Poland to privatize stock exchange

The Polish government is preparing a privatization plan for the Warsaw Stock Exchange that would see shares sold exclusively to Polish companies, possibly in defiance of European Union rules that require equal treatment for all members of the bloc.

In a little-noticed speech filled with patriotic rhetoric, the Treasury minister, Wojciech Jasinski, outlined last month a strategy by which the Polish government would sell some of its holdings to "Polish investors" in blocks of 5 percent to 10 percent, while retaining a 51 percent stake itself.

Warsaw, he said, also intended to introduce regulatory changes to prevent companies listed on the exchange from being taken over by foreign companies "to ensure that the stock exchange will retain its Polish character."

"A sale to foreign interests is out of the question," Jasinski said. "I think that such a sale could risk reducing the stock exchange to the subservient position of taking orders from one of the major European exchanges."

The plan, which Jasinski said the government wanted to push through "over the next two years" appeared ripe for a potential conflict with Brussels over adherence to EU rules, which require privatizations to be open to all EU members.

Catherine Bunyan, a spokeswoman for Charlie McCreevy, the EU commissioner for the internal market, said Brussels was not aware of Warsaw's plans.

The Polish Treasury minister, likewise, did not respond to inquiries by telephone and e-mail on the plan and whether it would violate EU rules.

"The advisors still need to prepare the company for privatization," Jasinski's spokeswoman, Agnieszka Dluska, said. "There is still much analysis to be done."

The move is raising eyebrows in Central and Eastern Europe because Jasinski said the government would help to bankroll the Warsaw exchange's expansion in the region, where companies like Wiener Börse, operator of the Vienna bourse, and OMX, owner of several Scandinavia and Baltic exchanges, are also active.

The Polish minister announced the plan less than a year after Warsaw settled a dispute with the European Commission over whether UniCredit of Italy would be allowed full control of a Polish bank that it had purchased. Poland defied the commission's position that only Brussels had jurisdiction over cross-border mergers, but in the end, UniCredit defused the crisis by accepting a settlement that required it to sell 200 of the 480 branches that it had acquired.

That dispute arose only months after the Law and Justice Party, headed by President Lech Kaczynski and his brother, Prime Minister Jaroslaw Kaczynski, took power. Since then, the two men have ruffled feathers across Europe with their nationalist rhetoric on subjects ranging from energy to economics and relations with Germany, and the plans for the exchange appeared very much in this vein.

"I know that this government can be very insular, and not always aware that what they are considering conflicts with their EU obligations," said Simon Tilford, a single market specialist with the Center for European Reform in London. "But even to them, it must be obvious. How they can possibly think this complies? I do not know."

In his speech Jasinski also outlined a plan by which the Polish government would back the Warsaw bourse's expansion outside Poland. The exchange has already expressed interest in buying stakes in markets in Bulgaria and Slovenia.

Jasinski said that the Warsaw exchange could issue nonvoting shares to "acquire enough capital to purchase other European exchanges" and that any company that participated in the initial privatization would be compelled to purchase these nonvoting shares later.

That policy would run directly counter to efforts by Wiener Börse to nurture a network of Central and East European exchanges through cooperation agreements on things like financial data distribution and product development.

The Vienna exchange has also taken a direct stake in the Budapest exchange, and its co-chief executive, Michael Buhl, has said that it is interested in a similar arrangement with Warsaw "if we are welcomed as a strategic investor."

"We are in any case interested in a stake in the Warsaw exchange," Buhl said. "But we would under no circumstances take part in an unwanted takeover."

But Jasinski, in his speech, portrayed the Austrians in unwelcome terms.

"The potential for the development of Poland, with its 38 million people, is several times greater than that of Austria, with only eight million people," Jasinski said. "Should a sale of this sort take place at all, it ought to be in the opposite direction."

The Vienna exchange itself actually has an unusual structure in which it is co-owned by both the investment banks that trade on it and the companies that list there, a process Warsaw could conceivable follow.

The Austrian exchange was created in a bidding process open to all in 1997, but it was mainly Austrian banks that chose to buy into it. The only non-Austrian bank that owns part of the exchange is UniCredit of Italy, which bought Bank Austria Creditanstalt in 2005 — the acquisition that originally brought it into conflict with Warsaw.

But unlike Austria in 1997, Poland would have to reckon with strong interest from the outside the region in an era that has seen major mergers like the combination of the New York Stock Exchange and Euronext.

Poland's benchmark stock index is one of the strongest performers in Europe, and future privatizations will enlarge the ranks of companies that list there.

Source:By Carter Dougherty, iht.com