Disproportions between share supply and demand on the debut (IPO) market influenced the entire floor, leading to an unwarranted rise in stock prices threatening to considerably boost investment risk. This trend continued throughout the first half of 2007. At the close of August Polish stock market companies jointly represented PLN 543.1 billion, a 24% rise on the end of 2006 (PLN 437.7 billion), with the number of listed companies up from 272 to 303. Also, the units rose in value, the WIG-PL index showing a 20% rise against 2006 (42.8%).
2007 promises to be a record-breaking year regarding debuts. In the past years more than 30 newcomers appeared on the floor every year: 36 in 2004, 35 in 2005 and 38 in 2006. In the first half of this year 32 companies debuted on the Warsaw Stock Exchange, the number rising to 53 by the end of the 3rd quarter. By year’s end there should be more than 60 debutants on the floor.
The IPO market closed the first half of 2007 at PLN 15.2 billion against PLN 364 million in the first half of 2006. PLN 13.3 billion of this were new share issues (PLN 216 million in the 1st half of 2006). Discounting Immoeast’s record offering, the value of the IPO market in the first half of this year came to PLN 4.4 billion (PLN 2.4 billion in 2006), new issues accounting for PLN 2.6 billion. At PLN 10.7 billion, the Austrian company Immoeast has launched the biggest public offering in the history of the Warsaw Stock Exchange. Only PLN 463 million worth of the shares have been purchased by Polish investors.
The slow but steady internationalization of the Warsaw Stock Exchange helped activate domestic players. Besides the abovementioned Immoeast company, four other foreign companies debuted on the Warsaw floor before the end of September. Today 17 foreign firms are quoted in Warsaw. According to the Warsaw Stock Exchange president, this figure may rise to 20 by year’s end thanks to debuts by firms from Ukraine, Holland (the Plaza Centers developers, already quoted on the London exchange) and other countries. Unfortunately, most of the foreign players in Warsaw are quoted by dual listing so their shares are traded on a very low level. This is also true of the most recent debutants, Immoeast and the Estonian gambling operator Olympic Entertainment Group – and nothing indicates any radical change in this respect. The recent foreign debuts on the Warsaw exchange are doubtless a success but their low trading level allows little hope of attracting more foreign players and making Warsaw a central European financial centre.
August and September reviews of the IPO market suggest that the current low will not endanger the floor’s plans regarding debut numbers – although the debutants will probably have to cut share prices, a move that will be welcomed by share buyers. In light of emerging threats to long-term growth on global markets (and, in consequence, also Warsaw), we may expect more pressure by debutants to speed up procedures and dates.
Such pressure may result in debutants issuing low-quality prospectuses, which in turn will enhance the quality drop visible in new public offerings over past months. The most typical symptoms of deteriorating standards in this respect are overvalued shares, debuts by unprepared companies, and “selling dreams”. Especially worrying is the fact that this also concerns major domestic players, whose deficit has for quite some time been a big headache for the Warsaw Stock Exchange. For example, investors tempted by visions propounded by the owners of LC Corp, at PLN 1,059 million the biggest domestic private offering in the history of the Warsaw floor, lost over 40% of their money by mid-September. Such situations make one ask whether we are not witnessing a “negative selection” of large domestic players. In keeping with well-proven financial theory, companies in need of funds prefer to draw credit than issue shares. Putting it simply, with easily-accesible and cheap credit seeking funds on the stock market is usually connected with market timing. Here, decisions to debut on the stock market depend on the possibility of overvaluing offerings or the determination of company owners. Noteworthy in this context is the Warsaw exchange’s visible popularity among developers, until recently an ultra-modern, hence highly expensive branch. In view of a looming middle-term low the mentioned negative selection threatens with lowered investor trust not only in individual companies but also the entire exchange.