Mike Collier in Riga -

While a great deal of attention has been given to the efforts of the Warsaw Stock Exchange (WSE) to list itself, another interesting development is in danger of being overlooked - a growing trend for non-Polish companies to seek a WSE listing, including now Baltic companies.

On November 8, Ukraine's Agroton became the fourth foreign company to be listed on the WSE in 2010, following Canadian company Kulczyk Oil Ventures, Bulgaria's Intercapital Property Development and Czech company Fortuna Entertainment Group. The WSE is already the biggest market in Central and Eastern Europe in terms of the number of foreign listings, with 28 non-Polish companies. The Vienna bourse is a distant second with 21, while third-placed Prague has just 11.

Ludwik Sobolewski, CEO of the WSE, describes Poland's stock exchange as a bridge between global investors and CEE companies. "The Warsaw Stock Exchange gives CEE issuers a unique opportunity to gain access to foreign investors just like many Western European stock exchanges do. At the same time, issuers get a much better exposure thanks to a relatively smaller market," he says.

Now Baltic companies are starting to join the rush to Warsaw. On November 3, Lithuanian agricultural giant Agrowill Group announced plans to seek a Warsaw listing "in the immediate future," joining another Lithuanian firm, airline services group Avia Solutions.

Agrowill - which includes more than 40 companies - intends to issue up to 35m new shares in Poland to raise between €16 and €23m of new capital. In the first eight months of 2010, the company had revenues of LTL27m (€7.8m) and has been a leading light in efforts to modernise Lithuania's important agricultural sector. According to the chairman, Vladas Bagavicius, obtaining a listing on the WSE will create added value for shareholders by ensuring higher liquidity and capitalisation levels. "The additional funds we attract will be used for enlarging the volume of operations. The strategic plans of the company provide for a doubling of the cow herd through the acquisition of another 3,000 cows," he says. Agrowill also wants to increase the amount of land it manages (currently 320,000 hectares) by up to 25%.

Agrowill already has a listing on the relatively small Vilnius stock exchange, so seeking a Warsaw listing could be seen as the next step up the ladder. But Avia Solutions has gone straight to Warsaw, bypassing its local bourse. "We are just about to issue our prospectus and are very close to the final stage of the listing which we hope will take place in early December," Avia Solutions' chairman Gediminas Ziemelis tells bne. "It's a natural move, as we are expanding our business outside the region. We are also moving our charter business to Poland and Warsaw is just 400 kilometres from Vilnius - the same distance as [Lithuania's main port] Klaipeda. Plus, we already have several other companies in Poland."

"Warsaw is the financial centre of our region and we see a lot of opportunities in the Polish market. We will have much more opportunity to raise additional capital we might need for other new ideas in aviation," he says, adding that he has been particularly impressed by the friendly and expert advice he has received from the exchange to help his company through the listing process.

Polish legislation that requires domestic pension funds to invest at home are another pull factor, Ziemelis says. Avia Solutions plans to offer 25% new shares (with no existing shareholders cashing out) and hopes to raise €22m-26m.

Baltic bourse blues

But what of the Baltic bourses? Will they be able to compete with an increasingly dominant WSE or will they see their own companies shun a local listing and follow Avia's path of going straight to Warsaw?

According to Kristiana Kiete, portfolio manager at Citadele Asset Management, it is probably still too early to speak about a new trend. "Warsaw for sure is a serious competitor and there are positive aspects of listing there, such as market liquidity or the relatively attractive valuations the Polish market offers. However, at the same time, the Baltic investor base is still strongly linked to Scandinavia, and the Baltic companies lack recognition on the Polish market and are highly likely to get 'lost' among the many companies listed there," she believes.

Arminta Saladziene, chairman of the Nasdaq OMX Vilnius management board, agrees and insists the Baltic bourses still have plenty to offer. "Even the largest Baltic companies would 'drown' in the list of Warsaw stocks, whereas on the domestic market they enjoy maximum visibility, get analyst coverage, full media attention and are included in benchmark indexes," she says. "Companies listed on the Baltic exchanges get great exposure to Nordic investors and enjoy international visibility thanks to the Nasdaq OMX brand. Of the foreign companies listed on Warsaw, very few enjoy some level visibility and liquidity and those few are huge companies in the Baltic context."

And as Saladziene points out, in the cases of dual listings liquidity tends ultimately to flee to the home market anyway, as in the case of Estonia's Olympic Casinos where over 90% of trading activity is now concentrated on the Nasdaq OMX Tallinn and less than 1% of outstanding stock remains under custody of the Polish depository. "When a company completely bypasses a local market without a clear reason and goes for a single listing abroad, investors may pose legitimate questions like what reputation or track record the company has locally or what is known to local investors that the company may try to hide by going abroad," Saladziene says.

The Vilnius bourse is fighting back, with innovations like the introduction of euro-denominated trading and earlier this year carried out a successful IPO of Linas Agro Group, which raised €29m from over 45 institutional investors. With competition a principle at the heart of free market capitalism, competition between the markets themselves can only be a good thing.