Jan Cienski in Warsaw -

Predictions by Ludwik Sobolewski, president of the Warsaw Stock Exchange (WSE), that his bourse would see about 60 listings this year already look conservative.

So far this year 16 companies have debuted on Poland's stock market and about 100 more are formulating plans to jump into the region's fastest growing capital market.

The latest to embark on the IPO rail are construction companies like Orco Property Group, which is already listed in Prague and Paris, Australian Opal Property and Poland's JW Construction. These firms are hoping to take advantage of the region's property boom to raise funds for further expansion.

"We had more IPOs than the whole rest of the region combined," says Sobolewski.

Prague had only one IPO last year, making it the third IPO for the Czech exchange in more than a decade. While 38 companies debuted in Warsaw in 2006, only a total of 18 went public on all the other regional exchanges: Vienna, Prague, Budapest and Ljubljana.

This year's numbers will put last year's total in the shade, and will likely break the WSE's 1997 record, when 62 new companies debuted.

Powered by pensions

The reason Warsaw attracts so much interest is that Poland has completed a reform of its pension system. The result was the creation of pension funds that accumulate enormous deposits every year, but are forced by law to invest 95% of their funds in Poland. The effect has been a market that trades at about 16 times estimated earnings, while Prague, where pension reform has not yet taken place, trades at about 10 times earnings, according to analysis done by Wood & Co., a Prague-based broker.

Sitting in his office just steps away from the exchange's original office, the former Polish Communist Party headquarters in central Warsaw, Sobolewski is not content to rely on foreign and local companies coming to his office to continue making his market grow.

He is hoping to buy into the Sofia exchange in Bulgaria as well as the Ljubljana bourse in Slovenia. Other hopefuls for the 44% stake in the Bulgarian exchange being sold by the government include heavyweights like Frankfurt and Scandinavia's OMX, as well as Warsaw's regional rivals in Prague and Vienna.

Warsaw's most serious competitor is the Vienna exchange, which is interested in the same two bourses, and which also holds a 12.5% stake in the Budapest bourse, and has co-operation agreements with most of the exchanges in the former Yugoslavia.

"We are interested in consolidating the markets of this region of Europe," says Sobolewski.

His other way of making the WSE grow is by establishing ties with Ukrainian, Czech and Estonian brokers under a new partnership programme that has them looking for local firms interested in listing in Warsaw.

An early success of that strategy was Astarta Holding, a Ukrainian sugar company, which had a Warsaw IPO last year that raised PLN95m (€24m). Warsaw could be very attractive for Ukrainian companies wanting access to funds and the patina of respectability that comes from listing on an EU exchange. The campaign is also helped by the dysfunctional state of the underdeveloped Ukrainian capital market, which makes it less attractive for local listings.

Last week, the WSE announced that it will sign an agreement in May with the largest Ukrainian exchange, the PFTS, under which both bourses will work to ensure that companies listed on each exchange have dual listings to trade in both Warsaw and Prague.

Holding back the years

The biggest problem for Sobolewski is the remnant of the communist system that once ruled Poland a few metres from his office – the ideology of state ownership dating back from those times have not been completely shed by modern and democratic Poland.

The Exchange is 98.8% owned by the state, making it the only bourse with a majority state control in the EU besides Malta and Cyprus. That ownership structure killed Warsaw's hopes of buying the Vilnius exchange in Lithuania, which fell instead to the Scandinavian OMX.

"It does create a problem," says Sobolewski. "Having the treasury as an owner is rare and exotic."

The government is mulling over the sale of some of the shares in the exchange, but Wojciech Jasinski, the treasury minister, has been working on a plan that would sell off packets of 5-10% of the exchange to outside investors, with the qualification that the buyers would have to be Polish institutions. There are no plans for the state share to drop below 51%.

Jasinski's ideas have drawn fire from the European Commission, which has warned Warsaw that it is impermissible to discriminate among member states.

An embarrassing and high-profile battle between the Treasury and the European commission isn't the kind of thing the Sobolewski needs as he tries to take advantage of Poland's fast economic growth to turn his institution into the region's indispensable capital market.

Send comments to The Editor