President of WSE Management Board Pawel Tamborski: We have never left Ukraine as we believe that it still has a lot of potential

Blitz-interview with President of the Management Board of Warsaw Stock Exchange Pawel Tamborski

Question: The situation in Ukraine changed sharply over the past two years and it is hard to expect any newcomers to the Warsaw Stock Exchange (GPW) from the country in the mid-term. Based on that I would like to ask you what are the forecasts of the GPW towards Ukraine? How did your scope of interests change? What are your current priorities end expectations for the upcoming years?

Answer: We have 12 Ukrainian stocks listed at the moment. GPW was and still is a good place for them. We believe that Ukrainian companies will seek capital in future and we want to be market of first choice for them, as we may be good alternative to London. However, we probably shouldn’t expect any Ukrainian IPO in Warsaw in the nearest future. The market needs to have clearer understandings of how the events in Ukraine will develop. Once the market situation improves and investors gain confidence, there will be no obstacles for new listings of Ukrainian companies.

Question: One of the targets of our government in the near-term perspective is to organize a fair privatization process of state assets. The government used to advance an idea to carry out such transactions on the WSE. It is interesting whether you discuss such a possibility with Ukrainian authorities?

Answer: We believe that Ukraine should work on strengthening domestic capital market that would allow effective allocation of capital for both companies and individuals. The Ukrainian government can draw from Polish experiences. The process has already started with the appointment of Council for State-owned Enterprises Reform of which I am honoured to be a member.

Compared to other markets in the region of Central and Eastern Europe, Poland has more than 25 years of unrivalled experience in transparent privatisation of State-owned enterprises. The biggest Polish enterprises have been privatised on Warsaw Stock Exchange, attracting the interest of large Emerging markets investors, but also Polish institutional investors and Polish citizens. We are glad that other countries, which are undergoing ownership transition, can now draw upon our experience of economic transition, privatisation and development of the capital market. GPW together with representatives of international financial institutions including the EBRD and the World Bank will actively participate in the work of the Council which will play a role in implementing market reforms in the country.

Question: Unfortunately it is too late already to organize in Ukraine such hugely popularized privatization process as it was in Poland some time ago.

Answer: It’s never too late for this as long as they are State-owned enterprises which can be privatised, allowing for their transparent sell.

Question: Moreover, it was hardly possible taking into account the importance to implement other prompt reforms by the government. Nevertheless, the government is aiming to receive the fair price for the state assets. Is this still possible from your perspective? How do you see this process and what role can the WSE play here? Is it possible to organize privatization tenders on the WSE without including to the listing securities of privatized companies? Perhaps you are already taking part in pre-privatization preparation of companies and investors for the tenders?

Answer: We are ready to share our knowledge and to cooperate with Ukrainian government as we believe, that the capital market can play a fundamental role in the country’s development. Privatisation of state-owned assets can bring revenue to the State and attract to the market foreign capital and individual investors as they could invest their savings in the stock of local enterprises. This was the case in Poland. The process has been supported by the Civic Shareholding programme where individual investors could acquire shares of state-owned companies newly listed on the Warsaw Stock Exchange subject to a cap on the number of shares in an individual subscription. More than 1 million subscriptions for shares have been made under the programme; many educational initiatives additionally encourage the general public to make informed investments in securities.

As I’ve already mentioned, we want to actively participate in the Council for State-owned Enterprises Reform. This is our priority at the moment. Should in the future a different of our involvement be required, we’ll do our best to help.

Question: Taking into account the current situation in Ukraine, the eastern region warfare, what discount may be imposed on the Ukrainian assets? Is there any way to shorten it? What do investors prefer: to have cheaper price despite greater risks or to wait until the situation stabilizes at the expense of higher price?

Answer: They are different kind of investors, with a different risk appetite. They look for appropriate assets that are effective in terms of expected returns and risks.

However, we can say that overall, as a result of uncertainty in regard to development of the situation in Ukraine, the appetite for Ukrainian companies is a bit lower at the moment. The fall of the index of Ukrainian shares WIG-Ukraine particularly eloquently speaks about it. But we remain optimistic.

Question: Do discussions between Ukraine and its foreign creditors on the debt operation have any influence on investor's sentiments? Maybe it is more reasonable to wait until the restructuring agreement is reached?

Answer: We are not in the position to advise investors whether they should invest or not.

Question: What type of assets investors are interested in? What are their benchmarks in terms of the companies' value?

Answer: As I said before, they are different kind of investors. Some of them invest on the Main Market, some on our NewConnect market where small, often in a start-up stage companies are listed. There are also some investors who invest based on the sector or some that chose innovative companies. In the case of Ukrainian companies, when the country gets back on investors’ radar, companies from the consumer sector and those which will give proxy on the fastest growing segments in Ukraine might attract the highest interest.

Question: Who are these investors? Are they mostly come from risk hedge funds, private equity, institutional investors or they are strategic investors, who are already have similar business and are thinking out about its growth?

Answer: In 2014 49% of trading in equities on GPW Main Market was generated by foreign investors, 38% by institutional investors, and retail investors generated 13% of trading.

Question: Maybe you can distinguish their geographical localization – are they mostly come from the United States or Europe?

Answer: The value of shares held by foreign investors amounts to around PLN 60 bn (in comparison with PLN 220 bn in the hands of Polish investors, including OFEs).

According to our estimates, most of the investors come from the US, than there is the UK, Western Europe and Scandinavia. But one needs to bear in mind that many investors, for example from Asia, may trade via a London based intermediaries.

At the moment we actively promote the Polish capital market among investors in different parts of the world. This January, we visited Hong Kong, and we see potential in presenting Polish companies on the Asian market. The Polish Capital Market Conference held in London in March was a great success and was appreciated both by international investors and participating companies. In the middle of May we organised the first Polish Capital Market Day in New York. We are planning more similar events and we want to see how they impact interest in the Polish market.

The interest takes different forms: in Hong Kong and New York, we had to raise investors awareness and explain, for example, the structure of our market and the economic situation in our country. In case of London, Polish companies are already known there, so during the meetings we update information on them and provide latest data on Poland. So there is a need to go there regularly and meet with investors to attract them to the Polish capital market.

Judging by the latest meeting in New York, American investors are looking for interesting investment opportunities, growth companies that give them exposure on the growth of Polish economy. They prefer private businesses, preferably those that have been built by entrepreneurs from scratch, than the largest state-owned companies.

Question: Another issue I would like to discuss with you is Ukrainian trading and post-trading infrastructure. Not so long time ago I had a conversation with one of the members of the newly elected Ukrainian National Securities Exchange Commission. He presented me the plan of reformation of Ukrainian fund market and its infrastructure designed by the Commission together with the National Bank of Ukraine and State Commission for the Regulation of Financial Services. He offered to attract some big foreign players to any of existing in the country stock exchanges and to make the joint Ukraine-Poland stock exchange in Ukraine. The same idea we discussed towards Ukrainian central depositary. It is interesting does the WSE admit the possibility to come to Ukraine one more time?

Answer: We have never left Ukraine. It is a natural, strategic direction for us. We believe that it still has a lot of potential. We are keeping our office in Kiev open to have first-hand information.