Optimism reigns; but no tender feelings for PKO deal
The job of advising on PKO BP's planned initial public offering might not be the choice business target some international financial firms originally thought it to be. But the state-owned company's planned floatation - red tape and all - might be a harbinger for at least a slight opening of the Ministry of Treasury's stopped-up IPO pipeline.
In the event that politics does not throttle a sizeable sell-off, the Treasury's planned IPO strategy would yield hefty sums for the government. On the back of that, more foreign and national investors' money might find a safer home on the Warsaw Stock Exchange as its volumes grow with an increase in attractive equities.
Bankers see a host of companies in the queue.
"If all is delivered we can expect (over two years) zł.12-16 billion," says Piotr Chudzik, vice president of Deutsche Bank Global Corporate Finance, referring to IPO proceeds from state-owned entities.
Issuers will be aided by the upturn in the WSE, the WIG20 has risen 23.24 percent in the last year, and the growing rank of Western funds able to invest in Poland following EU accession. The government's dire need for capital will also make the WSE a more alluring option for state-owned equity over the next two years.
Chudzik takes into account the on-again-off-again PKO IPO in his estimations, but if past experience is any indicator, the state-owned bank's offering will be a high hurdle to jump.
Challenges abound.
Three entities sent offers to the Ministry by last Monday: A consortium of DM Penetrator and Towarzystwo Doradztwa Inwestycyjnego, HSBC Investment Services and Citigroup Global Markets Polska with DM Banku Handlowego. (Advisory fees range from zł.15.72-17.94 million, (€3.4-3.8 million) according to Parkiet.)
Earlier this month, Treasury Minister Piotr Czyżewski told a press conference that the PKO deadline had been delayed. "I hope that within the next few days we should be able to select an advisor for the sell-off of PKO BP, and we think that the public offering of up to 30 percent should be carried out at the end of the third quarter or the start of the fourth quarter 2004," he said.
Investment bankers and analysts anticipate that the deal will go through somewhat as planned. But expectations are that the floatation and its sluggish progress will be indicative of future IPOs of state-owned companies, such as those of insurance giant PZU and Lotos.
The dismay of investors and bankers centers on the size of the stakes that the Treasury anticipates to float in each of its entities, as well
as the nature of the advisory guidelines. Strict rules make public offering advisory tenders prohibitive for many competent and well-connected international finance firms.
The history of PKO, the nation's largest bank in terms of assets, sours otherwise pleased potential advisors. "We will not take part this time," says a banker who participated in PKO's failed advisory tender last year. "It's too inconvenient. The time and effort is extremely high."
Typical of Polish government advisory tenders is that competing firms must produce a mass of "irrelevant" information even to be considered.
"We don't like the tenders run by the Treasury," he says. "You spend 60 percent of your time preparing what is basically irrelevant."
Firms need an official statement proving they paid social security and taxes from their home countries. They also must verify that the management board members were never in prison.
"Only a few interested organizations will go for them as they now stand," a banker says. "It should be focused on merits."
Thus, critics of the government say that such a complex tender process is a formidable obstacle to seeing through the government's sell-off program.
Other problems exist, too.
The programs are not privatization programs per se because the Treasury Ministry would still maintain majority control.
"In terms of PKO PB: Why should investors be interested in this bank?" a banker says.
Among the reasons for being skeptical, is that investors would be powerless at the hands of the government. Virtually no power over the country's largest bank would be devolved to investors, as it would be if a majority stake were sold to institutions and a strategic investor. At present, the country's more successful WSE-traded banks are owned by foreign financial institutions - better partners for individual investors than is the government.
Initially, investors would demand a discount, owing to the lack of shareholder rights.
"Why should investors look at this if there are no strategic investors," a banker says. "You will not have any influence as an investor. If I'm an investor, I want to buy it at a discount."
Janusz Kwiatkowski, spokesman at the Ministry of Treasury, fields some of the critical queries.
He says that despite the troubles before in floating PKO, which were based on mere "formalities," the deal would be completed.
On the advisory tender itself, he says that the Ministry has yet to set a deadline for completion.
"All I can say is that there were three offers sent to us yesterday," Kwiatkowski said on Tuesday. "There are not any forecasts. I would expect it at the end of the year. I haven't seen any of the offers."
He added that it probably would not return to the troubles of the past PKO tenders. For those he blamed interested banks: "The main trouble was not the level of the offering. There were mistakes in the offerings."
Earlier in the year, the Ministry forfeited a tender, because only one institution met its strict regulations.
Should the government straighten itself out, bankers say more institutions will compete for deals. Therefore, more deals will successfully come to market.
"I think there will be a high interest from the banking community," a banker says. "This is provided that the procedure is simplified and requiring of relevant information."
Similarly, as all eyes are on what the government is up to, a host of private enterprises have recently voiced their interest in listing on the WSE. Most recently, small companies Hoop and Impel have floated IPOs. And ITI Holdings has said it is considering listing TVN on the heels of the recent bond offering it launched last week to buy the TV station outright from SBS Broadcasting.
Such deals - through the Treasury or not - will become easier by virtue of the usual suspect: the gradual Westernization of the Polish capital markets.
