Warsaw Beats Europe Luring Firms From Ukraine to Slovenia

Warsaw Beats Europe Luring Share Sales
A sign stands at the entrance to the Warsaw stock exchange. Photographer: John Guillemin/Bloomberg

Poland’s bourse is luring more initial public offerings than all of western Europe’s exchanges combined as companies from Slovenia to Lithuania to Ukraine sell shares in Warsaw for the first time.

IPOs on the 20-year-old Warsaw Stock Exchange jumped to a record 73 this year from 25 during the same period in 2010, according to data compiled by Bloomberg. Nova Kreditna Banka Maribor d.d., Slovenia’s second-largest lender, and Avia Solutions Group AB, the Vilnius-based airport-services provider, led eight companies from outside Poland that have listed since December. As many as 10 more may start trading in 2011, said Ludwik Sobolewski, the Warsaw bourse’s chief executive officer.

Warsaw “was the obvious choice for our company,” said Sergiy Kasianov, chairman of grain and sunflower seed producer KSG Agro SA, one of six Ukrainian companies that sold equity in the Polish capital since November. “Listing here should guarantee high liquidity of our stock.”

The region’s biggest pool of pension and mutual fund assets and a 41 percent surge in trading in the first quarter is drawing companies from smaller markets across central and Eastern Europe. Exchanges in 28 west European cities including London and Frankfurt had a total of 45 new offerings since the end of December, down from 50 a year earlier, data compiled by Bloomberg show.

Smaller Size

While the number of equity sales is growing in Poland, their size is dwarfed by those in western Europe. Polish IPOs raised $777 million so far this year, with an average value of $10.7 million, according to data compiled by Bloomberg. In western Europe, companies raised $19 billion with a mean deal size of $423 million, the data show.

“We are very proud to have these small companies listed in Poland,” the Warsaw exchange’s Sobolewski said in an interview. “We want to be perceived as a market for small companies. This is our house specialty.”

IPOs in Poland have surged an average 39 percent from their offer price through yesterday, almost double the 21 percent gain for west European deals, according to data compiled by Bloomberg.

The companies are tapping increased demand from both international and local investors. Foreign investors’ share in trading on the Warsaw bourse rose to 47 percent in 2010, from 36 percent the previous year, according to data compiled by Bloomberg and the exchange’s website.

Hungary, Czech Assets

Polish mutual funds and pension funds oversee $129 billion, almost double the assets in Hungary and the Czech Republic combined, data compiled by Poland’s financial-services regulator and the Warsaw-based Chamber of Fund and Asset Managers show.

Trading volume jumped 41 percent to 16.3 billion euros ($24 billion) in the first quarter from a year earlier, or more than four times the level in Budapest, where turnover declined by 36 percent, according to data from the Brussels-based Federation of European Securities Exchanges. Prague trading climbed 13 percent to 4.4 billion euros in the period, the data show.

“Listing here gives access to a large group of domestic investors and at the same time doesn’t lock out foreign buyers,” said Jaroslaw Derylo, the head of investment banking in Poland at Wood & Co., which helped manage last month’s initial public offering of Kruk SA, the country’s largest debt-collection company.

The Warsaw exchange, which listed its own shares for the first time in November and reported a 45 percent jump in first-quarter profit, has had more initial share sales this year than bourses in every emerging market except China. A total of 38 foreign companies from 20 countries trade in Warsaw, according to data on the exchange’s website.

Dubai, Hong Kong

Deutsche Bank AG recommended buying shares of Warsaw’s exchange operator, citing “continued support from a strong macroeconomic backdrop” and an estimated 25 billion zloty ($9.1 billion) of planned share sales this year, according to a report dated yesterday.

Warsaw’s emergence as a destination for new listings is overshadowed by Dubai and Hong Kong, which has lured foreign companies including L’Occitane International SA, the French maker of skin-care products, and Russia’s United Co. Rusal, the world’s largest aluminum maker.

Shanghai Pharmaceuticals Holding Co., China’s second-largest drug distributor, raised HK$15.3 billion ($2 billion) in the city’s biggest share sale this year, two people with knowledge of the matter said May 13.

Economic Growth

The Shanghai-based company’s share sale, the largest in Hong Kong since Hong Kong-based AIA Group Ltd.’s IPO last October, will take the value of new stock sold in the city this year to more than $7 billion, surpassing the $5.6 billion raised at this point in 2010, according to data compiled by Bloomberg as of May 18.

