Market ready for new shares

by Robert Wylot

"If (its) capitalization doesn't rise, the WSE will slide into the margin of the European and global capital market" When the Warsaw Stock Exchange (WSE) was flying high on the technology bubble in 2000, the media concern ITI Group decided to go public. But by the time ITI jumped through the necessary regulatory hoops, the WSE had begun a long downward slide, so ITI's initial public offering (IPO) never materialized.
"When we decided to go public, the situation on the WSE was much better than today," said Michał Broniatowski, ITI's vice president.
The company still wants to debut on the bourse some time in the second half of this year - if the market indices begin to climb again, according to Broniatowski. "We will watch what's happening on the market," he said.
Market analysts say that IPOs will return to the exchange in the second half of 2002, even though the heyday for new listings is over. "The second half can bring a warming in the economy and IPOs will roll out then," said Paweł Rudowicz, an analyst at Dom Maklerski Elimar. But until then, few companies are likely to seek capital injections via the bourse.
"For the time being, we expect a poor first quarter in the economy, with a possible (gross domestic product) GDP fall," Rudowicz said.
Mirosław Tkaczuk, head of the IPO market department at COK Banku Handlowego, said there is little chance for significant IPO activity in the first half of the year because IPOs start when the sentiment on the exchange is on the rise and the economy is growing. But current market gains will likely be followed by a fall and the economy is still in recession, he said.
"The combination of these two factors makes it difficult to be optimistic," Tkaczuk said.
But he noted that investors' mistrust toward newcomers should fade in the course of the year."I think that there will be many more debuts in 2002 than in the past year," Tkaczuk said.
The bourse badly needs new stocks, analysts said. Its position in the consolidating capital market, nearly 11 years after its launch, is still weak.
"If (its) capitalization doesn't rise, the WSE will slide into the margin of the European and global capital market," Tkaczuk said. "The bourse needs to step up its promotion efforts to attract new companies."
An active IPO hunt may be necessary for the WSE, as the key IPO source so far - large governmental privatization projects - is drying up.
"The state treasury has already sold out the most interesting companies," said Dariusz Górski, an equity analyst at ING Securities. "Also, the exchange cannot count on the treasury now, because the (treasury) minister is now slowing down privatization, and seeking either systematic solutions or industry investors for its companies rather than taking them public."The number of listings has fallen gradually to just nine last year from 14 in 2000, 22 in 1999 and 35 in 1998, according to the Securities and Exchange Commission (KPWiG), which clears companies for listing on the WSE.
The total value of IPOs reached zł. 113 million ($27.6 million) last year vs. zł. 951 million ($232 million) in 2000.
"2001 was a difficult year because there was no offer from the state treasury, except (the failed) ZA Puławy and it's this type of offer that generates most of the total value," said Mirosław Kachniewski, spokesman for KPWiG, referring to chemical concern Zakłady Azotowe Puławy. "Many IPOs that were planned for 2001 have been postponed or failed."
Although Kachniewski wouldn't reveal the names of companies seeking clearance from the KPWiG now, he said 16 applications are pending. But the commission has stopped working on 11 of them because the applicants have asked for a postponement.
Analysts pointed to the insurance giant Powszechny Zakład Ubezpieczeń (PZU) as the biggest likely offer from the treasury this year.
"PZU will probably be the only major IPO this year," Tkaczuk said. "There may also be some leftover stakes like those of TPSA (Telekomunikacja Polska) or KGHM (Polska Miedź)." According to Górski, two or three new power companies may seek listing this year. Tkaczuk agreed. "The power sector is underrepresented on the WSE," he said, adding that power IPOs can count on a strong interest among investors. "We"ve seen that whenever the Treasury Ministry announces a privatization tender (for a power producer or distributor), many players join the bid and they are prepared to pay a lot," Tkaczuk said. Although drug distributors recorded good results last year and gained against the general slump on the beleaguered WSE, Rudowicz expects no IPO in this sector this year. "Big drug companies are already in the stage of buying out smaller ones, so there should be no new IPOs," he said.