Jan Cienski in Warsaw -

Poland's new government will begin privatizing the Warsaw Stock Exchange later this year, which has aroused interest from regional rivals like the Vienna Stock Exchange and NYSE Euronext. Even so, the government has no intention of letting control of the region's most vibrant stock exchange slip into foreign hands.

"We intend to keep a 51% stake in the Warsaw Stock Exchange to block its acquisition by another exchange," says Michal Chyczewski, deputy treasury minister, adding that the government, which currently owns 98% of the WSE, would re-evaluate the situation in two or three years.

He is seconded by Ludwik Sobolewski, the WSE's president, who intends to transform Warsaw into the region's leading bourse. "Warsaw's ownership structure should be dedicated to its mission of creating the region's leading exchange," he told bne in an interview in his office, whose windows look out onto the old Communist Party central committee offices, the first site of the exchange, established just after the fall of communism in 1989.

There will certainly strong international interest in any stake on offer. Bloomberg reported from January's Davos meet the head of NYSE Euronext as saying the WSE is one of its main targets. "We plan to focus on development in eastern and southern Europe and we will target stock exchanges in Warsaw and Athens first," Jean-Francois Theodore was quoted as saying.

It's not hard to see why the WSE is so attractive. The WSE is making strong progress in its quest for regional pre-eminence; despite the recent mayhem in the world's markets, Sobolewski expects the bourse to see about 70 new listings this year, which would again put the WSE at the forefront of European exchanges when it comes to drawing in new business. "Despite some turmoil, companies are still interested in listing," he says.

Last year was a record breaker for the WSE, which had 81 entrants, second only to the London Stock Exchange with 99 IPOs. Its regional rival in Vienna had just seven IPOs last year and expects another seven this year. Other Central European exchanges such as Prague and Budapest were even further behind.

The WSE has been boosted by Poland's strong economic growth, clocking in at about 6.5% for 2007, with the expectation of slightly slower but still strong growth of around 5% this year. Warsaw also has huge amounts of cash swilling about the exchange, thanks in large part to a rule that restricts pension funds from investing more than 5% of their cash outside the country.

The minnow and the whale

Although the numbers of IPOs are high, the net cast by Sobolewski has been better at attracting minnows than whales. Many of the new companies on the WSE are much smaller than new entrants on other regional exchanges, a problem Sobolewski recognizes and promises to fix.

"We do have a large proportion of small companies," he said, noting that this year a company will have to have a capitalization of €5m to list, rising to €10m next year. "It will add depth to our market."

The market should also be beefed up with IPOs from some of Poland's largest companies, including Polsat, a broadcaster, and by the new government's promise to resume privatising state-owned companies, especially the four large, vertically integrated power generators. Aleksander Grad, Poland's new Treasury minister, told bne in January that his ministry is preparing a list of companies to be sold over the next four years and hopes to raise about PLN27bn (€7.5bn) over that time. For this year, Grad is planning to sell off about 240 companies, raising about PLN5bn. That would be a remarkable turnaround from the achievements of Wojciech Jasinski, the Treasury minister in the previous Law and Justice party government. Jasinski, not an enthusiastic advocate of privatisation, was supposed to raise PLN5.5bn in 2006 from selling off state companies - he reached only about 10% of his target.

At the bottom of the market, Sobolewski last year helped launch New Connect, an alternative market for very small companies. In 2007, 24 companies listed on New Connect, and Sobolewski hopes for about 100 this year. "We wanted to segment the market a bit," says Sobolewski. "New Connect is a market that allows companies to show themselves to investors, and we hope there will be a movement from there to the regulated market."

While the WSE has become the venue of choice for many of Poland's growing companies, it is having a tougher time luring in listings from neighbouring countries. Only two companies from Ukraine and two from Estonia have listed in Warsaw, despite a strong push to make the WSE the bourse of choice for firms wanting the respect of listing on an EU exchange without the hassles and costs of listing in London. "It's more difficult than I had thought it would be a year ago," says Sobolewski. "There is a very strong competition from London for this business."

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