ZE PAK IPO: investors not rushing in

30 October 2012, Financial Times

In the past, when Poland’s treasury ministry sold off big state controlled companies through the Warsaw Stock Exchange there was a frisson of excitement among investors – something that seems to be missing ahead of next week’s debut of power producer ZE PAK.

Earlier this week the government set the share price at 26.20 zlotys ($8.19), near the very bottom of its bookbuilding range of 26-33 zlotys, according to Reuters.

Only about 14,000 individual investors, most of them from Poland, signed up for the 15 per cent of the treasury’s shares available to them.

Most of the intuitional interest came from Polish pension funds, as foreign investors generally hung back, Pawel Tamborski, a deputy treasury minister, told the Polish press.

The treasury is selling 50 per cent of the power producer, which has 7 per cent of the Polish market, and control of the company will shift to vehicles controlled by Polish media and telecoms billionaire Zygmunt Solorz-Zak.

Mikolaj Budzanowski, the treasury minister, put a positive spin on the lacklustre results, saying: “26.20 zlotys a share is an adequate price when taking a look at market conditions.”

The ministry will take in 680m zlotys from the sale, bumping up the overall proceeds from selling state assets to 8.8bn zlotys this year, close to the goal of earning 10bn zlotys.

The unenthusiastic response from investors stems partly from PAK’s own problems. Analysts feel it is undercapitalised and the size of Poland’s fifth-largest power producer wasn’t enough to excite west European and US pension funds.

Also casting a pall over the IPO was a warning from Greenpeace and CEE Bankwatch that the power generator posed a risk due to its reliance on coal.

“Resistance to ZE PAK’s coal mining plans, coupled with their deadly air pollution and significant greenhouse gas emissions, make this a risky investment that should be avoided,” said the environmental organisation.

Polish investors are also a little wary of the stock exchange and IPOs. The last big government IPO was of JSW, a coal minister, which debuted to enormous enthusiasm in the summer of 2011 at 136 zlotys but is now trading at 84.10 zlotys a share.

Those investors who did take the plunge and signed up for PAK shares may have a long wait before they see much of a profit from their investment.

An analysis by Open Finance, a financial advisory, notes that the seven power companies listed on the WSE haven’t been the source of much joy for investors. While the blue chip WIG20 index has gained 12 per cent since the beginning of the year, the exchange’s power companies index has slumped by 5 per cent.

The only power company to have provided a big pop on its first day of trading in 2009 was PGE, the country’s largest utility, which rose by 13 per cent. Two other IPOs of Tauron and Enea generated gains of about 1 per cent. Looking back at performance since their IPOs, PGE has wilted by 20 per cent, while the other two are flat.

The performance of Polish power companies is part of a broader international slump in the sector, which makes any short-term gains by PAK investors unlikely, writes Roman Przasnyski of Open Finance.