Business, Finance & Economics

A stock bet in Poland


WARSAW — The Warsaw Stock Exchange, a leading symbol of the country’s transformation from communism to capitalism, is being sold by the government to ensure its continued viability.

The WSE has undergone remarkable growth over the last 18 years, but now its continued ownership by the government is an anachronism that is harming its chances of becoming the region’s leading exchange.

The treasury ministry has invited four international exchanges: the London Stock Exchange, the Deutsche Boerse, Nasdaq OMX and NYSE Euronext, to bid for the WSE, and the sale could be completed as early as this year.

That would finally transform an icon of market capitalism into a true private enterprise for the first time since it was created in 1991.

“I wanted to found the exchange and sell it within two years, but that hasn’t happened,” said Wieslaw Rozlucki, the man who founded and managed the WSE until 2006.

At the moment, the exchange is 99 percent owned by the state treasury, and the ownership structure has become an increasing aberration in a world where the vast majority of other exchanges are private. Being owned by the Warsaw government has blocked the WSE from taking part in the consolidation of the region’s exchanges.

In 2004 the WSE failed to buy the Vilnius exchange in Lithuania because the government balked at the idea, and the exchange was snapped up by Scandinavia’s OMX. More significantly, being owned by the state left Warsaw on the sidelines while its regional rival, the stock exchange in Vienna, scooped up controlling interests in exchanges Budapest and Ljubljana, Slovenia.

The final straw occurred last year, when the Prague Exchange refused even to countenance a bid from Warsaw, instead selling itself to the Austrians.

“Our ownership structure has been a real drag on us,” admited Ludwik Sobolewski, the WSE’s chairman.

Until recently that structure had not stopped the WSE from notching up some remarkable successes.

It began operations in April 1991, with only a handful of traders, many of them wearing the red suspenders that were the hallmark of the profession in those long-ago Gordon Gekko days.  The exchange traded five listed stocks on borrowed computers for a turnover of $2,000 on the first day.

In a piece of well thought-out symbolism, the exchange opened on the top floor of the old Communist Party Central Committee headquarters.

Today, the WSE is located in a gleaming office building down the road from the former Party HQ, crammed with electronics and computers to monitor the virtual trading floor. The exchange now has 350 listed Polish companies, and 25 foreign ones with a total market capitalization of 568 billion zlotys ($260 billion ).

Warsaw’s steady growth and conservative approach is in stark contrast to the experience of other exchanges in the neighborhood. When Prague launched its exchange it had more than 1,600 listings and a very loose regulatory structure. After numerous scandals, corporate failures and an ill-begotten privatization of state assets, the Prague exchange now has only 13 listings.

“We took a textbook approach, and were very orthodox. We decided from the beginning that we wouldn’t try to create new methods, but instead relied on tried and tested solutions that existed in other markets,” says Rozlucki.

Anchored to the largest economy in central Europe, the WSE has become the biggest exchange in the region, recently passing Vienna, which, significantly, was not invited to take part in Warsaw’s privatization.

“I don’t quite see where Vienna gets its enormous certainty in saying it wants to take part in the WSE privatisation,” said Sobolewski, who calls the Austrian demand to be included “arrogant."

Warsaw has been hit hard by the global downturn, but in the last three months it has bounced back strongly, in line with other recovering markets. However, there is a growing sense that without a more powerful partner, the WSE will be unable to continue growing if it is confined only to Poland.

Attempts to get companies from countries like Ukraine and Estonia to list on the WSE have floundered because of the crisis, and Sobolewski complains that the average size of companies on his exchange is too small to interest really big investors.

Sobolewski hopes that the answer lies in tying up with a larger exchange, which will have to make a commitment to encourage the WSE to keep growing.

“We want the WSE to be part of an international network of investors, dealers and companies,” he says. “We expect the eventual investor to continue the strategy of building a financial center in Warsaw.”

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