Guy Norton in Moscow -

Poland kicked off the first quarter with a series of well-received transactions on the equity front, raising PLN5bn (€1.3bn) and confirming its most-favoured-nation status with investors. That's good news for the Polish government, which wants to raise at least PLN25bn in 2010 through privatisation.

"Poland is certainly at the top of the Central and Eastern Europe list, although risk appetite has certainly deteriorated since the start of February and investors have become more selective when it comes to pricing," says Nick Uzel, associate director, equity capital markets at HSBC in London.

Christian Steffens, head of equity capital markets at UniCredit in Munich, agrees, saying that while it has been a rock in the region in terms of economic stability, "Poland did very well to place its deals, as the markets in the first quarter have been pretty challenging."

The first deal out of the blocks this year in January was the sale of a 10% stake in copper miner KGHM Polska Miedz. Citigroup, Deutsche Bank, ING and Zachodni WBK were joint bookrunners on the biggest-ever accelerated bookbuild out of Poland, which netted proceeds of around PLN2.06bn. Polish investors bought 56% of the deal, with the balance snapped up by funds in the UK, continental Europe and the US. Investor appetite for the issue was undoubtedly helped by the strong performance of KGHM shares in 2009, which almost quadrupled in value as commodity-related plays returned to favour after a share sell-off at the end of 2008. The shares were sold at a 6% discount to the outstanding shares. Before the sale, which consisted of 20m existing shares, the Polish treasury held around 42% of KGHM's stock.

The next deal out of the traps saw the sale of an 11% stake in Grupa Lotos, Poland's second-largest oil refiner. The Lotos sale also enjoyed positive momentum after it was the second-best performing stock in the WIG20 Index after KGHM in 2009, rising 166%. Bookrunners BRE Bank, Citigroup, ING and Ipopema Securities raised PLN406m, selling 14m shares at PLN29 apiece - a 10% discount to outstanding shares - which reduced the government's stake to 53%. Some 83% of the shares went to Polish investors. According to Deputy Treasury Minister Mikolaj Budzanowski, Poland will look to sell a further stake in Lotos this year, preferably through a trade sale, but has not ruled out the possibility of another equity capital markets transaction.

Meanwhile, Credit Suisse, Citigroup and UniCredit completed the sale of a 16% stake worth PLN1.1bn in power company Enea. The sale was the first stock offering by Enea since its PLN1.99bn IPO in November of 2008. The shares were marketed at PLN15.5-PLN17.5 apiece and eventually priced at PLN16, toward the bottom end of the range and at a 9% discount to outstandings. The sale proved to be more challenging than those of KGHM and Lotos, as Enea shares fell by roughly 10% in the week before pricing amid global equity market jitters. "Enea was not an easy deal by any means given the market conditions, but it was placed successfully nonetheless," says Steffens at UniCredit.

The deal added some much-needed liquidity to Enea stock, which had previously only been thinly traded given that Swedish energy firm Vattenfall bought around 80% of the IPO and so the effective freefloat has been only 5%. Originally, the authorities in Warsaw had hoped to offload its remaining 76.5% stake in Enea through a trade sale to German power company RWE, but called off negotiations last year after a failure to agree a mutually acceptable price. Around a 9% stake will also be awarded to Enea employees.

Finally, in early March Poland sold 46.7% of Lubelski Wegiel Bogdanka, the country's only publicly traded coal producer, raising more than PLN1.1bn with the sale of 15.9m Bogdanka shares at PLN70.5 each. Overwhelming demand from cash-rich Polish pension funds meant that the deal, lead managed by BRE Bank, ING, Ipopema Securities and WBK Zachodni, was upped from an original target of 12.5m shares. The transaction left the Polish government with a 4.3% rump stake in Bogdanka, which raised PLN528m through its IPO of a 32% stake in June 2009. In December, the Treasury sold another 5% holding to raise PLN117m. The government has also transferred another 3.2m of Bogdanka shares to the company's workers. Despite the increasing supply, Bogdanka shares have performed well and are up 60% from the IPO price of PLN48. According to Bogdanka's chief executive, Miroslaw Taras, the company intends to raise up to PLN500m later this year with the sale of new shares to fund its plans to double production capacity to 11m tonnes by 2014.

No sign of flagging

Bankers say that there's no real sign of investor fatigue for Polish equity issues despite the relatively high frequency and high volume of issuance. Last year, for example, saw the largest ever IPO from Poland - the PLN6bn IPO of power company PGE – and the largest ever Polish rights issue, the PLN5.13bn sale by Bank PKO.

The Polish government is seeking to raise at least PLN25bn in 2010 through its privatisation programme, which will comprise a mix of capital market transactions and sales to strategic buyers. This year's state sales will dwarf those in recent years, with just PLN7bn raised in 2009 and PLN2.4bn in 2008. Other stakes due to be sold in 2010 include those in energy producers Tauron Polska Energia and PAK, telecom giant Telekomunikacja Polska, chemical producer Kedzierzyn, leading insurer PZU and the Warsaw Stock Exchange itself. The government is also mulling further reducing its holdings in PGE and Lotos later this year.

The next sale will be the IPO of insurance company PZU. Analysts expect it to list around 20% of its stock and raise PLN5bn. Credit Suisse, Deutsche Bank, Goldman Sachs and Morgan Stanley are managing the IPO.

Following the PZU transaction, UBS and UniCredit are set to IPO power company Tauron in a sale that is earmarked to raise at least $1.4bn, but could conceivably raise far more if the Polish treasury elects to float more than the originally anticipated 25% stake. "We expect the other planned state sales to get done and that the Polish treasury will achieve its PLN25bn privatization target for this year," says Steffens at UniCredit. "Global market jitters will have an impact - but these are strategic state sell-downs, not opportunistic private equity exits and Polish institutional investors are willing and able to support them."

Although Poland was the only EU country to avoid recession last year, it needs to raise a substantial amount of money to enable it to adopt the euro as its national currency in 2012. The chief obstacle to that is the country's growing budget deficit, which is forecast to reach 7.5% this year, up from 6% in 2009. Hitting the 3% budget deficit target necessary for Eurozone entry in 2012 looks a tall order. As a recent research report by Morgan Stanley notes: "Poland is the only country in the region which has not tightened its fiscal policy."

Finally, the bright prospects for the Polish capital markets are attracting a stronger investment banking following. Among those firms looking to raise their slice of the action in Poland are US bulge bracket firm Goldman Sachs, which is looking to establish a branch in Warsaw, while Credit Suisse and Raiffeisen International are both looking to reopen brokerages in the country on the back of the increase in dealflow and trading activity in Poland.

In 2009, the Warsaw Stock Exchange hosted $2.1bn of IPOs, third only in Europe to the Paris and London bourses. The valuation of companies listed in Warsaw has more that tripled over the past 10 years to around PLN450bn, while average daily turnover over the same period has more than doubled to around PLN1.4bn.