Woes drive NIF prices into cellar
The 15 funds, established to manage 512 small and medium-sized state-owned companies, dropped an average of 33.8% during the first week of October. These drops continued throughout last week. "The NIFs dropped significantly due to the drop of the whole market," said Maciej Wiewiorski, an analyst with Wood & Co.
In addition to the Warsaw Stock Exchange's (WSE) streak of record lows, though, NIFs are receiving a second blow from a looming conversion set to take place at the start of next year. On Jan. 1, 1999 the owners of Mass Privatization Program (MPP) share certificates will have to convert them into shares in each of the individual NIFs. This conversion will reduce the government's ownership in each NIF to 15%. "This is why NIF shares have fallen - retail shareholders are selling their (certificates) rather than taking part in a complex conversion process," wrote Sean Murphy, an analyst with Nomura International in London, in a June report. "Willing retail sellers are thus offering value investors a unique opportunity to purchase savagely discounted assets."
But the NIF's shares are proving to be anything but a bargain at the moment. Since most investors are currently moving toward safer vehicles due to the uncertain global market situation, they are demanding bargain basement prices on relatively risky NIFs, which have 85% of their funds in unquoted companies, Murphy said. Potential NIF buyers are seeking discounts to the net asset value (NAV) of the funds in excess of 30-40%, the reduction they are currently gaining from safer investments in emerging market mutual funds.
"Lack of friends, lack of buyers," Murphy said, in explaining the funds' poor performance. The price drop "reflects a lack of buying interest and a continued sequence of small buying."
Some NIF prices also may have been hit by comparatively low share sales after NIF management companies bought up shares in August in an attempt to secure their positions before the end of the year conversion, said Wood & Co.'s Wiewiorski. For example, NIF No. 3 fell by 61.1% during the first week of October. This drop could be attributed to Bank Pekao's move to secure its fund position and buy up shares during August. When the group stopped buying shares, the price dropped.
Also, potential investors may be holding out until next year so they can buy a share in a particular NIF, instead of purchasing a share certificate that will grant them a mixture of various funds, Wiewiorski said.
Finally, some investors could be waiting until further details of shareholders are revealed. "The general situation of NIFs is not clear," said Maja Pawlukiewicz, head of the research department at Bank Gospodarstwa Krajowego (BGK) brokerage house. "The state treasury sent a letter to all NIFs asking them not to make final or serious decisions before all shareholders who hold more than 5% are known."
In addition to the Warsaw Stock Exchange's (WSE) streak of record lows, though, NIFs are receiving a second blow from a looming conversion set to take place at the start of next year. On Jan. 1, 1999 the owners of Mass Privatization Program (MPP) share certificates will have to convert them into shares in each of the individual NIFs. This conversion will reduce the government's ownership in each NIF to 15%. "This is why NIF shares have fallen - retail shareholders are selling their (certificates) rather than taking part in a complex conversion process," wrote Sean Murphy, an analyst with Nomura International in London, in a June report. "Willing retail sellers are thus offering value investors a unique opportunity to purchase savagely discounted assets."
But the NIF's shares are proving to be anything but a bargain at the moment. Since most investors are currently moving toward safer vehicles due to the uncertain global market situation, they are demanding bargain basement prices on relatively risky NIFs, which have 85% of their funds in unquoted companies, Murphy said. Potential NIF buyers are seeking discounts to the net asset value (NAV) of the funds in excess of 30-40%, the reduction they are currently gaining from safer investments in emerging market mutual funds.
"Lack of friends, lack of buyers," Murphy said, in explaining the funds' poor performance. The price drop "reflects a lack of buying interest and a continued sequence of small buying."
Some NIF prices also may have been hit by comparatively low share sales after NIF management companies bought up shares in August in an attempt to secure their positions before the end of the year conversion, said Wood & Co.'s Wiewiorski. For example, NIF No. 3 fell by 61.1% during the first week of October. This drop could be attributed to Bank Pekao's move to secure its fund position and buy up shares during August. When the group stopped buying shares, the price dropped.
Also, potential investors may be holding out until next year so they can buy a share in a particular NIF, instead of purchasing a share certificate that will grant them a mixture of various funds, Wiewiorski said.
Finally, some investors could be waiting until further details of shareholders are revealed. "The general situation of NIFs is not clear," said Maja Pawlukiewicz, head of the research department at Bank Gospodarstwa Krajowego (BGK) brokerage house. "The state treasury sent a letter to all NIFs asking them not to make final or serious decisions before all shareholders who hold more than 5% are known."
