Post-War Ukraine ‘Natural’ as Warsaw Bourse Looks East

The Warsaw Stock Exchange, home to a dozen traded Ukrainian companies, is betting on more listings from the former Soviet republic once the conflict there recedes and will offer to help develop Kiev’s nascent capital markets.

Growth on the Warsaw bourse, central Europe’s biggest stock market, stalled last year after the government halted sales of new companies to the public and overhauled its pension fund industry.

After merger talks with Vienna failed last year, Warsaw bourse is turning east to help more Ukraine enterprises find funding in a country with 10 mostly illiquid bourses. The Ukraine conflict with pro-Russian rebels has killed more than 4,800 people, pushed Poland’s eastern neighbor into its deepest recession since 2009 and left investors skittish about the country of 43 million people.

“Ukraine is a natural, strategic direction for us,” Chief Executive Officer Pawel Tamborski said in an interview at the Bloomberg News office in Warsaw yesterday. “We understand that now it’s not the priority for the Ukrainian government, but we are ready to help make the market less fragmented.”

Ukrainian companies have sold 2.9 billion zloty ($797 million) of shares in Poland since 2006, according to data compiled by Bloomberg. They were lured by the country’s pool of pension and mutual funds and the higher stock-market liquidity than on any of their home country’s 10 stock exchanges.

Capital Needs

Warsaw’s WIG-Ukraine Index of eight companies has jumped 16 percent this year, after plunging 51 percent in 2014. Agriculture producer Kernel Holding SA, the biggest Ukrainian company traded on the Polish stock market, has gained 15 percent, recouping part of its 25 percent decline last year.

“We believe Ukrainian companies will seek more capital in the future and we want to be the market of the first choice,” Tamborski said. “We may be a good alternative to London.”

Tamborski isn’t alone in his assessment of Ukraine’s potential. The Warsaw bourse, created two years after the 1989 fall of communism in Poland, could help Ukraine develop a single stock market, Ukraine’s Economy Minister Aivaras Abromavicius said during his visit to Poland in December.

There are 471 companies trading in Warsaw, including 51 foreign ones, compared with a total of 221 on stock exchanges in Vienna, Prague, Budapest and Ljubljana combined, according to data on their websites. The total value of domestic companies listed in Warsaw exceed $170 billion.

IPO Pipeline

Last year, 28 companies started trading on Warsaw’s main market, raising a total of 1.29 billion zloty in public share sales, the smallest amount in at least 10 years.

“We expect to tap a similar number of IPOs this year as in 2014,” Tamborski said. “We plan to raise the total value of offerings as we want to have good companies. We are also hunting for good regional stories as investors like them most.”

The exchange expects “a few” regional IPOs this year, the CEO said, without giving further details. Record-low interest rates in Poland “limit the IPO interest among issuers,” he said.

Tamborski, a former investment banker and deputy treasury minister, ended merger talks with the Vienna market operator in September, two months after taking the CEO post. The Polish exchange decided to expand its trading in debt, derivatives and commodities to solidify its leading position in the region.

The company is seeking new investors to increase liquidity and help attract new issuers, also from the central and eastern European region. The average daily stock turnover dropped 7.5 percent to 824.8 million zloty last year, according to data on the bourse’s website.

‘Low Velocity’

“We see low velocity, with pension funds keeping over 40 percent of free float as one of the problems for the Warsaw Stock Exchange,” Tamborski said. “That’s why in our strategy we underline the need for broadening our investor base and find investors ready to purchase stakes from pension funds.”

The management is meeting investors in London, Hong Kong, the U.S. and Canada and expects some effects of talks in the “coming years,” he said.

“We are reaching Asian and American investors who were absent here,” Tamborski said. “Most of them seem to have a relevantly low knowledge of the Polish market and so we are showing them good stories, we are sowing seeds.”

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