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Poland kicked off the biggest IPO in Central Europe for over two years on November 18, as it opened the book on the float of utility Energa. Squeezing the privatisation through the window provided by the US Federal Reserve's decision not to start "tapering" its asset purchase programme, Warsaw hopes to fill the treasury coffers with over PLN2.8bn (€670m).

Poland launched the sale of a 34.2% stake in the country's fourth largest utility by declaring initial pricing guidance of PLN15-20 per share. Consisting of 141.5m existing shares, the offer stands to earn the state PLN2.12bn-2.8bn. That makes it the biggest IPO in Central Europe since Polish coal miner JSW raised PLN5.4bn (€1.3bn) in a float in 2011.

The final issue price will be set on December 3, reports PAP, with Energa set to debut on the Warsaw Stock Exchange on December 11. Retail investors will have the chance to buy up to 35m of the shares, Energa said in its prospectus. The Ministry of Treasury, which manages most of Poland's state companies, ruled out for the meantime an earlier scheme for a second round of privatisation to sell a further chunk of the company to a strategic investor.

"In the foreseeable future we do not have such plans," Deputy Treasury Minister Pawel Tamborski told a news conference, according to Reuters. "This transaction is mostly directed at financial investors." That will leave the state holding at least 50%.

The government will be keeping its fingers crossed that those financial investors are tempted. After months of waiting on the sidelines, it's pushing the sale through a short window of opportunity, and failure could significantly complicate its management of state finances.

Across the threshold

Warsaw first attempted to sell Energa in 2010. However, a plan to sell 84% of the company via a "proto-privatisation" to Poland's largest utility, state-controlled PGE, for PLN7.5bn broke down due to opposition from the country's anti-monopoly office. That saw an IPO of Energa included in the 2013 privatisation programme, but the treasury has been struggling to get it out of the door amid uncertainty over the Fed's stance around its quantitative easing programme, as well as depressed power prices across Central Europe.

Ahead of the fourth quarter, the treasury had booked just PLN1.9bn of its PLN5bn target for privatisation revenue. Similarly to its struggles last year, through the first nine months of 2013 it was forced to rely on sales of stakes in blue chips - such as the country's biggest bank PKO - in offers to institutional investors. The only IPO in that time was the sale of real estate group PHN in February, and even that was of a vastly reduced stake compared with the original plan.

The struggle to raise cash from privatisation has been putting extra strain on the government, which shelved plans for strict fiscal consolidation when the economy began to slide rapidly in mid 2012. Spending has been raised to try to provide stimulus, but that has pushed the budget dangerously close to constitutional debt limits and has the EU warning that Poland could breach its deficit threshold.

The worry over recent months, as the treasury struggled to bring Energa to market, has been that failure to sell the utility would make it all but impossible to hit the deficit target. However, the Fed's delay on tapering its asset buying programme, coupled with the building recovery in the Eurozone and Central Europe, has opened a window of opportunity for equity issuers in the CEE region that the Polish government is racing to jump through.

That has allowed Warsaw to twist the throttle. Privatisation revenue was given a boost last month by the IPO of PKP Cargo, to leave it standing at around PLN3.3bn. With the Energa IPO set to raise PLN2.12bn-PLN2.8bn, the treasury now looks set to scrape across the threshold at the very least.

Short window

Yet the Fed will act sooner or later - early 2014 is the current bet - meaning the window of opportunity is likely to be short. The IPO of Energa suddenly jumped back into life in early November, undoubtedly pushed by the huge success seen by national rail operator PKP in a recent IPO of its freight division. In the largest listing in Warsaw to date this year at PLN1.42bn, PKP Cargo's shares jumped 18% on October 30 as they made their debut on the WSE.

Russia has seen several IPOs in recent weeks, while Romania successfully sold stakes in NuclearElectrica and Romgaz. Private Polish companies such as train maker Newag and real estate developer Capital Park have said they plan to sell as much as PLN5bn worth of shares in IPOs this quarter, reports Bloomberg.

However, analysts warn that the treasury shouldn't get too carried away. With power prices across Europe still in the doldrums, and a plethora of state-controlled utilities having debuted on the WSE over the past five years - many currently trading below their IPO prices - they warn that pricing is key for the Energa offer.

There are additional challenges. Poland's confused energy strategy over the past year or so is a concern. State-controlled companies are complaining of the huge pressure they face from investment demands from the government, which warns of an urgent need for new generating capacity.

Poland's biggest utility PGE recently backed out of a PLN11.6bn project to build two new units at the coal-fired Opole power station, insisting the plan makes no economic sense. It was promptly pushed back in, alongside a raft of state-controlled construction and coal companies. Such companies from across the spectrum are also being put in harness to drive Poland's development of its shale gas reserves and build the country's first nuclear power station.

PGE's recent announcement that it plans to take part in the Energa IPO offers yet another note of caution for investors looking at Poland's tangled power market. VTB Capital analysts suggested on November 14 that such a move is unlikely to cheer minorities in PGE given the ongoing pressure on the company. It "would depend on Energa's valuation," they note, but warn that "reinvesting operating cash flows into equity instead of paying dividends in the current deteriorating environment is unlikely to be well perceived by the market."

Energa's heavy presence in renewables - over 36% of its portfolio is in water, onshore wind and biomass, according to PAP - creates another worry. Investors in green energy in Poland have been arguing with Warsaw over a new subsidies programme for over a year, with the government proposing a drastic cut in support, particularly for onshore wind and co-firing (coal and biomass).

On the plus side, at many companies investors have benefitted recently from the government's demands for high dividend payouts in a bid to shore up state finances. Despite suggestions that the overall haul is set to reduce next year, Energa said it plans to boost its dividend. The company said it will pay out as much as PLN400m from 2013 earnings, with a further PLN500m from 2014 profit, which would constitute a ratio of more than 90%.

Energa's results also appear to be recovering, with the company reporting net profit rose 15% year on year in the first nine months of 2013, compared with a drop of 31% last year. Several other Polish utilities also beat expectations in third quarter financial results.

Still, Warsaw looks to have taken the concerns on board in order to get the float out of the door while it can. Bookrunners sounding out potential investors for the IPO in early November suggested to Reuters that interest would be provoked by a valuation of Energa at PLN6.4bn-10bn. That would see the 34.2% stake raise PLN2.2bn-3.4bn.