How come Warsaw saw a barrage of new listings, while there was almost none in Budapest and Prague? What type of capital sources corporates choose in the current environment and how do these meet investors' expectations? When will "The Return of the IPOs" hit the "big screen"? When can the plummet of stock exchanges end?
Portfolio.hu has discussed these and a lot more issues with Pawel Tamborski, Managing Director of UniCredit CAIB, one of the most accomplished investment bankers in Central and Eastern Europe. Portfolio.hu: While no one is in a position to possibly know the answer, you as an economist must have an estimate as to when the current global recession and the bear market that came with it can be over? 
Pawel Tamborski: I wouldn't like to speak about processes in the real economy. I'll leave that to our strategists and macro analysts. With regard to the stock markets I can say we have either reached the bottom of the bear market or are close to it. This does not necessarily mean that an upturn is imminent, since the markets may continue to struggle at current levels for years to come.
UniCredit CAIB held its annual Emerging European capital markets day in New York on 3 and 4 March, where investors could talk eye to eye with company heads from our region. While the turnout was smaller than before - about 30 issuers came - interest from the investors' part was stronger than ever. Representatives of more than 60 US funds turned out at the event and this never-before-seen number clearly shows that interest in our region still exists.
A year ago the same investors were so worried that they chose to rather stay away from our event and instead took that time to think how to get rid of their investments in the region. Now, on the other hand, they were there and showed interest. They will not open their purse strings just now, but are watching eagerly from the sidelines, looking for the right time to step in.
One of our positive experiences was that about 60% of the questions asked were aimed at the macroeconomic situation in the region rather than about the financial status of the companies represented at the event. It looks like they are at a "when to come back to CEE" stage.
P.: In view of this, what trends do you see being formed in the area of corporate finance? Should we expect transactions to be re-launched or new listings to be made? P. T.: The Equity Capital Markets have in fact not closed; there still have been transactions there. Just look at the "nationalisations" that took place in the USA, not to mention rights issues that downright proliferated in the financial sector. What we are seeing now is that the latter are becoming popular in other sectors as well. We receive few requests to manage such transactions in our region as well.
The need to raise capital still exists, and sometimes it is even stronger than before. Some companies are forced to draw capital because they have to lower their debts. And those that are in a more favourable situation choose to do so to grab the excellent acquisition opportunities that arise.
It was also interesting to see that on the investors' side everyone wants to be "Warren Buffett". There would be an immense demand for structures he was using in buying Goldman Sachs and General Electric - preference shares with 8-10% annual dividend plus warrants that can be transformed into ordinary shares with no premium to the market price at the time of their issuance.
P.: Well, yes, in the United States. But how many transactions have you heard about in Central and Eastern Europe over the past five to six months? P. T.: Close to none, but that's understandable. The CEE ECM market is a lot less developed and therefore it is more susceptible to changes than in the US or Western Europe.
The business cycle in Europe is more or less like this: An upturn starts in the United Kingdom, passes through to Continental Europe and then to CEE. I'm saying capital increases did not stop in the USA or the UK thanks to the financial sector. And we can see right now that activity is growing in other sectors, as well.
We will soon feel the same in our region, as well, but I do not expect 2009 to be a year of IPOs even on developed markets. As long as reliable European blue chips issue euro bonds at yields of 8-10%, IPOs may be carried out at so extremely depressed valuations that sellers would never accept.
P.: What is your take on the vision of a unified CEE stock exchange, the one the Vienna Stock Exchange has started to build? Do you think this is a viable plan? P. T.: I believe this issue needs to be approached from the side of capital. Stock exchanges will always be where capital is, where there is a demand for stocks. The Warsaw Stock Exchange has been so successful at IPOs over the past years because there was a considerable demand for stocks thanks to the special pension fund regulations.
P.: The Budapest Stock Exchange is just the opposite of the WSE with regard to IPOs. What should Hungary do different? What is that Poland has - apart from the already mentioned unique pension fund rules - and Hungary does not? P. T.: That is a very interesting question, because when the Polish capital market began to grow, it was Budapest that served as an example. We wanted to have a stock exchange as successful as the BSE was at that time. And then we saw no IPOs worth mentioning either in Budapest or in Prague during the past years.
I think they have achieved in Poland that entrepreneurs started to change their way of thinking about stock exchange listing. It is common knowledge that every businessmen in the US dreams about going public. With a bit of exaggeration we could say you're nobody there if you're not listed. I see the same attitude taking root in Poland and that has an extremely positive impact on the capital market.
There is one more Poland-specific factor and that is the public listing of state-owned companies. Large state-owned companies have not been sold off entirely up to date. Instead they let them enter the capital market via IPOs and the state did not to take part in capital raises. This is good firstly because companies raised significant ammount of capital for their purposes but these transactions also contributes to the development of the capital market. Secondly, this is a most transparent way of privatisation. The state in its decision making process rely on market valuation (pricing was result of capital market process).
P.: Do you see new stock exchange listings this year in Poland or the market is dead there as well? P. T.: Naturally, there will be a decline in the number of listings in Warsaw too, but it seems there is a chance of several new IPOs in 2009.
P.: When would you say there will be an increase again in the number of listings? P. T.: What I have as experience in this regard is the bear market in 2000. After that the IPO market was very quiet for two to three years. But this is only one way of raising capital. Even during this period we have helmed a number of covertible bond transactions and of course rights issues.
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