," Rozłucki says. Indeed, individual investors account for 26 percent of all WSE players while in Prague and Budapest the figure is below 10 percent.
The Warsaw bourse is also the leader in the region when it comes to the number of IPOs. In 2005, 35 companies debuted on the WSE, but Jacek Socha, deputy president of PricewaterhouseCoopers and an honorary member of the WSE Council, believes the number could be even larger if the government provided some incentives for businesses.
"Preparing a company for an IPO is related to a number of risks such as making company information public and thus revealing it to the competition. It is also a long and costly process and I think the Finance Ministry should introduce CIT breaks for debuting companies. It would be a great prompt for smaller firms," says Socha.
Privatization problem
But attracting businesses and investors is by no means the WSE's biggest problem. What worries market experts is that 98.8 percent of the Warsaw Stock Exchange is still held by the state, though originally it was planned to be privatized within its first two years of existence. In Europe, only two other stock exchanges are state-owned - the ones in Malta and Cyprus, but their joint capitalization amounts to some zł.8 billion, while at the end of 2005 WSE's capitalization reached zł.425 billion with foreign companies included.
"Privatization is an essential condition for the development of the Warsaw Stock Exchange," Jacek Socha told WBJ. "If you look at the example when the WSE tried to purchase the Vilnius bourse, the answer that we heard was that Vilnius was not interested in selling their bourse to another state. I'm sure we would get a similar answer if we tried to buy the Sofia stock exchange. Consolidation between the bourses is now a fact - look at the Vienna-Budapest alliance or the Baltic states' stock exchanges united in OMHEX. I hope we won't wake up too late as a solitary island in a consolidated Europe. Abstaining from certain moves can turn out more costly for us in the future than difficult decisions today."
Consolidation climate
Bourse consolidation elsewhere in the region is moving forward fast. The WSE itself recently expressed interest in purchasing the stock exchange in Sofia, while both Vienna and the Nordic stock exchange, OMX, are now eying Warsaw. The WSE has also attracted interest from heavyweights such as the pan-European bourse operator Euronext, the London Stock Exchange and Frankfurt's Deutsche Boerse.
Entering into alliances would be much easier if the WSE was in private hands, but the Deputy Treasury Minister, Paweł Szałamacha, announced that privatization is not likely to take place in 2006. What is soon going to change, though, is the management of the bourse, as Wiesław Rozłucki has already made up his mind not to run for another term as president.
After 15 years at the helm of the WSE, Rozłucki will be leaving after the WIG20 index hit a record high of 3,131 points two weeks ago, and he has no illusions that if he waited a bit longer, he could guide the WSE through the privatization process.
The road ahead
"I have no doubt that the bourse should be in the hands of interested parties. It seems that at the moment there is no political approval for privatization and we have to discuss it and talk about it. But I have been repeating the discussions regularly and every time some kind of consensus was reached, there was a change of government," Rozłucki explains.
For Rozłucki, the biggest challenge the WSE faces in the coming years is making the best use of its capital in order to improve its already strong position.
"The WSE has got a big, or even excessive capital that you either have to give back to shareholders or spend on purchases. I would try purchases. But you have to be careful because it's easy to waste the money. Using it so that it brings profits for the capital market is not easy. This matter has to be solved but this is also an issue that the management board cannot decide on independently. Use of capital, strategic alliances and privatization are issues only shareholders can decide on, which means, in the case of the WSE, the state," Rozłucki concludes.
