Foreigners look at Eastern and Central Europe as a single market

• (Interview with Ludwik Sobolewski, the chairman of the Warsaw Stock Exchange)

Adina Ardeleanu

Even though Poland did not experience any quarters of economic decline recently, which makes it an exception in Europe, the Polish stock market was affected by the financial crisis, because foreign investors see Central and Eastern Europe as a single market, says Ludwik Sobolewski, the chairman of the Warsaw Stock Exchange. This interview discusses the current status of the Warsaw Stock Exchange after the first half of the year and its intentions concerning the Sibiu futures exchange, in which the Polish Stock Exchange holds 1.8%.

Reporter: In the beginning of 2009, you were expecting 25 initial public offers on the Warsaw Stock Exchange. How many came through so far? Do you think you"ll be able to meet that target?

Ludwik Sobolewski: I"m very happy with the Polish IPO market in 2009. According to the latest report concerning the Polish stock market, published by PricewaterhouseCoopers, the Warsaw Stock Exchange continues to hold the top spot when it comes to the number of new listings (15 during the first six months of the year). We came in second place after the London Stock Exchange in terms of IPO values (between January and June 2009, companies raised EUR 132 million on the Polish stock market).

The report shows the resiliency of the Polish IPO market when faced with the financial crisis. The number and the value of IPOs has however experienced a significant decline compared to last year. In 2008, 94 companies held IPOs on the Warsaw Stock Exchange (WSE) and they raised EUR 2.5 billion. I think the WSE will complete another 20-30 listings by the end of this year, which will allow us to preserve the top spot in terms of IPOs completed.

Reporter: How important is the number of IPOs for a stock market in times of crisis?

Ludwik Sobolewski: In times of high volatility and increasing risk aversion IPOs are a sign that the 909-p-00p is handling the crisis just fine. When speculative bubbles burst, which is what we saw happen at the end of 2007 and in 2008, opportunities arise for shrewd investors and smart companies, which know how to navigate over troubled water.

Reporter: Did you have any delistings this year?

Ludwik Sobolewski: We had four delistings on our main market, which came as a result of mergers.

Reporter: In your opinion, what major issues did you face in 2008 and so far in 2009, as a result of the financial crisis?

Ludwik Sobolewski: The financial crisis once again proved that foreign investors tend to see Central and Eastern Europe as a single market. This had negative effects for us -following alarming reports about Hungary, Ukraine and the Baltic countries, investors withdrew from the region. The Polish economy is handling the crisis well enough, we haven"t had any quarters of economic decline so far, which is quite the exception in Europe.

Reporter: At the end of 2008, you said that the Warsaw Stock Exchange would continue to invest in 2009. Will you be able to stick to your initial plan? What investments have you got planned by the end of the year?

Ludwik Sobolewski: In spite of the shrinking market turnover in 2009, we haven"t given up on our strategic projects. In order to provide investors with more investment alternatives, we are constantly expanding the number of listed instruments, which include structured certificates and bonds, which allow access to c­ommodities, foreign indices and stocks.

This year we are also planning to launch a regulated market for corporate and municipal bonds, which will expand the investment instruments available on the WSE. Another major goal for us is to increase market liquidity. We want to introduce short selling - we are close to receiving the legal approval to do so - and to work on having our listed companies improve compliance with corporate governance rules.

Reporter: Are you looking to buy other stock exchanges?

Ludwik Sobolewski: I am carefully watching the opportunities which may arise. I think that what we"ve seen in Central and Eastern European is the first step towards the consolidation of stock market operators. The number of stock exchanges which we can buy in the region is limited and we will see the consolidation in the region move into its second stage.

Reporter: Is being a regional stock market pole still the main goal of the Warsaw Stock Exchange?

Ludwik Sobolewski: Yes. We will continue our strategy to build an efficient, transparent and modern stock market, a real financial "pole" for Central and Eastern Europe. In certain respects, we have already accomplished our objective. We are the largest stock market in Central and Eastern Europe (including the Austrian Stock Exchange) in terms of capitalization and stock turnover. I realize however that the size of the market is not the most important feature of a financial node. We have to invest more in our international image.

Reporter: What are your intentions on the 1.8% stake you hold in the Sibiu futures exchange?

Ludwik Sobolewski: Our investment in Sibex is one for the long term, and is part of our strategy to strengthen our cooperation with specific exchange operators. For the moment we don"t have any plans to alter the size of our stake in Sibex.

Reporter: As far as I know, investors on the Warsaw Stock Exchange were divided as follows: one third foreign investors, one third private investors and one third institutional investors. What is the current structure of investors?

Ludwik Sobolewski: That"s right, this was more or less the structure of our investors in the first half of 2008. That changed in the second half of the year. The number of foreign investors rose to 46%, and the ratio of individual polish investors dropped to 17%, whereas the percentage of local institutional investors remained relatively stable at 37%.