Market dives on political question marks
The Warsaw Stock Exchange (WSE) (http://www.wse.com.pl) sank on concerns that legislators were tampering with privatization programs and central bank independence.
"Most of all, the large cuts we're suffering are from the political risk," said Artur Szeski, director of research for CDM Pekao Securities. "First there were some rumors that talks between France Telecom (FT) and Telekomunikacja Polska (TPSA) came to a standstill which was denied today by the Treasury Ministry. We also had a motion for a vote of no confidence on Treasury Minister (Aldona) Kamela-Sowinska. This is crucial because there is a risk that the privatizations she started will not be completed soon, if ever."
Some of the heaviest-traded and biggest companies listed on the exchange are still largely in state hands, and ongoing privatization plans are subject to political decisions and negotiations. The WIG20 index, which tracks the market's blue chip stocks, dropped 6% of its value to land at 1,378.83 while the TechWIG plunged 7.72% to 864.22 and the market-wide WIG index fell 4.18% to 14,977.58. Turnover was zl 1.16 billion ($290 million), up heartily from the previous week.
Oil refining and marketing group Polski Koncern Naftowy Orlen (PKN Orlen), mining and telecoms giant KGHM Polska Miedz and TPSA were deeply affected last week when Sejm deputies scheduled the no-confidence vote. Investors also watched warily as the Sejm voted on measures to curb central bank independence; the measure was voted down Friday.
The companies are caught in a difficult spiral where investors are concerned that when privatizations lead to a larger float of stock on the market, prices will be depressed; but investors are also concerned that a failure to privatize will harm the companies in the long run, Szeski said.
In TPSA's case, the company's stock also fell victim to rumors that talks with its strategic investor fizzled out. A consortium of FT and Polish conglomerate Kulczyk Holding purchased 35% of the company from the government last July and was supposed to up its stake to 51% in the Polish telecom. But TPSA's stock has since nose-dived, forcing the government to renegotiate the purchase price with the consortium. There have been no formal announcements on the negotiations, but rumors fueled a drop in price, Szeski said. For the week ending Thursday, TPSA's stock fell 6.53% to zl 19.35.
In addition to privatization issues, KGHM was rocked by a brewing spat with its union, ZZPPM. The workers have demanded an 8% increase in monthly wages beginning in July, a commitment of at least 5% of wages to the employee's pension program, withdrawal of proposed changes to the company statutes and changes in the company's donation and investment policies.
"KGHM has exhausted its capacity to increase wages further this year," the company replied in a statement. "The company is also unable to introduce the Employee Pension Program, whose costs are entirely borne by the employer."
"I think the most important factor influencing the price of KGHM, lately, is the proposition of raising wages this year," said Rafal Jankowski, an analyst with CDM Pekao Securities. "In my opinion, this proposition is very bad (and is) destroying the value of KGHM."
He said employees have already been granted an 11% increase for 2001 and that average KGHM wages are zl. 4,650 per month. Across Poland, gross wages averaged zl. 2,175 in April.
The copper and telecoms firm is 44% owned by the treasury, which wants to sell a further stake in the company but has not set a specific timetable. KGHM's stock fell 12.11% to zl. 19.95 for the week.
