Jan Cienski in Warsaw -

For a decade, the ambition of the Warsaw Stock Exchange was to become Emerging Europe’s financial hub, sucking up the region’s largest companies and eclipsing its rivals in the region. Optimistic prognosticators revelled when Warsaw passed the much older Vienna bourse in size and started taking aim at bigger rivals like Istanbul. A symbol of that predatory drive was an enormous aquarium in the CEO’s office filled with piranhas. But over the last couple of years the WSE’s goals have become significantly more modest.

A proposed merger with the rival Vienna Stock Exchange, which owns bourses in Prague, Budapest and Ljubljana, that would have left Warsaw as the region’s dominant exchange has been scrapped. While in the past Ludwik Sobolewski, the exchange’s chief from 2006-2013, would troll regional capitals looking for promising companies wanting to list in Warsaw, Pawel Tamborski, the new CEO, is looking closer to home. Even the WSE’s mission statement is more diffident. It now calls on the bourse to be “The market of first choice for investors and issuers in central and eastern Europe”.

“In this way the WSE is setting itself up as a potential takeover target by one of the large exchange operators,” writes Krzysztof Kolany, lead analyst for the bankier.pl portal.

Insipid public offerings

One sign of the WSE’s retrenchment is in the lacklustre number of initial public offerings. For years, the WSE’s claim to fame was that it was one of Europe’s leading exchanges for IPOs in volume if not value. But the treasury ministry’s slimmed down privatisation programme has led to significantly fewer new issues on the WSE than in recent years. Furthermore, Ukraine’s descent into war and economic chaos has cut down on the interest in Ukrainian companies wanting to list in Warsaw, ending what had been a promising source of new listings.

Last year, the WSE saw only 13 IPOs on its main market with a value of €313mn, a 72% drop from 2013. When IPOs on the WSE’s troubled small companies NewConnect exchange are added in, there were 35 IPOs in Warsaw last year, compared with 54 in 2013, according to PwC’s annual IPO Watch Europe report. The bourse’s own numbers are a little different, as it lumps together companies moving up from NewConnect to the main market as well as foreign companies adding a Warsaw listing to true IPOs.

Warsaw was only the fourth largest new issuer in terms of volume in Europe last year, and in value terms it was 11th, eclipsed even by the Bucharest exchange’s single IPO of the Electrica utility worth €444mn. Bucharest is now being run by Sobolewski, who was fired from the WSE in 2013 after being accused of soliciting investors for a film starring his girlfriend – allegations he has denied.

“The WSE’s fall in the ranking of European exchanges in terms of the value of initial offerings is primarily the result of a lack of privatisation offers in 2014,” said Filip Gorczyca, PwC’s deputy director for capital markets, in a statement. “In earlier years transactions conducted by the state treasury were responsible for the lion’s share of resources gained by the exchange and ensured the WSE a leading position in Europe. However, over the longer term it is difficult to expect that the Warsaw market will be able to rival global markets like London and Euronext in terms of IPOs.”

Private suspicions

There are few indications that there is a new wave of IPOs in the offing. The treasury has more or less completed its privatisation programme, and the companies which remain under state control such as copper miner KGHM, leading bank PKO BP, insurer PZU and refiner PKN Orlen are considered strategic assets, which as such will not be completely sold off.

One of the exchange’s problems is that it has been unable to make inroads into the private businesses that have sprung up in Poland over the last two decades, relying instead on government asset sales. Entrepreneurs tend to be suspicious of the exchange, fearing losing control of their companies and of being driven by the pressure to produce quarterly results instead of planning for the long term. “I have no interest at all in listing my company. I don’t need the money and I want to build a long-term business,” said Henryk Orfinger, one of the founders of the Irena Eris cosmetics group, during a recent meeting of top Polish business leaders.

The government’s 2013 decision to shift much of the assets held by privately run pension funds into the state-run pension scheme also disheartened investors. The private funds had been one of the mainstays of the market and were especially keen participants in IPOs, making the idea of listing in Warsaw attractive for new entrants.

The prospects for a revival seem remote. Poland’s Financial Supervision Authority, the financial markets regulator, reportedly has 38 IPO prospectuses pending, of which 18 have been suspended. “We expect a similar number of IPOs to 2014,” Tamborski said in a recent television interview.

And of course the hungry piranhas are long gone from his office.