Market tracks U.S. drop in IT stocks
The Warsaw Stock Exchange (WSE) took another beating last week following a slump on the U.S.' Nasdaq index, while the zloty free float (see related story, page 1) had little effect on investor sentiment, analysts said.
The all-share WIG index dropped 2.64% on the week, closing Friday at 20,683 points. Volume hit its lowest level this year for the second week in a row, falling 12.1% to zl. 868.2 million ($211.8 million).
"Traders on the Warsaw market just copied what the American investors did," deserting information technology (IT) stocks, said Pawel Zach, an analyst at Citibank (Poland).
Of the index's blue-chip tech stocks, Prokom fared the worst, plunging 11.7% to finish the week at zl. 196 per share. But investors are readjusting their evaluations of software firms, said Michal Szymanski, investment manager at ING BSK Asset Management. Analysts said the declining prices are closer to the firms' real worth now that the rally on IT stocks is over.
However, tech stocks recovered enough to bring the WIG back up 1.3% on Friday. Consequently, while media firm Agora fell 5.88% to finish the week at zl. 112 per share, on Friday alone it rose 10% following information it would team up with telecom firm Netia and radio group EuroZet to create an internet portal (see related story, page 4). Conglomerate Elektrim rose 6.1% on the week to close at zl. 67.9 after it announced its plans to spend $100 million-$200 million on internet activities over the next two years.
But the much-anticipated freeing up of the zloty had little effect on investors. "It was expected and it was just a matter of timing, it didn't have any impact," Zach said. The only firms likely to feel any consequences will be exporters and importers due to fluctuating costs, and the banks, which can profit from the currency's volatility, he said.
However, the most significant piece of company news last week was the government's decision to extend the 25-35% stake on offer in Telekomunikacja Polska (TPSA) to 51%. The increase will allow the chosen investor from the two short-listed candidates, France Telecom and Telecom Italia, to purchase an extra 10% next year after having bought the current stake on offer this June. And a further 6% will be available in a planned public offering of TPSA scheduled for around September 2001, in which the government plans to sell 15-30% of the firm. The decision on the public offering was also approved last week.
Treasury Minister Emil Wasacz said that the chance to obtain a majority stake, and thus full control of the WSE's largest stock, was due to demand from the two short-listed bidders. "They would have wanted a majority stake sooner or later and probably demanded it during the negotiations" as a requirement for buying the maximum amount available this time around, Zach said. "It makes sense - if you paid $4.5 billion for 35%, you'd want to control it."
But while majority control of TPSA is attractive to its eventual strategic partner, revenue from the sale is just as crucial to the government, Zach said. According to Citibank, a 45% stake in TPSA is worth around zl. 22.5 billion ($5.48 billion). Zach said this would help service Poland's increasing current account deficit, which now stands at around 7.8% of gross domestic product.
And with the 51% option, France Telecom and Telecom Italia will likely bid higher, giving the government a better price for the current stake. "It's obvious that investors will be ready to pay more if they have the guarantee to become a majority (shareholder)," Zach said. Both firms are completing due-diligence work on TPSA and have until April 28 to submit their bids. On Friday, TPSA closed at zl. 34.5, falling 7.26% on the week.