Companies are raising equity financing in Poland to expand in emerging Europe, where economic growth will average 4.3 percent in 2011, more than twice the 1.7 percent pace in advanced Europe, according to International Monetary Fund estimates on May 12. Poland, the only European Union country that didn’t slip into recession during the global financial crisis, will grow 4 percent this year, IMF forecasts show.

The 371-share WIG Index trades at 11.6 times estimated earnings, compared with 7.2 for the MSCI EM Eastern Europe Index and 11.1 for the MSCI Emerging Markets Index of 21 developing countries worldwide, according to data compiled by Bloomberg.

Higher Valuations

“Valuations are higher than on other markets, which is a factor attracting companies from the region,” said Michal Kopiczynski, who helps manage $3.8 billion at ING TFI SA, a Warsaw-based mutual fund.

Nova Kreditna, which also trades in Ljubljana, sold 104 million euros of new shares last month to fund acquisitions in the Balkan region and strengthen its finances ahead of European Union stress tests. The stock has increased 2 percent from its reference price in zloty, valuing the company at 1.27 billion zloty and making it the largest to list in Warsaw this year.

Avia Solutions, which raised 76.6 million zloty in its February share sale, has rallied 30 percent from its offer price. Dnipropetrovsk-based KSG, the latest Ukrainian company to come to Warsaw, has retreated 0.5 percent after selling 108 million zloty of shares in April. Industrial Milk Co. of Kiev received 80.7 million zloty from share sales last month and has dropped 0.5 percent from its offer price.

Sadovaya Group SA, a coal producer based in Alchevsk in eastern Ukraine, has surged 33 percent since its 92.6 million-zloty offering in December.

Ukraine Listings

The increase in listings from neighboring Ukraine prompted Warsaw to start an index of companies from the country this month. The WSE WIG-Ukraine Index has fallen 0.5 percent in May.

“There’s a long queue of Ukrainian companies seeking to list here,” said Andrzej Olszewski, managing director at Warsaw-based ING Securities SA, which managed the IPO of Industrial Milk as well as Nova Kreditna’s share sale. “There are so many that you need somebody to direct traffic.”

The Warsaw exchange, founded two decades ago to help the government sell state assets and build a market-based economy after the fall of communism, now trades shares with a total market capitalization of $213 billion, the third-biggest among European developing nations after Russia and Turkey. That compares with more than $1.6 trillion each for France and Germany.

More Offerings

Wood & Co., the Prague-based securities company that opened a full-branch office in Warsaw in 2009, is working on at least six IPOs, Derylo said. Warsaw-based BRE Bank SA, the lead manager of Wroclaw, Poland-based Kruk’s IPO, is preparing 10 offerings, Jaroslaw Kowalczuk, head of BRE Bank’s brokerage, said by phone.

Ljubljana-based Zavarovalnica Triglav d.d., Slovenia’s biggest insurer, plans to sell shares in Warsaw by July to finance expansion in Turkey, Bulgaria and Romania, making it the second company from the Balkan country to seek a Warsaw listing. Novo Mesto-based Krka Group d.d., the country’s largest drugmaker, is also considering trading its shares in Poland, Chief Executive Officer Joze Colaric said on May 12.

Poland plans to raise 15 billion zloty from sales of state companies this year as part of efforts to curb borrowing and finance the budget deficit. The government raised 312 million zloty in this month’s sale of a 12 percent stake in Warsaw-based agriculture lender Bank Gospodarki Zywnosciowej SA, a unit of Utrecht, the Netherlands-based Rabobank Groep NV. The Treasury Ministry said it scaled back the IPO from as much as a 37 percent stake because of “limited” investor demand.

State Sales

The government will probably get 5 billion zloty from the sale of Jastrzebska Spolka Weglowa SA, the European Union’s biggest coking coal producer, making it the country’s biggest offering this year, Jaroslaw Zagorowski, chief executive officer of the Jastrzebie-Zdroj-based company, said in January. The state may sell shares this year in Polski Holding Nieruchomosci SA, a Warsaw-based property company.

“The Warsaw bourse has become a mature market in its 20 years of existence,” BRE Bank’s Kowalczuk said. “What makes the exchange stand out in the region is its high liquidity, a key reason for issuers to come and list shares.”