Warsaw: Central Europe's Bourse to Beat

Warsaw is about to become emerging Europe's first publicly traded bourse, and its success contrasts sharply with rivalswho say it enjoys some unfair advantages

When Ukrainian food producer Agroton wanted to list its shares in a public offering in October, the company skipped the Kiev bourse and went to the Warsaw Stock Exchange instead. Seeking to attract more investors, Sopharma, Bulgaria's biggest drugmaker, next year plans to allow its shares to trade in Warsaw in addition to the Sofia Stock Exchange. When Czech solar plant builder Photon Energy went public two years ago, it also chose Warsaw over its home bourse. The Prague exchange "doesn't fulfill one of its primary functions—to be a place where companies can raise capital," says Georg Hotar, Photon's chief financial officer. "In Poland, they can."

As other central European bourses struggle to attract listings, Warsaw is surging ahead. Last year it hoste $2.2 billion of initial public offerings, placing it third in Europe behind NYSE Euronext (NYX) and London, according to PricewaterhouseCoopers. Warsaw's main market has added 21 companies this year and now lists 391 stocks. Its NewConnect market, with less stringent listing procedures for startups such as Photon, has added 61 stocks this year for a total of 169.

In October, Warsaw became emerging Europe's first publicly traded bourse after the state sold a 64 percent stake, reducing its ownership to 35 percent. The offering raised more than $400 million and should help enhance Warsaw's position as the hub for trading in the region, says Chief Executive Officer Ludwik Sobolewski. "We want to create a little London, attracting international listings and capital," he says.

Founded in the old Communist Party headquarters in 1991, the Warsaw bourse now occupies a new 10-story steel-and-glass building nearby. It lists 26 companies from 18 foreign countries. UniCredit, Italy's biggest bank (and owner of Poland's Bank Pekao), trades in Warsaw as well as its home base of Milan; Reinhold Polska, a Stockholm-based property developer, and Kulczyk Oil Ventures, a Canadian oil exploration company controlled by Polish billionaire Jan Kulczyk, are both listed solely in Warsaw.

The exchange's success contrasts sharply with rival bourses. Market capitalization in Warsaw has tripled in the past two years, to $189 billion. That makes it 50 percent bigger than Vienna, which had ambitious plans for the region after buying exchanges in Hungary, the Czech Republic, and Slovenia. Warsaw's trading volumes now average $270 million a day, vs. $202 million in Vienna, $115 million in Budapest, and $84 million in Prague. Until this autumn the Prague bourse hadn't seen an IPO for more than two years. And Czech bookmaker Fortuna Entertainment, which raised $109 million in its Oct. 22 debut, co-listed in Warsaw. "Prague really missed the IPO train," says Peter Domeny, an analyst at Czech brokerage Cyrrus.

Other exchanges say Warsaw has an unfair advantage. In the past two years, the government has sold off major companies in insurance, power, chemicals, and coal mining to raise funds and get more of the formerly Communist economy into private hands. And Poland's pension funds must invest at least 95 percent of their assets inside the country, while the minimum in Hungary is 65 percent and in the Czech Republic it's just 50 percent. "You have an influx of mandatory investment on one hand and the state throwing in a bunch of companies on the other," says Petr Koblic, CEO of the Prague Stock Exchange. "No other bourse in the world gets as dramatic support as the Warsaw Stock Exchange."

The European Commission has sued Poland, saying the foreign-investment limits for pension funds breach EU rules. The Polish state argues the funds are exempt from EU regulation. The European Court of Justice hasn't yet made a ruling. "It might sound a bit protectionist, but it's important" to encourage investment in local stocks, says Peter Hakansson, chairman of Stockholm-based East Capital, which manages $5.8 billion in emerging-Europe assets. "That is the key for Poland."

The bottom line: The Warsaw bourse is attracting companies from abroad even as rival exchanges struggle to get new listings.

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