Polish plan for foreign listings pays dividends

By bne IntelliNews December 5, 2006

Patricia Koza in Warsaw -

A unique programme launched by the Warsaw Stock Exchange (WSE) on November 15 to attract foreign companies is already producing results.

Under its so-called "IPO Partner programme," the WSE supports canvassing and promotional activities by its partners in foreign countries with the aim of luring foreign companies to list on its exchange.

This month alone, two foreign companies are expected to list – US-registered Central European Distribution Corp, the largest vodka producer and liquor distributor in Poland which is listed on Nasdaq (click here), and artificial fabrics maker Pegas Nonwovens, which has factories in the Czech Republic and expects to debut December 21. And WSE President Ludwik Sobolewski predicts another five or six foreign companies will be floated next year, though he refused to name names.

The Warsaw Stock Exchange

Lidia Adamska, a member of the WSE management board in charge of strategy, said the IPO Partner programme is the first of its kind in Europe.

Financial investment firms from all EU states have the right to conduct business activities in Warsaw as in their home countries. "But in more 'exotic' markets, we came to the conclusion there is a need for financial institutions in neighbouring countries to have an indication they cooperate with us, that we trust them," says Adamska. "They consider this an advantage in their contacts with companies in their markets."

On November 28, the WSE signed an agreement with a second Ukrainian brokerage firm Altera Finance, based in Donetsk, as part of the programme. That followed the signing of Kyiv-based E-Volution on November 15. Authorities also hope to sign a similar deal with a brokerage from Lithuania in the next few weeks.

Destination Warsaw

The partnering program is part of an aggressive strategic plan that has seen the floating of three Central and Eastern European companies in the last few months: Astarta, the first Ukrainian company to list, Asseco Slovakia and Czech utility CEZ, the largest company in the region and the largest on the WSE by market capitalisation.

Of the 274 companies on the Warsaw's main and parallel markets with a total market cap of PLN612bn (€160.5bn), nine are based outside Poland.

Although the WSE still ranks well behind the world's leading markets by turnover or companies listed, in 2005 it trailed only London and Oslo in terms of debuts with 35, and ahead of all other CEE markets and even the pan-European Euronext, Frankfurt and Luxembourg. Warsaw was second in Europe for IPOs after London in 2004 with 36 new companies, including four from abroad.

The WSE also offers substantial liquidity due in large part to the activity of the country's pension funds, which have about €29bn at their disposal to invest and have parked about 38% of the total in listed stocks. That is expected to appeal to EU members with less liquid markets, including Hungary, the Czech Republic and the Baltic states. The Czech market is valued at about $50bn.

"Warsaw is the best trading place for raising funds," argues Aleksander Bondar of E-Volution, which is currently working on public offerings for three Ukrainian companies from the food industry. "It's even better than Frankfurt or London because Warsaw gives the best valuation."

By way of example, E-Volution estimated the potential valuation on London's AIM market for one of its clients at $57m-60m: "In Poland it would be $100m or more," says Bondar.

Furthermore, AIM's auditing rules are also more complex than Warsaw's, "so the choice is clear," he says. "And the [Ukrainian] market is huge."

As for debuting on the Moscow or Kyiv exchanges, "we are trying to follow the tendency of Ukraine's moves towards the European Union," he says. "Having companies listed in Moscow would be contrary to this tendency."

The Odessa filings

Some Ukrainian companies that have listed on the First Stock Trading System (PFTS), Ukraine's main trading platform with a daily turnover of about $10m, also list their stock as global depositary receipts, or GDRs, in Frankfurt to provide access to Western investors – an trend the WSE hopes to exploit.

Altera Finance, among the top-10 financial services providers in Ukraine, mainly serves mid-sized industrial companies in the steel, coal and chemical areas, as well as financial institutions. Its vice president, Tatyana Konstantinova, said recently that Altera is looking at the possibilities for Ukrainian companies to IPO on several markets at once, including Warsaw, which is why it has sought cooperation with the WSE.

There are other reasons for Warsaw's attractiveness.

"When it is a country outside the European Union, choosing Warsaw is related to the relative weakness and limited credibility of domestic markets," the WSE's Adamska says.

"Here, they have a credible and, to some extent, mature market. Being listed is perhaps the best form of promotion, building an image of the company among potential consumers," she says, before adding: "And we are cheaper, simply."

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