Rising stock
The dynamic bourse hopes to grab a stake in the Sofia and Ljubljana bourses and it wants to welcome its 500th debutant in the next two years. Now, murmurs that the Treasury could float part of the WSE itself are once again being heard
As window-producer Budvar Centrum became the Warsaw Stock Exchange's (WSE) 300th debut in its 16-year history, the optimism of the exchange's president, Ludwik Sobolewski, was almost palpable. "It's more than certain that next year we will have 400 companies on the floor and almost certain that in 2009 [we will have] 500," he declared. Budvar Centrum was the 21st firm to make its IPO this year, and Sobolewski expects a further 30-40 firms to follow in its footsteps. "This year we should have around 60 debuts," he said.
This is a significant step up from 2006's 38 IPOs and from 2005 when 35 new companies appeared on the WSE. "These are good times for our capital market. We are finally consuming the fruits after cultivating the garden," Lidia Adamska, a member of WSE's board said.
Lack of liquidity
Although there are plenty of reasons for optimism, Adamska pointed to a fly in the ointment. "The increase in the number of IPOs isn't reflected in the increase of liquidity and capitalization," she noted. This is because just a handful of large companies have entered the stock exchange in the last three years and, according to Adamska, under other (i.e., Western) conditions most of the firms debuting would be obtaining funds from banks, equity funds or joint-venture capital funds - not the bourse.
Experts are unanimous about who is to blame for the lack of big debuts. "The Treasury Ministry has pulled the brake," said Tomasz Jerzyk, an analyst for DM BZ WBK brokerage house, referring to the recent halt to privatizations of large state-owned companies. Dariusz Nawrot from BM BPH remarked that the situation is detrimental to the stock exchange because those big listings "bring in foreign investors and capital." He doubts whether foreign players find an offer with a capitalization of less than zł.1 billion attractive: "The big public offers are what popularized the WSE among foreign investors," said Nawrot.
SME opportunities
While the Warsaw exchange is enjoying the current boom of SME listings, it is certainly still interested in having big, state-owned firms debut on the floor. "We must think about the future, therefore we need companies that will increase the capitalization and the free float," Sobolewski told WBJ. He underlined that there are a number of state-owned enterprises that could be listed. "The chemical and the energy sectors, [national airline] Lot - these all would have a very positive impact on the WSE," he said, adding that the chances of a large state-owned firm debuting this year are "slim," but some could take place next year.
However, Sobolewski says that the big money doesn't necessarily need to come from the state sector. "There are many private firms with large capitalizations that aren't listed on the floor - we must encourage them to do so," he remarked.
The current break in large IPOs does have an upside. "Smaller companies are using [this opportunity] and are able to get funds from the stock exchange," Jerzyk said. Both Sobolewski and Adamska claim that awareness of the stock exchange and interest in debuts among small and medium-sized firms is growing. "They are learning that the bourse is not a creature from another planet. Fighting stereotypes is especially important in a developing market," Sobolewski claimed.
Floating the floor
Using the privatization of state-owned firms to feed the bourse is one thing. A separate yet related issue concerns the privatization of the bourse itself, discussion of which has appeared at intervals ever since the institution was founded. The Treasury Ministry still holds a 98-percent stake in the WSE, but the institution's president hinted that things might finally change.
"The main concepts are already prepared. Maybe at the end of this year or in the first quarter of next year something could happen with regard to the issue," Sobolewski explained. The privatization scheme ensures, however, that the state would remain the majority shareholder. "But a significant portion of the shares - 30 perhaps even 40 percent - would be up for grabs for private shareholders," he said.
Analysts say privatization of a portion of the WSE could give it some vital advantages. "I think the WSE would be more mobile, in the sense that it would make vital decisions faster," BM BPH's Nawrot said. DM BZ WBK's Jerzyk points to another factor: "If we were in an alliance with some big stock exchange, our position would be much stronger," he claimed. Jerzyk explained that there is now a danger that the WSE could lose some companies to other floors - that, for example, more TP shares would be listed in London than in Warsaw. An alliance would prevent that from occurring.
Taking stock of the region
With February's nine-percent plunge of the Chinese market still relatively fresh in memory - as well as the four-percent drop which the WIG20 index suffered in the aftershock - some might wonder how sensitive Poland's floor is to other markets. Nawrot answers that the WSE is dependent on other markets "to a large extent," adding that fluctuations in stock prices are, on average, greater in developing markets than on stable ones. "We tend to suffer more in downturn periods," he said. However, Nawrot notes that as the economy grows and the market matures, the fluctuations diminish.
"Today [fluctuations] are about half as big as they were seven years ago," Nawrot said.
Having established itself as a strong CEE player, the WSE wants to make use of its good reputation. It is currently jostling for position in races to acquire stakes in two other stock exchanges in the region - the Bulgarian Stock Exchange-Sofia (BSE-Sofia) and Slovenia's Ljubljana Stock Exchange (LJSE). However, Bulgarian media outlets claim that the WSE's chances to take a 44-percent stake in BSE-Sofia are slim as the Polish bourse is competing against the likes of the OMX Nordic Exchange and Germany's powerful Deutsche Börse. The recent news of the upcoming OMX-NASDAQ merger may further impoverish the WSE's chances in Bulgaria.
"These claims result from the fact that the WSE is owned by the [Polish] state, which [other countries] aren't thrilled about," Sobolewski told WBJ. He said that the Warsaw bourse is doing its best to allay fears that its ownership structure would be an impediment for investors. "We have a clear concept of partnership cooperation, plus we are proof that one can be a stock exchange in which the state holds a majority stake and still have the market develop around the bourse," the WSE's president said.
Accommodating aliens
At the same time as the WSE is exploring acquisitions of its regional brethren, more and more foreign firms are entering the Warsaw floor. "We should have between six and eight new foreign companies [this year]," said Sobolewski. Two such debuts have already occurred this year, and four more should happen before the end of H1. In the latter part of the year two more foreign firms are expected to make their debut. "We should also have some from new markets which aren't represented on the WSE," Sobolewski said.
Although only 13 foreign companies are listed in Warsaw, their capitalization amounts to over one third of the bourse's total capitalization. Sobolewski isn't worried by the disproportion, however. "This capitalization is nominal," he said, explaining that many of these firms are listed on other stock exchanges and the bulk of their turnover (up to 80 to 90 percent) comes from other floors.
New strategies
For this reason the WSE is launching a new platform, parallel to the main floor, called Newconnect, which will be dedicated to smaller companies with large growth prospects. The new trading platform is designed to host firms valued at between a few hundred thousand and few million złoty. As Sobolewski explained, the most successful companies will in time move to the main floor.
Newconnect is expected to be launched in August or September. By the end of the year, Sobolewski expects more than a dozen listings and few hundred in a couple of years' time. That would provide a rich source of new debutants for the WSE, as well as more capital. At the moment, the ratio between the Warsaw exchange's capitalization to GDP is much lower than in Western countries with major stock exchanges. At the end of 2006, the ratio was 46 percent. Currently, Sobolewski said, "it could even be higher than 50 percent."
"We are almost at the level of the Vienna Stock Exchange," Sobolewski claimed. Nevertheless, the WSE has a long way to go if it wants to catch up with the large stock exchanges of Western Europe, where the capitalization ratio often exceeds 100 percent - that is, capitalization is higher than the country's GDP.