"Poland is going into the EU and you'll see more frequent investment because of that," says Deutsche Bank's Chudzik. "Plus there's more money coming in from the pension system."
In the event that politics does not throttle a sizeable sell-off, the Treasury's planned IPO strategy would yield hefty sums for the government. On the back of that, more foreign and national investors' money might find a safer home on the Warsaw Stock Exchange as its volumes grow with an increase in attractive equities.
Bankers see a host of companies in the queue.
"If all is delivered we can expect (over two years) zł.12-16 billion," says Piotr Chudzik, vice president of Deutsche Bank Global Corporate Finance, referring to IPO proceeds from state-owned entities.
Issuers will be aided by the upturn in the WSE, the WIG20 has risen 23.24 percent in the last year, and the growing rank of Western funds able to invest in Poland following EU accession. The government's dire need for capital will also make the WSE a more alluring option for state-owned equity over the next two years.
Chudzik takes into account the on-again-off-again PKO IPO in his estimations, but if past experience is any indicator, the state-owned bank's offering will be a high hurdle to jump.
Challenges abound.
Three entities sent offers to the Ministry by last Monday: A consortium of DM Penetrator and Towarzystwo Doradztwa Inwestycyjnego, HSBC Investment Services and Citigroup Global Markets Polska with DM Banku Handlowego. (Advisory fees range from zł.15.72-17.94 million, (€3.4-3.8 million) according to Parkiet.)
Earlier this month, Treasury Minister Piotr Czyżewski told a press conference that the PKO deadline had been delayed. "I hope that within the next few days we should be able to select an advisor for the sell-off of PKO BP, and we think that the public offering of up to 30 percent should be carried out at the end of the third quarter or the start of the fourth quarter 2004," he said.
Investment bankers and analysts anticipate that the deal will go through somewhat as planned. But expectations are that the floatation and its sluggish progress will be indicative of future IPOs of state-owned companies, such as those of insurance giant PZU and Lotos.
The dismay of investors and bankers centers on the size of the stakes that the Treasury anticipates to float in each of its entities, as well
as the nature of the advisory guidelines. Strict rules make public offering advisory tenders prohibitive for many competent and well-connected international finance firms.
The history of PKO, the nation's largest bank in terms of assets, sours otherwise pleased potential advisors. "We will not take part this time," says a banker who participated in PKO's failed advisory tender last year. "It's too inconvenient. The time and effort is extremely high."
Typical of Polish government advisory tenders is that competing firms must produce a mass of "irrelevant" information even to be considered.
"We don't like the tenders run by the Treasury," he says. "You spend 60 percent of your time preparing what is basically irrelevant."
Firms need an official statement proving they paid social security and taxes from their home countries. They also must verify that the management board members were never in prison.
"Only a few interested organizations will go for them as they now stand," a banker says. "It should be focused on merits."
Thus, critics of the government say that such a complex tender process is a formidable obstacle to seeing through the government's sell-off program.
Other problems exist, too.
The programs are not privatization programs per se because the Treasury Ministry would still maintain majority control.
"In terms of PKO PB: Why should investors be interested in this bank?" a banker says.
Among the reasons for being skeptical, is that investors would be powerless at the hands of the government. Virtually no power over the country's largest bank would be devolved to investors, as it would be if a majority stake were sold to institutions and a strategic investor. At present, the country's more successful WSE-traded banks are owned by foreign financial institutions - better partners for individual investors than is the government.
Initially, investors would demand a discount, owing to the lack of shareholder rights.
"Why should investors look at this if there are no strategic investors," a banker says. "You will not have any influence as an investor. If I'm an investor, I want to buy it at a discount."
Janusz Kwiatkowski, spokesman at the Ministry of Treasury, fields some of the critical queries.
He says that despite the troubles before in floating PKO, which were based on mere "formalities," the deal would be completed.
On the advisory tender itself, he says that the Ministry has yet to set a deadline for completion.
"All I can say is that there were three offers sent to us yesterday," Kwiatkowski said on Tuesday. "There are not any forecasts. I would expect it at the end of the year. I haven't seen any of the offers."
He added that it probably would not return to the troubles of the past PKO tenders. For those he blamed interested banks: "The main trouble was not the level of the offering. There were mistakes in the offerings."
Earlier in the year, the Ministry forfeited a tender, because only one institution met its strict regulations.
Should the government straighten itself out, bankers say more institutions will compete for deals. Therefore, more deals will successfully come to market.
"I think there will be a high interest from the banking community," a banker says. "This is provided that the procedure is simplified and requiring of relevant information."
Similarly, as all eyes are on what the government is up to, a host of private enterprises have recently voiced their interest in listing on the WSE. Most recently, small companies Hoop and Impel have floated IPOs. And ITI Holdings has said it is considering listing TVN on the heels of the recent bond offering it launched last week to buy the TV station outright from SBS Broadcasting.
Such deals - through the Treasury or not - will become easier by virtue of the usual suspect: the gradual Westernization of the Polish capital markets.
"Poland is going into the EU and you'll see more frequent investment because of that," says Deutsche Bank's Chudzik. "Plus there's more money coming in from the pension system."
