In any other country, Poland’s privatisation plan might sound unrealistic. The government aims to raise 10bn to 15bn zlotys ($3.3bn to $5bn) from privatisation in 2011, a further 10bn zlotys in 2012, and 5bn zlotys in 2013.
After the current Civic Platform party-led administration was elected in late 2007, about 800 companies were slated for privatisation, of which as many as 300 have already been sold and 400 are under active preparation. And by September treasury minister Aleksander Grad was half-way to achieving his target of 25bn zlotys-worth of privatisation in 2010.
Along the way, the initial public offering (IPO) of a 30% stake in insurer PZU in May 2010 turned into Poland’s largest ever, and the largest IPO in Europe since 2007, bringing in 8.1bn zlotys, which was shared between the Polish Treasury and minority Dutch shareholder Eureko.
“The PZU IPO was nine times oversubscribed, even though the whole transaction was conducted precisely at the height of the Greek crisis, which shows that the perception of Poland among investors is very favourable," says Mr Grad.
The success of this IPO gives Mr Grad confidence to continue forcefully with the divestment programme, even after a tougher debut for a 52% stake in power firm Tauron in June. The deal priced at 57 kopeks per share, towards the bottom of the 55- to 70-kopek target range, and the share price dropped in the secondary market. This was despite state-controlled copper miner KGHM anchoring the Tauron issue with the purchase of 5% of the stock.
“We are not working in a vacuum, so of course there is an impact on local events from the international environment," says Mr Grad. "I make the reservation that transactions can only go ahead if market conditions are good enough to conduct them. At the end of June, when Tauron was listed, there was a major downturn on the world’s financial markets. But still, I consider it a great success that, even in those unfavourable conditions, we were able to have the transaction move on, and with oversubscription. At first, the share price dropped below the issue price, but after two months it was trading 10% above the issue price – investors just needed to be a little more patient.”
The reward for so much new listing activity has been a significant increase in the potential sale value of the Warsaw Stock Exchange (WSE) itself, preparing the way for another blockbuster IPO. Mr Grad aims to reduce the government’s 99% stake in the WSE to “a little above 30%, with strong corporate governance rights” some time in the next year. In addition to the public listing, some of the exchange will be sold to its member institutions. A technology partnership with the New York Stock Exchange group is working on the selection of a new transaction platform for the WSE.
“In the past three years, the WSE has left behind its direct competitors such as Vienna and Athens – I am not even talking about Budapest or Prague, because we left them behind a long time ago in my view – and the WSE has become more attractive to investors,” says Mr Grad.
Once the stock exchange is privatised, this will reduce the need to prioritise IPOs over other forms of sale, and Mr Grad does not rule out tenders for selling stakes in other companies to strategic investors. The government is structuring a series of real-estate management companies that Mr Grad believes will be attractive assets once European property markets begin to recover.
The privatisation drive is not just about raising revenues for a government that ran a budget deficit of more than 7% of GDP in 2009. Mr Grad emphasises that privatisation is also about modernising the Polish economy, and for this reason state companies are to be restructured in parallel with the sale process.
“Sometimes, it would simply take too much time and effort to complete restructuring processes prior to privatisation – private owners are usually faster and more effective at such processes. But a good example of a company that needs prior work is LOT Airlines, which is in a process of deep restructuring now in preparation for sale next year,” says Mr Grad.
Another asset that is attracting interest is PKO Bank Polski (PKO BP), the country’s largest bank, in which Mr Grad says he aims to increase private ownership to 60%, from 48% at present. In the meantime, he is determined to ensure that the bank runs on purely commercial lines. An example of this strategy occurred in September 2010, when PKO lost out to Spain’s Santander in bidding to buy a 70% stake in another Polish institution, Bank Zachodni WBK, which was put up for sale by Allied Irish Banks (AIB).
“PKO BP acted in a market-oriented way. So it took the decision not to buy those assets at any price, even though PKO, in my opinion, has better synergies with WBK than Santander. We supported the transaction, but did not put pressure on PKO to go in at any price. PKO made its offer at a fair market price and, when Santander bid more, we did not push PKO to go further,” says Mr Grad.
Mr Grad's position on WBK is in contrast to the hostility of previous Polish governments towards foreign ownership in the financial sector, including a dispute over PZU with Eureko in 2002, and the obstruction of the merger between UniCredit’s Bank Pekao and Hypo- und Vereinsbank’s Bank BPH, when the two parent banks merged in 2005. Even so, Mr Grad criticises AIB for failing to conduct the tender with adequate transparency, and the Polish financial regulator has launched an investigation into alleged leaks of inside information during the process.