May 4, 1997 No 18 (445)

WARSAW STOCK EXCHANGE

The Warsaw Stock Exchange Index (WIG) was on a roll for seven sessions, each day closing higher then the one before, until it topped out above 17,000 on Wednesday, April 23. At the end of the runup the WIG had gained 7.4 points, and then the correction came. On Thursday prices fell slightly and by the close on Friday, April 25, the index had dropped back to 5.4 percent for the nine days.

After the decidedly bearish last session, Grzegorz Olesiński, a technical analyst with the Dom Maklerski Penetrator brokerage, pointed out that this is not the best time to dump stock. He said after a brief-three to five-session-fall, the market should return to an upward trend, though improving on the last high may take some time. Such an upward trend, he said, would require more money coming into the market faster, and across a broad section of the exchange, though most activity right now is concentrating on only a select group of companies.

Foreign capital is expected to appear in the market following the latest privatization announcements, and hopefully this will provide a boost to the broader market. The latest public offerings have shown that there is no shortage of money and that the upcoming sale of several state behemoths will open a new "base" in the form of money from large international financial institutions. Certainly, investors were encouraged by the successful offerings of Mieszko SA and Celuloza Świecie by the Treasury. The demand for Mieszko, a Racibórz-based candy factory, was almost 10 times greater than the offering. Moreover, offers are still coming in for the Impexmetal shares being sold by the state.

Along with privatization, Impexmetal wants to increase its share capital and is planning to place an additional block of shares privately. Nomura, the Japanese investment bank acting as underwriter of this placement, is planning to purchase 15 percent. The conditions of the underwriting agreement show that the Nomura wanted to become a strategic shareholder. The bank did not receive a bonus for acquiring the stock, but instead it has gained an opportunity to control the company's financial condition as long as it owns more than 10 percent of the capital, and in keeping with the agreement, Impexmetal must also reduce its debt.

The public offering and exchange debut of Poland's largest paper producer, Celuloza Świecie SA, deserve comment. The state sold 15 percent of the enterprise's stock in a public offering (7.5 million of 50 million authorized shares) with the minimum price set at zl.15 per share. The sale took place with a method rarely used in Poland-through the exchange. The market set the issue's value at more than zl.150 million (zl.20.50 per share). Despite the increased price, almost 37 percent higher than the one initially set, orders were filled at 35 percent of the amounts requested. Two days later, when Celuloza entered regular trading on the exchange (making it into the top 10 companies in terms of capitalization), its price was only zl.1 higher, at zl.21.50 per share.

The unimpressive debut probably stemmed from two factors; the first is the company's disastrous financial performance for the first quarter of this year, raising doubt about its ability to achieve its financial goals for 1997, which are projected to be close to last year's. The second was that this report was published in the course of the offering, at a time when investors were no longer able to withdraw their share purchase orders. This faux pas upset many market watchers.

The Ministry of the Treasury is conducting talks with a consortium including South African corporation Mondi and Austria's Frantschach AG, which is interested in purchasing 65 percent of Celuloza's stock. The issue price and the opening price on the exchange, and the company's financial condition, have prompted speculation that the future for any such contract may be dim. The Treasury, on the eve of the parliamentary elections, may actually refuse to sell the stock at its current market value. At the same time, it is hard to expect bidders to be ready to pay a price close to that achieved in the public offering given recent events. Market projections calculated on the basis of end-of-1996 data are favorable for Celuloza. However, considering its continually declining profits, a trend that is likely to continue in the unstable pulp and paper market, this stock may be an under performer.

The chairman of the supervisory board of the Warsaw Stock Exchange, Leszek Juchniewicz (former deputy privatization minister and deputy Treasury minister turned vice president of Polski Bank Inwestycyjny) has undertaken to mediate between the shareholders of the two Polifarbs, Cieszyn and Wrocław. Their merger, originally planned for the summer vacation season, has been put off indefinitely. The greatest problem is posed by the relationship of the shares to the voting rights that the current owners will hold in the new entity. Originally, a 50-50 percent arrangement was planned. However, later, in a unilateral resolution passed by its general meeting, Cieszyn "guaranteed" for itself more than 53 percent. Now the mediator's role begins.

Paweł Piotrowicz