There is nothing like a global financial crisis to bring soaring ambitions firmly back to earth, as the head of Warsaw’s stock exchange is finding out.
A few months ago, Ludwig Sobolewski, the WSE’s president, was predicting that his exchange would have more than 80 initial public offerings this year, again making it one of the leading European bourses for attracting new listings. So far this year the exchange has only had 26 IPOs, as international turmoil and sagging returns on the WSE scare off potential market entrants.
A tired-looking Mr Sobolewski says Poland’s Financial Supervision Authority “has approved more than 100 IPO projects, but many of them have been halted. It’s a pity for this year, because we had a lot of interest in the market from companies that have promising futures.”
So far this year, the bourse’s blue chip WIG20 index has slumped by 37 per cent, as part of the worldwide decline. Turnover for the first eight months of this year was 257bn zlotys ($100bn), down from 363bn zlotys for the same period a year ago, and the exchange’s market capitalisation – counting only Polish companies – has fallen to 324bn zlotys from 557bn zlotys a year earlier.
The exchange’s slump is similar to those experienced by other exchanges in the region and milder than in Russia and Ukraine, but it has been enough to spook individual investors. They used to be responsible for about a third of the transactions on the exchange, but that has dropped to 18 per cent.
“There is a crisis of confidence,” admits Mr Sobolewski.
Local investment funds have also seen their assets melt to below 90bn zlotys from 136bn zlotys at the beginning of this year, as investors pull out their savings and move them to safer bank deposits. Foreign investors have withdrawn at least 10bn zlotys from the WSE.
What is particularly frustrating for Mr Sobolewski is that the downswing in the market does not reflect the current situation of the Polish economy.
The government is predicting growth of 5.5 per cent for this year and an optimistic 4.8 per cent next year, one of the highest rates in Europe. There are no signs of a credit crisis in Poland.
Polish exporters are still doing well, despite a sharp increase in the value of the zloty, and the government recently committed to join the euro by 2011.
The statement on the euro “was important but it is difficult to get news out,” says Mr Sobolewski. “What is happening here is not happening because of the economy but because of events elsewhere.”
In another blow to the exchange, Lech Kaczynski, the president, has sent a plan to privatise the WSE to be reviewed by the country’s constitutional court, killing chances of the exchange being sold later this year. The government currently owns 98 per cent of the WSE, which Mr Sobolewski says creates difficulties in attempts to acquire other regional bourses.
Warsaw cannot bid for the Prague exchange because it is state owned, prompting Mr Sobolewski to launch an independent offer for the Czech bourse. In 2004 Warsaw failed to buy the Vilnius exchange in Lithuania for the same reason.
“We aren’t helped by being a market with this type of ownership,” says Mr Sobolewski.
Plans to attract foreign listings have been less successful than hoped, with only 25 foreign companies listed in Warsaw, of a total base of 339. This is less than Mr Sobolewski’s target of 10 per cent.
The WSE has been pushing hard to attract listings from neighbouring Ukraine, opening a representative office in Kiev and buying a share of a small Ukrainian exchange. However, only two Ukrainian companies have listed in Warsaw and the country’s economic and political crisis makes any IPOs in the immediate future doubtful.
Despite the gloomy news, Warsaw has succeeded in one of its main goals: earlier this year it passed its rival, Vienna stock exchange, to become the region’s largest by market capitalisation, counting local companies.
“The project to make Warsaw a regional market has to be strongly pursued,” said Mr Sobolewski. “We passed Vienna and we won’t give up our regional lead.”
Warsaw’s position could be strengthened if government plans to sell about 12bn zlotys worth of state companies this year come about.
The largest IPO this year was supposed to be Enea, an energy company, but the treasury ministry appears increasingly skittish about selling off the company in such a bearish market. Next year, the government plans to list PGE, a newly created electricity generator.
The new listings are “hellishly important”, says Mr Sobolewski.
“We have a lot of small companies; that’s good but these companies don’t generate a lot of turnover. We have too few really big companies. We hope Enea will get the market moving. We need companies with a big free float.”
