Polish pension funds are fighting to preserve what little options they have left to invest in Warsaw’s shrinking stock market.
(Bloomberg) — Polish pension funds are fighting to preserve what little options they have left to invest in Warsaw’s shrinking stock market.
A group of six funds last month derailed a bid by billionaire Sebastian Kulczyk for a remaining stake in chemical maker Ciech SA, saying the price he offered was too low. The once-powerful institutional investors also banded together to fight a planned delisting of a Ukrainian company Kernel Holding SA.
The new-found activism among the pension funds, which include units of Aviva Plc, NN Group NV and Assicurazioni Generali SpA, comes after 135 companies quit the Warsaw stock exchange in the last six years, leaving the bourse with the fewest number of listed stocks since 2010. Valuations have also lagged most peers. The benchmark WIG20 index handed investors a negative 26% return, in dollar terms, over this period.
“We simply can’t give up our stakes in private companies with a strong equity story too cheaply,” said Szymon Ozog, head of Nationale-Nederlanden Powszechne Towarzystwo Emerytalne SA, which manages Poland’s biggest pension fund with $10 billion in assets. “We can’t accept valuations that are much lower than what we think should be their fair value.”
The funds, which jointly hold 127 billion zloty ($31 billion) in Warsaw-listed stocks, have a bigger ax to grind, too. As the exodus grows, the industry doesn’t want to be left heavily exposed to large state-owned companies, which often depend on the whims of politicians for decisions about investments and dividends.
“What we need is growth stories in our portfolio,” NN’s Ozog said. “And without IPOs of new large entities, it isn’t easy.”
State Influence
While companies elsewhere in Europe are increasingly abandoning their domestic listings, the trend really packs a punch in Warsaw. Once hailed as a key element of Poland’s transition from communism in early 1990s, the bourse had for years benefited from the sales of the biggest state-owned enterprises. The process reduced politicians’ clout over corporate decisions.
But the current government, which has ruled since 2015 and seeks to win a third term in this year’s elections, has increased control over banks and energy companies when foreign investors retreated. It’s calling for a bigger state role in the economy and doesn’t mind tapping company cash to help fund social programs.
Market Downturn
The pension funds’ downturn started nearly a decade ago. The industry lost half of its assets when the government of Prime Minister Donald Tusk decided to take over their bond holdings and to curb inflows of fresh money in an effort to rein in public debt. The funds have since sold 30 billion zloty ($7.2 billion) of WIG20 stocks, which Warsaw Stock Exchange Chief Executive Officer Marek Dietl said was “a gap that’s difficult to fill.”
To be sure, Warsaw’s 417 listed stocks and total market valuation of $305 billion still dwarfs all other eastern European bourses combined. Yet the wave of delistings, dearth of larger public offerings and state interference are undermining Warsaw’s ambitions to become the region’s capital hub.
The bourse’s decline, which mirrors that of Polish pension funds, also means that companies are increasingly looking for funding elsewhere, including from the country’s growing private equity industry. Low valuations, meanwhile, are an opportunity for owners to take their companies private cheaply.
Kernel, Ukraine’s biggest sunflower oil exporter, in March slammed the Warsaw exchange for low liquidity and poor analyst coverage. It’s trying to delist using a loophole in Luxembourg law, under which it’s registered. This allows the company to proceed with the bid without shareholder approval, while Polish regulations require backing from 90% of owners.
The funds, which jointly control 21.6% in Kernel, are seeking a higher price than the one-fifth of Kernel’s book value currently on offer from its single biggest shareholder, the vehicle of founder Andrii Verevskyi.
In opposing the Ciech bid, the funds have argued that the offered price didn’t reflect the company’s fair value given its record profits and expansion to Romania and Germany. Kulczyk’s offer gave only a “small premium” over the company’s share price from last month, according to Ozog.
“In recent years, we have seen an intensification of the delisting trend and we feel it is our duty to ensure that these processes take place at a price that doesn’t affect our members,” said Krzysztof Zawila, management board member at Generali PTE, another pension fund. “Our industry has been watching over this for years.”
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