Tim Gosling in Prague -

PKP Cargo shares jumped 18% on October 30 as they made their debut on Poland's stock exchange. Marking the end of a hugely oversubscribed IPO process, the issue's success is likely to encourage other deals to take place for as long as the window of opportunity remains open.

The PLN1.42bn (€340m) listing by Europe's second-largest freight rail operator - after Deutsche Bahn - was the largest on the Warsaw Stock Exchange (WSE) this year. Priced at PLN68 per share, demand was almost six-times the number of shares for sale, Jakub Karnowski, CEO of the parent company, state-owned national rail operator PKP, said on October 25. The first trades in the shares took place at PLN80.20, a rise of around 18%. The shares closed at PLN81.16.

Having set a price range of PLN59-74, book-building on the sale of a 50% minus one share stake was closed on October 22. The PKP Group announced privatisation plans for several of its companies in November, as it seeks to reduce a debt burden estimated to have grown to PLN4.3bn. The first sale saw PLN215m raised through the sale of cable-car operator Polish Cable Lines to a joint venture between a group of regional authorities in May.

PKP Cargo has a war chest of around PLN800m, reports the FT, and plans to spend it on regional expansion. "PKP Cargo controls around half of the Polish market, so its future development cannot be limited to Poland only," CEO Jakub Karnowski told the newspaper recently. He said the company is looking at possible acquisitions of Polish fuel carrier Lotos Cargo as well as a Romanian carrier.

The first privatisation in the rail sector in Central Europe and the EU by means of an IPO, the deal was heavily supported by the European Bank for Reconstruction and Development, which bought a 5.27% stake. Sue Barrett, the EBRD's director for transport, called the deal "an important step forward in the development of... the overall Polish railway sector. The IPO will contribute to substantial improvements in corporate governance, transparency and management. Finally, the successful part privatisation is also a strong signal of encouragement for capital markets in Poland."

Encouragement

The WSE was clearly delighted with the IPO, and talked up the current positive sentiment on the market and the prospect of more offers to come, particularly from the state.

"The investors have proved once again that a good offer always finds buyers, even despite somewhat less favourable market conditions," Beata Jarosz, a senior official at the WSE, said in a statement. "The new listing of PKP Cargo is an example of yet another successful privatisation on the exchange. We believe that the IPO confirms the position of Warsaw as a regional financial hub and is a genuine sign of optimistic sentiment on the Polish capital market, which should boost investor activity and encourage other issuers."

That should cheer up Poland's government, which has been struggling to keep pace with its privatization programme amid poor market conditions caused in part by the controversial pension overhaul being pushed through. By disrupting the investment profile of private pension funds, the reform threatens to depress demand on the Polish equities market. At the same time, a global window of opportunity is currently open. The US Federal Reserve met on October 30 and once more refrained from setting a date for the start of tapering its asset buying programme. While the US central bank continues to pump cash into the market, emerging market issuers are likely to find interest in offers.

That has seen IPOs popping up across CEE recently. The week opened with a $1.3bn float in Moscow from Russian diamond miner Alrosa - a deal it has been mulling for over a decade.

The Polish treasury has been fighting against time to get the sale of a 35% stake in Poland's fourth largest utility Energa away before the end of the year. The huge success of the PKP Cargo IPO appears to have offered Warsaw confidence, with local press reporting on October 30 that the prospectus is set to be approved by mid-November, with the listing to take place a month later.