Small Is Beautiful in Polish IPO Market Before October Election

  • Start-ups fill niche as politics hurt bigger state-run firms
  • Politics is main risk for investors, Warsaw Bourse CEO says

Poland’s market for initial public offerings is picking up ahead of next month’s election as smaller companies offer investors shelter from potential political upheaval at bigger state-controlled firms.

Postal services company InPost SA and biotechnology fund Adiuvo Investment SA published issue prospectuses this week to sell as much as a combined 214 million zloty ($58 million) in shares. The value of this year’s 14 IPOs in Warsaw totals 1.4 billion zloty, exceeding the amount sold in all of 2014 and about a tenth of the 15 billion zloty reached in 2010, according to Warsaw bourse data.

The recovery in IPOs is taking place amid an election campaign where the most popular party, Law & Justice, seeks to impose new taxes on banks and retailers, souring investor sentiment and helping drive the WIG20 index of the country’s largest and most-liquid stocks to a three-year low on Aug. 24. Politics is the “main risk” for equity investors in Poland, according to Pawel Tamborski, the chief executive officer of the Warsaw Stock Exchange.

“October’s ballot is for sure the biggest challenge for any IPO revival,” Rafal Janczyk, the head of equity investments at Aviva Investors Poland SA, said by e-mail on Tuesday. “The election horizon is also the reason why investors are turning to smaller companies, which are less prone to political and regulatory risk. And these companies are trying to catch such an opportunity.”

Smaller Companies

Larger companies have been underperforming their smaller peers in Warsaw. The WIG20, where state-controlled companies have a combined 62 percent weighting, is down 5.7 percent year-to-date. That compares with a 5.7 percent gain for the mWIG40 index of mid-sized companies and an increase of 0.3 percent for the overall WIG gauge, data compiled by Bloomberg show.

Still, Polish stocks are beating the MSCI Emerging Market equity index, which has dropped 14 percent in dollar terms and 9.7 percent in zloty this year.

Poland’s financial-markets regulator is analyzing 21 prospectuses filed by companies that want to enter Warsaw’s primary market, spokesman Lukasz Dajnowicz said this week. Tamborski, the exchange’s CEO, said he expects about five “big” IPOs of at least $100 million this year.

Integer.pl SA seeks to sell as much as 191 million zloty of existing shares, or almost a 50 percent stake in InPost, to fund the unit’s expansion of its parcel lockers network, the company said in its prospectus. Argan Capital seeks to sell part of its stake in electronic security systems maker AAT Holding SA, while property developers Biuro Inwestycji Kapitalowych SA and i2 Development SA announced plans to debut on the Warsaw Stock Exchange.

New Era

The situation at state-controlled companies isn’t as upbeat. Bank Pocztowy SA, a lender that has started preparations for an IPO, might postpone its plans and instead seek more capital from its shareholders, the country’s postal service Poczta Polska SA and minority shareholder PKO Bank Polski SA, Parkiet newspaper reported on Thursday without saying where it got the information. Zbigniew Baranowski, a spokesman at the postal service, said on Wednesday that shareholders were “again discussing options” for Pocztowy.

The era of “privatizations” of large Polish state-run companies and hefty inflows into the country’s pension funds, which helped boost the Warsaw bourse in past decades, has ended, Tamborski told reporters on Wednesday. Poland’s government curbed cash flows into retirement funds last year to shore up the budget.

Poland’s stock exchange is “still attractive for domestic and international investors,” especially as smaller companies, whose shares are increasingly liquid, come to market, Tamborski said.

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