Busiest IPO Rush Since Lehman Signals Market Revival in Prague

  • Czech bank, energy infrastructure company plan share sale
  • Equity offerings may reverse decline in Czech market size

After years watching regional competitors lure the juiciest equity offerings in central Europe, the Prague Stock Exchange may be getting a new lease of life.

General Electric Co. and energy group Energeticky a Prumyslovy Holding AS announced plans this week to sell stakes in their Czech businesses in what would be the biggest initial public offerings through the country’s bourse in eight years. Only three listings have been big enough to qualify for the exchange’s main index since the collapse of Lehman Brothers Holdings Inc. in 2008, data compiled by Bloomberg show.

“After years of hibernation, the market may be finally starting to show signs of life,” said Josef Nemy, a stock analyst at Komercni Banka AS in Prague. “If the IPOs are successful, this would not only boost trading but could also encourage more issuers.”

Both companies looking to sell shares in Prague pledged to pay more than half of their profits in dividends to lure investors looking for higher returns amid near-zero or negative yields on government bonds. The Czech central bank has joined global counterparts seeking to spur inflation through an unprecedented monetary stimulus, even as the country’s gross domestic product growth outstrips regional peers.

“The hunt for yield means that precisely this type of dividend stock could be attractive for many investors,” Igor Muller, a portfolio manager who helps oversee an equivalent of about $455 million in equities at NN Investment Partners AS in Prague, said by phone.

GE Money Bank AS, the sixth-biggest Czech lender by assets, may be valued between $1.4 billion and $1.9 billion in the IPO, according to estimates by Prague-based J&T Banka AS. EPH wants to float a minority stake in its EP Infrastructure AS unit, which has assets valued at $11 billion. Both potential sellers said they would complete the deals this quarter, subject to market conditions, and they plan to receive all proceeds from the offerings.

Coming just four months after soft drinks maker Kofola CeskoSlovensko AS raised the equivalent of $32 million, the two new transactions would end an almost eight-year spell of less than one IPO per year, with none raising more than $100 million. The last major offering was in May 2008, when coal company New World Resources sold $2.5 billion of shares in Prague and London.

Since then, NWR’s market value has shrunk to $20 million as falling coal prices have made the miner unprofitable, triggering a debt restructuring and pushing the company to the verge of bankruptcy.

Dividend Plans

While global equity markets have recovered in the past seven years following a slump caused by Lehman’s collapse, delistings and individual stock selloffs like NWR’s have slashed the Czech market’s size by 38 percent to $24.9 billion. By contrast, the total market capitalization of the other main exchanges in the region, Warsaw, Vienna and Budapest, has increased since bottoming out in the first months of 2009.

As Czech banks are traditionally awash with cash from deposits, local companies have for years preferred taking loans over tapping the stock market. That left the Prague bourse with only 24 listings, compared with 483 equities on the Warsaw Stock Exchange’s main floor alone. In the past eight years, 185 new companies have joined the main Polish market, raising more than $11 billion in IPOs.

GE Money Bank said on Monday it would maintain a payout ratio of at least 70 percent of profit in the future, after paying a 4.5 billion koruna ($189 million) dividend to its U.S. owner before the IPO. EPH’s infrastructure unit plans to pay out 365 million euros ($417 million) from a 2015 profit of 622.7 million euros and intends to increase its dividend by 3 percent per year until 2020.

“These are finally sizable deals that can put Prague Stock Exchange back on the radar of international institutional investors after many years of silence,” NN’s Muller said.

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