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The Warsaw Voice » Special Sections » September 2, 2011
Privatisation in Poland: Investor’s Guide
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Privatisation Procedure and Conditions
September 2, 2011   
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Privatisation in Poland is conducted by the Treasury Minister based on the Commercialisation and Privatisation Act of August 30, 1996 (as amended).

The term privatisation should be understood as the process of selling shares held by the Treasury through a specified statutory procedure. The privatisation of a given company commences with the announcement by the Treasury Ministry of the tender procedure for the selection of a privatisation adviser to provide consulting services in the privatisation of the company. The adviser is tasked with performing pre-privatisation analyses of the company, which, depending on the privatisation project, include assessment of the company’s value; analysis of its competitive position, macroeconomic environment, formal and legal standing, and development prospects; and identification of an appropriate, optimal privatisation procedure. In some cases, pre-privatisation analyses also include environmental analyses.

After the preparation of pre-privatisation analyses and their formal acceptance by the ministry responsible for privatisation in a given sector, the privatisation procedure for the given company is approved. Next, the preparatory stage begins, which involves gathering information about the company slated for privatisation and preparing design documentation.

Privatisation may be either indirect (so-called capital privatisation) or direct. At present, a vast majority of privatisation procedures are indirect privatisations. Direct privatisation is used only in specific cases and in relation to state enterprises (with several dozen still owned by the Treasury) whose number is continuously decreasing as a result of commercialisation, or transformation of a state enterprise into a joint-stock company or a limited-liability company. Indirect privatisation comprises nine key privatisation procedures: public auction, public tender, negotiations based on public invitation, publicly announced offer, sale of shares in response to a call, sale of shares on the regulated market, public offering, subsidiary stabilisations, and selling shares outside organized trading. The appropriate procedure for the privatisation of a given company is selected by the secretary of state or undersecretary of state at the Treasury Ministry responsible for the privatisation of a given sector, following pre-privatisation analyses conducted by the advisor to the Treasury Ministry. Direct privatization, on the other hand, is based on the sale of an enterprise, transfer of an enterprise for use against payment, or contribution of an enterprise to a company. Direct privatisation is currently rarely used in privatisation processes.

Public auction
Public auction is the fastest of the currently used privatisation procedures. For procedural and organizational reasons, a public auction resembles a traditional auction. In order to take part in a privatisation conducted by means of public auction, a prospective investor must make a security deposit, typically amounting to 10 percent of the starting price. The invitation to auction contains the detailed terms of participation, list of the documents which must be filed with the Treasury Ministry, the starting price for the shares, date of auction and the amount and deadline for payment of the required security deposit. Investors interested in participating in the auction may, for a small fee, obtain a company memorandum containing comprehensive information that they might need to decide whether they are interested in becoming involved in a given privatisation project. Upon closing the auction, a share purchase agreement is signed with the highest bidder. The entire privatisation process takes from a month to a month and a half. It starts with the issue of a public invitation and is concluded with the auction being held as scheduled.

Public tender
Public tender is another relatively fast privatisation procedure. Following the publication of an invitation to a given privatisation project, investors interested in participating in the tender must collect the company memorandum prepared by a privatisation adviser to the Treasury Ministry. Then, depending on the privatisation project, investors are permitted to conduct due diligence on the company. Afterwards, interested investors submit offers to purchase company shares which are later subjected to evaluation by the Treasury Ministry. The winning bid is one which meets the formal requirements and contains a price acceptable to the ministry. Finally, a share purchase agreement is signed with the winning investor.

Negotiations based on a public invitation
In the case of negotiations based on a public invitation, the investor selection procedure is relatively longer. This privatisation method is frequently used in the case of large state-owned companies. As in the case of the two aforementioned procedures, after signing a confidentiality obligation, entities interested in responding to the invitation receive a company memorandum containing information on the legal, financial and economic standing of the company subject to the negotiations. Based on the information contained in the information memorandum, entities submit written replies by the date specified in the invitation. Subsequently, the seller (Treasury Ministry) decides which entities will be permitted to conduct due diligence on the company. The next stage consists of potential investors submitting binding offers within the specified deadline. The offers must include the detailed terms for purchasing the shares put up for sale. Then the Treasury Ministry evaluates the binding offers and decides which entities will be invited to the negotiations on a parallel or exclusive basis. Finally, a share purchase agreement for shares held by the Treasury is signed following successful negotiations.

Publicly announced offer
The publicly announced offer is a relatively rare privatisation method that is based on the Treasury Ministry making a publicly announced offer to sell shares held by the Treasury in a given company under the applicable terms and conditions. In such a case, the agreement is signed after the offer has been accepted by the interested investor.

Sale of shares in response to a call
Acting on behalf of the State Treasury, the Treasury Minister may also sell shares of public companies in response to a call announced on the basis of the Act on Public Offering, Terms and Conditions of Trading of Financial Instruments and Public Companies. This privatisation method applies exclusively to listed companies.

In 2011, three new privatisation modes were introduced following amendments to the Commercialisation and Privatisation Act. These are public offering, subsidiary stabilization, and selling shares outside organised trading.

Public offering
The public offering procedure used to sell shares covered by a prospectus or an investment memorandum allows the Treasury Ministry to conduct an initial public offering or a public offering without the need to secure permission from the government as a whole. The point is for a Treasury-owned company to be traded on the organized market, which involves being listed on the stock exchange, raising the equity capital and the sale of all or a part of shares held by the Treasury.

Subsidiary stabilization
This mode allows the Treasury Ministry to carry out what is known as subsidiary stabilization, without formal government approval, to minimize the risk of loss for investors taking part in an initial public offering and subsequent offerings. Subsidiary stabilization entails the use of an over-allotment mechanism or a greenshoe option by an enterprise or a lending institution when a large number of securities are distributed. This is done solely to facilitate stabilizing measures.

Regardless of whether subsidiary stabilization takes the form of over-allotment (the Treasury holds extra shares in the privatised company and may sell more of the shares than planned) or a greenshoe option (the Treasury guarantees the issue of extra shares in the privatised company), an appointed Stabilizing Manager has up to 30 days to buy, on behalf of the Treasury, a specified, maximum percentage of issued shares in the privatised company (usually between 10 and 15 percent) when the market price is lower than the price at which the shares were sold. Shares thus purchased return to the Treasury. In cases when the market price is higher than the issue price, the Stabilizing Manager does not buy the company shares and the subsidiary stabilization procedure is not activated.

Selling shares outside organised trading
The Act on Public Offering, Terms and Conditions of Trading of Financial Instruments and Public Companies of July 29, 2005, allows shares to be sold outside organized trading through companies that manage an organized market. In Poland, the Warsaw Stock Exchange (GPW S.A.) is such a company. The Treasury Ministry has not conducted such transactions so far, but after appropriate procedures are adopted in the future, such transactions will be possible.

Ministry of Treasury
Krucza 26 /Wspólna 6, 00-522 Warsaw
tel. (main switchboard) 22 695-80-00,
22 695-90-00, fax: (main switchboard)
22 628-08-72, 621-33-61
investor@msp.gov.pl www.msp.gov.pl/en
This supplement has been published by Warsaw Voice S.A.
under the patronage of the Ministry of Treasury

Articles in this supplement express the opinions of their authors.
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