As the Warsaw Stock Exchange (WSE) is currently working towards going public, it is worth reflecting on its preeminence in the Central European corporate finance world. In November 2010, the WSE is itself going to be listed on the WSE. The Polish government is selling 63.82 percent of the outstanding shares, but still plans to keep 52 percent of voting rights. With a price range of zł.36-43 per share, the WSE is valued at zł.1.5-1.8 billion (€382-456 million).
With a total market capitalization of some zł.715.8 billion (€174 billion) – 30 percent more than that of the Vienna exchange, and five times the market capitalization of the Budapest Stock Exchange –, the WSE was the third-largest stock exchange in emerging Europe, after Moscow and Istanbul, at the end of 2009.
The WSE has expanded the fastest in the region, more than doubling the number of traded companies and almost tripling daily turnover in the past decade. Over the past five years, there have been over 200 Initial Public Offerings (IPOs) on the main floor of the WSE. In 2009, a year of global doom and gloom internationally (but when GDP in Poland powered forward with a 1.8 percent annual growth rate), 38 IPOs raised approximately €1.6 billion on the WSE and the alternative exchange for small companies, NewConnect. This is a remarkable achievement and today there are a total of 364 Polish and 23 non-Polish entities listed on the WSE, including MOL, CEZ, UniCredit, Astarta, Immoeast, and the Orco Group.
Cheap equity has been one of the growth drivers of the WSE. For many years, the Polish government has required that Polish pension funds invest their funds into Polish equities. Given that the supply of Polish equities has been limited, this means that their prices have been driven up considerably (e.g. enterprise value has often exceeded 20 to 25 times EBITDA for companies listed on the WSE). This has been a boon to Polish entrepreneurs, who have strengthened their balance sheets with the cheap equity raised on WSE IPOs. (This may, however, raise the question of whether Polish pension funds are sufficiently diversified in their equity holdings. It also raises the question of whether all of these small companies should be on a stock exchange, as they may not be in a position to meet growth expectations and, given their low capitalization, may find it difficult to maintain a following among analysts and shareholders, causing their share prices to languish over time.)
Listing on the WSE is also simple for non-Polish companies. After Poland’s accession to the EU, listing a foreign company on the WSE is as simple as listing a domestic company. Poland has adopted the EU single-passport rule, which states that any company registered in any EU member country may make its debut on either the WSE main floor or the NewConnect market without applying for consent from the Polish Financial Supervision Authority. In keeping with the single passport rule, the prospectus of the candidate company may be approved by the capital market regulator in any EU country. The prospectus does not even need to be translated into Polish in its entirety: an English-language version is sufficient.
The WSE has been a phenomenon. Over the past decade, it has been a fantastic advantage to those companies which have been able to raise capital on favourable terms. The IPO reflects the fact that the WSE itself has become big business. However, it will be interesting to see how the next decade plays out, with widespread consolidation of Central European stock exchanges expected. For how long will the EU continue to allow rules forcing Polish pension funds to invest in local equities, and for the Polish government to control the WSE with a type of “golden share” ownership?
