03.23.2015
By Terry Flanagan

Warsaw Stock Exchange Aims to Continue IPOs

Pawel Tamburski, president of the management board of the Warsaw Stock Exchange, said that this year the firm is looking to repeat the 28 initial public offerings it had in 2014.

Tamburski said at a media briefing last week: “Last year we had 28 IPOs and this year we hope to repeat the same number. We have six or seven large companies in the pipeline.”

In 2014 the WSE Group reported record sales revenue of Polish Zloty 317.6m ($84.2m), an 11.9% year-on-year increase, and a net profit of PLN 112.3m.

The Polish exchange has an in international strategy of acting as a listings hub for Central and Eastern Europe.

“Our capital market aims to attract companies from the region and investors looking for CEE exposure,” he added. “For example, we have 12 companies from Ukraine listed in Poland and we hope that market will eventually be valid again.”

Today the IPO Task Force released the “EU IPO Report: Rebuilding IPOs in Europe; Creating jobs and growth in European capital markets.”

The task force of 18 members was formed last summer by European Issuers, which represents the interests of publicly quoted companies across the region; the European Private Equity and Venture Capital Association; and the Federation of European Securities Exchanges in order to make recommendations on improving the IPO process in Europe, particularly for smaller companies.

Philippe de Backer, member of the European Parliament and chairman of the European IPO Task Force said in a statement: “The European IPO markets need to work better for the real economy. Although Europe continues to build and grow businesses with the potential to be world class the failure of the IPO market to facilitate their access to capital hampers their growth and ultimately their potential to create jobs.”

The report cited data from PwC’s IPO Watch Europe from the last six years which shows that the number of IPOs in 2012 and 2013 was very modest when compared with the 2001- 2011 averages, which was due to the fall in smaller companies going public.

“In the US, companies with less than $50m market capitalisation have gone down from being 80% of IPOs to 20% of IPOs, while the Task Force noted that companies that make it to the public markets are taking twice as long to do so,” added the report. “The EU Task Force believes that there are similar issues in Europe.”

Institutional investors have also complained that regulation is forcing them to reduce their investments in certain asset classes and as a result insurers and pension funds are holding fewer equity holdings.

The Task Force recommended that local and regional ecosystems of dedicated analysts, brokers, market makers, ratings should be rebuilt across the region. For example, only half of companies on Euronext are currently covered by financial analysts.

“Due to a complex set of regulatory and technological changes both in the US and in Europe, most capital market activity has focused on blue chips, while trading has become automated, highly efficient, and inexpensive,” added the report. “While these changes are to be welcomed from the perspective of the intermediaries serving this market segment and the investors trading in blue-chips, they have also led to the disappearance of smaller brokers, analysts and advisers who are incentivised to invest time and resources into building the demand for smaller IPOs.”

The report said the proposed MIFID II regulations should pay particular attention on creating a market segment for smaller companies that allows issuers to raise finance effectively while giving maximum flexibility to the market operators who serve them.

In addition the new Solvency II regulations, covering insurance companies, include higher capital charges for owning shares in listed companies in the developed markets but no charges for treasury bonds issued by Eurozone member states.

“Some insurers have completely stopped investing in equities, which means that equity funding via the capital markets may not be an option for as many companies, at the same time as bank funding may be scaled back,” said the report.

The Task Force said that EU law also imposes additional disclosure requirements on institutional investors who own shares in listed companies which are a disincentive for private companies to undertake an IPO.

“Additional reporting as currently proposed by the Shareholder Rights Directive should only be introduced as “comply or explain” codes rather than legislation, perhaps in stages for different sizes of investors, given the potential downsides,” said the report.

Featured image by iQoncept/Dollar Photo Club

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