Ocean president in jail as firm's share price takes a nosedive
It's not an unfamiliar story on any stock exchange. A small company grows into a viable enterprise only to get suffocated by high-stake investors or internal problems.
The latest victim is Ocean, a trading/wholesaling/retailing company that, since its inception in 1990, had grown into an operation with several import-storage facilities and 23 retail outlets. Founded on a strategy of offering high-quality yet inexpensive wholesale and retail products, the company had found its success in the toy, clothing and shoe markets.
But everything changed several months ago. The company, once a treasured holding in the portfolios of many smaller investors, saw its share price nosedive 90% to zl. 1.84 last week from zl. 17.60. It closed slightly up at zl. 1.90 on Friday.
The losses followed earnings reports pointing to falling profits, but are undoubtedly tied to the imprisonment of the company's main shareholder and board president, Wladyslaw Malinowski, for tax evasion.
In the first quarter of 2000, Ocean recorded zl. 35 million ($8.1 million) in revenue and zl. 7 million ($1.6 million) in losses. Of that, zl. 28.8 million ($6.7 million) came in the first quarter of the year. Compared to 1999, in which zl. 95.5 million ($22.2 million)was earned in the fourth quarter alone, earnings are plummeting.
"The company is very near to collapse," said Marek Pokrywka, a broker with Dom Maklerski Banku Ochrony Srodowiska (BOS) brokerage house. "I think Ocean will go down to the bottom of the ocean," he quipped. The tax evasion could be a result of long-stemming money problems, Pokrywka said.
Pawel Puchalski, an analyst with Raiffeisen Capital & Investment Polska, believes the company may have been involved in illegal business schemes. "Many tricks can be done with money," he said, declining to elaborate.
Company officials were not available for comment and because Ocean is a company with low liquidity, analysts and brokers who follow the company are few in number.
The downfall of Ocean reminded Puchalski of Universo, a company that several years ago saw share prices soar before dropping to 1 grosz (zl. 0.01) per share before getting delisted. The company traded and did business in so many markets it can't be labeled, he said.
But whether a company's demise can be traced to internal or external causes, a lack of investor interest in smaller companies sometimes keeps companies from growing.
Since the Warsaw Stock Exchange (WSE) opened for trading nine years ago, only 13 of 233 traded firms have market capitalizations of more than $500 million, according to a recent Wall Street Journal interview with Wieslaw Rozlucki, president of the WSE. The average market capitalization is $135 million, Rozlucki said.
Analysts say the strict regulation of the WSE though it has kept the exchange one of the most corrupt-free in the region has stunted its development, but others disagree, saying only well-managed companies thrive on any market.
The WSE has gone from average daily volumes of around $800,000 in 1991 to an average of $150 million today.
