From Institutional Investor:
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19 Mar 2008
Ludwik Sobolewski’s plans for the Warsaw Stock Exchange: Eastern Europe’s regional bourse.
Central and Eastern Europe’s equity markets have long failed to live up to the promise of the region’s dynamic economies, as small national exchanges have fragmented liquidity. But Ludwik Sobolewski, president of the Warsaw Stock Exchange, believes the time for consolidation has come, and he’s determined to play a leading role.
Buoyed by the strength of the Polish economy, which has grown at an annual rate of more than 6 percent for the past two years, the Warsaw market is enjoying a record spurt of activity that has enabled it to close the gap with its archrival, Vienna’s Wiener Börse. Since Sobolewski took over from the exchange’s founding president, Wiesław Rozłucki, in June 2006, the number of listed companies has increased by 43 percent, to 380, market capitalization has jumped by 48.7 percent, to €123.8 billion ($187.3 billion), and daily volume has soared by 94 percent, to €293 million. Warsaw had 81 initial public offerings last year that raised a total of €5.2 billion. IPO activity has slowed lately, as Warsaw’s WIG index has fallen 28.4 percent from its July peak, to stand at 48,505.48 late last month, but the index is still up 132.5 percent since the end of 2003. Sobolewski believes Polish growth will fuel a market recovery and predicts a further 70 companies will go public this year.
Most impressive, Warsaw has overtaken Vienna as a listing venue for companies from the CEE region. By offering favorable remote membership terms to investment banks and brokerages with operations in other Eastern European countries, Sobolewski has expanded foreign listings to 23, from seven, adding such names as Czech electric utility CEZ. Daily volume for these non-Polish stocks has risen nearly 11-fold, to €13 million. In the meantime, Vienna has seen its foreign listings drop by one, to 17, while daily turnover has risen by 54 percent, to €8.9 million. Overall, Wiener Börse has attracted only seven new listings since June 2006.
“Poland’s domestic market is too big to be isolated or marginalized, even by much larger foreign competitors consolidating among themselves,” says Krzysztof Kaczmarczyk, head of equity research at Deutsche Bank Securities in Warsaw. “It is a viable and credible consolidation alternative for other Eastern European bourses.”
Exchanges in Bulgaria, Slovenia and Ukraine all plan to sell stakes this year to foreign bourses that can help them increase trading volumes and cut costs, and Sobolewski believes Warsaw can prevail over such rivals as Vienna, the Athens Stock Exchange, Nasdaq’s OMX Group and Deutsche Börse. In February, Warsaw submitted bids of undisclosed size to Slovenia’s Ljubljana Stock Exchange and Ukraine’s PFTS Stock Exchange. Final decisions in these highly politicized sales are not expected for months. Sobolewski also expects to take part in bidding for the Bulgarian Stock Exchange later this year and would like to buy a stake in the closely held Prague Stock Exchange.
“As the largest exchange in a region that shares a common communist and postcommunist economic heritage, we don’t believe any other group can be as effective or as innovative as we can when it comes to bringing local market intermediaries and investors together with international intermediaries and investors,” says Sobolewski. “I think with time we will clearly emerge as the most attractive partner for all of the region’s exchanges.”
The state-owned WSE’s biggest weakness is that it doesn’t have its own listing. Warsaw lost out to OMX in the bidding for Lithuania’s Vilnius Stock Exchange three years ago because it could not match the value of the Nordic exchange group’s all-share offer. But the liberal government of Prime Minister Donald Tusk, which came to power in November, has said it will float 49 percent of the exchange this year. Sobolewski, a former law professor who spent 12 years building the Polish National Depository for Securities before taking over the exchange, believes the government is likely to follow his advice and ban rival exchanges from purchasing shares. “While we are open to buying other exchanges, we definitely want to remain independent,” he says.