On Europe: Warsaw exchange seeks regional edge

The gleaming building housing the Warsaw Stock Exchange – just metres from its former home in the old Communist Party central committee headquarters - could become the financial heart of central Europe.

But an institution born out of the ruins of Communism may have its chances for regional dominance jeopardised by the government's desire to retain ownership on the WSE. Unlike almost every other European exchange, the WSE is 98.8 per cent owned by the state.

Ludwik Sobolewski, the WSE's president, admits that the exchange's ownership structure is “exotic”, but there is little likelihood of a government that is wedded to the idea of creating national economic champions giving up control of one of the country's most important economic institutions.

The problem for Mr Sobolewski is that Warsaw's state ownership has already caused the WSE difficulties. It was a key reason why the WSE lost a 2004 bid to buy the Vilnius exchange in neighbouring Lithuania, which instead was bought by the private OMX, the Nordic exchange.

The government is mulling over selling a minority stake of about 40 per cent, possibly later this year. Wojciech Jasinski, the treasury minister, has been working on a plan that would sell off shares to Polish investors, an idea that has drawn fire from the European Commission, which has warned Warsaw about discriminating among member states.

For the WSE expansion is a necessity. More and more Polish companies are growing large enough to expand beyond their home borders, and they want to be listed on an exchange with regional appeal. As well, there are more Czech, Hungarian and other companies that are active throughout central Europe, and want to list on a large and liquid bourse.

“We have to aggressively strengthen our position. We can't think of ourselves as only a national market,” says Mr Sobolewski.

True to his word, Mr Sobolewski is trying to buy stakes in other central European exchanges, as well as embarking on a drive to bring in listings from some of the more exotic corners of the region.

Warsaw is already known as central Europe's leader in IPOs. Mr Sobolewski thinks the WSE may see 60 IPOs this year, but with 12 already launched and many more on the way, that estimate looks conservative.

Warsaw's biggest rival is the Vienna exchange, which is of a similar size and also has regional expansion plans. But Warsaw is pushing the idea it has a special expertise in former Communist countries transitioning to capitalism.

“It's unclear if Vienna even belongs to the region,” says Mr Sobolewski.

Annie Krasinska, an analyst with Wood & Co., a Prague-based broker, says the WSE's ambitions are realistic: “Warsaw is perceived as an eastern European market, so it's a more natural place for companies from Bulgaria, Ukraine and elsewhere in the region to look for a listing, while Vienna is seen as more of a part of western Europe.”

Warsaw last November established its WSE IPO Partner programme, under which brokers in Estonia, Ukraine and Prague troll for local companies wanting to list in Warsaw.

“A lot of IPOs are looking for a listing as part of their brand image,” says Mr Sobolewski, maintaining Warsaw's modern regulatory structure and clean reputation will attract foreign companies wanting to be associated with a western bourse. Earlier this week the WSE held a seminar in Kharkiv in eastern Ukraine.

With 293 listed companies, the exchange's market capitalisation is €132bn, up by 17 per cent since the beginning of the year. Daily turnover is about €483m, and Warsaw's main indices are breaking new records.

While Warsaw attracts IPOs, Vienna is looking to link up with almost off the smaller regional exchanges.

Vienna already holds a 12.5 per cent stake in the Budapest bourse, and has co-operation agreements with most of the exchanges in the former Yugoslavia. Last year, Vienna signed a similar agreement with Sofia exchange, where the Bulgarian government is preparing to sell off its 44 per cent controlling stake. Both Warsaw and Vienna are interested.

Vienna also wants to buy the exchange in Ljubljana, Slovenia, another market Mr Sobolewski is keen to acquire. “Expansion is crucial for Warsaw if we want to occupy a meaningful place in the region,” says Mr Sobolewski. “Local markets will cease to play a role, that is why we want to turn Warsaw into a regional market.”

But the best way to make that dream come true would be for the Polish government not to smother the country's most successful capitalist institution.

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