PKN's second IPO set for July
The second public offering in the country's oil giant Polski Koncern Naftowy (PKN) Orlen is set for the beginning of July after statements from the Treasury Ministry last week that it expects to receive subscriptions for a 20-30% stake from June 16.
But the worsening macroeconomic situation, the zloty's recent devaluation and the threat of a prolonged political crisis mean the ministry cannot expect greater revenue than that received during PKN's initial public offering (IPO) of a 30% stake in November last year.
"It won't be an easy offering, the market conditions are very tough," said a source close to the sale.
With the deteriorating situation for equities on global markets in recent months, the Warsaw Stock Exchange (WSE) falls since March will have a destabilizing effect on the prospects of its second largest stock, the source said. In addition, the current account deficit at 8.3% of gross domestic product (GDP) in March and the ruckus in the governing coalition will compound the situation further.
"The issue is how (investors) perceive Polish assets and (currently) most are underweight," the source said.
Despite the fervor for PKN stock last year, when its share tranche for individual investors was more than 10 times oversubscribed, this time around analysts do not predict the subscription price to be greater than current levels. For competitive reasons, "I don't expect it to be higher than the market price," the source said, adding there will also be discounts to investors. Furthermore, while the treasury wants to sell PKN shares for the highest possible price, the firm's management will receive a convertible bond option and wants the price to stay low, analysts said.
Based on last Thursday's stock price of zl. 20.5 per share, income from the sale would bring state coffers around zl. 1.72 billion-zl. 2.58 billion ($390.9 million-$586.36 million). Last November the treasury received zl. 2.46 billion ($585.71 million) from the IPO's subscription price of zl. 19.5 per share at a time when the zloty was trading at around 4.2 against the dollar.
"This time the treasury can aim at getting a pretty similar result" due to the lower exchange rate, said Ruslan Nickolov, an analyst at Nomura International. In its IPO, foreign institutional investors bought 52.3% of PKN stock in the form of global depository receipts (GDRs), analysts said.
The ministry is currently completing its final structure for the offer, analyzing the market and talking to investors, said Michal Mierzwa, a regional oil and gas analyst at CA IB Securities, one of the sale's lead manager investment banks alongside Lehman Brothers and Wielkopolski Bank Kredytowy. The co-leads will be Credit Suisse First Boston and Schroder Salomon Smith Barney.
While it is unknown how much of the company will hit public markets, it is unlikely the treasury will offload 30%, Nickolov said. With 45.6% of PKN already publicly traded, including employee shares that went out at the same time as the IPO, the treasury will not want to relinquish its 25% 'golden share.' "If it wants to maximize its revenues it can sell just enough shares to stay on the safe side of a blocking minority," Nickolov said.
Notwithstanding the foreign outlook on Poland, the offering will command investors' attention, analysts said. PKN is the dominant entity in Polish fuels with a 70% chokehold on the wholesale market, and posted very strong returns last year. According to international accounting standards sales rose 18.5% from 1998 to zl. 13.28 billion ($3.41 billion) while its net profit surged 22% to zl. 944 million ($242.05 million).
Indeed, its flagging share performance this year it reached a high of zl. 27.5 in mid-January but has since drifted around the zl. 20-zl. 24 range is partly due to the fact investors knew they could buy later this year at a lower price, said the source close to the sale. Moreover, the increasing role of domestic institutions on the WSE, who must buy blue chip shares to balance their portfolios, will mean that "if the freefloat increases by around 70% (their) interest will be more intense, the pension funds have more money now," Mierzwa said.
But Nickolov said investors will also consider the scrapping of import barriers next year, allowing foreign producers to compete more effectively and threaten PKN's wholesaling margins. It also faces a lawsuit over price fixing, allegedly abusing its monopoly position. "If the outcome is negative and coincides with the removal of the barriers, it will have a negative effect on PKN's position," he said. "(Investors) want to see how it performs in a completely liberalized environment."
