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The Warsaw Voice » Special Sections » September 30, 2011
Privatisation in Poland: Investor's Guide
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Capital Market Bolstered by Privatisation
September 30, 2011   
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Treasury Minister Aleksander Grad talks to Andrzej Jonas and Andrzej Ratajczyk.

How efficient has privatisation been this year? Will the turbulence on global financial markets affect the Treasury Ministry’s plans for this year in any way?
It occurred to me as soon as this year began that the most successful privatisation transactions would be those prepared before the summer vacations—because in the latter half of the year, global markets could become very unstable and nervous, judging by the news of worsening problems in the eurozone and the uncertainty in the U.S. economy. As a result, we decided to carry out as many privatisation projects as possible in the first six or seven months of this year. It gives me no satisfaction to say that my predictions have proved true. Capital markets are so unstable right now that it is hard to imagine carrying out any major transactions.

And the Treasury Ministry would probably find it hard to get a good price for whatever assets it put up for sale...
Absolutely. But it is equally important to attend to the interests of everyone involved in the privatisation process, most notably private investors buying shares in privatised businesses. If you want to be serious about privatisation, in both economic and social terms, then you cannot expose investors to excessive risks.

Back to your question about the state of privatisation this year, I can say that the strategy we adopted has been a success. Despite the uncertain situation on the markets, revenues totaled 11 billion PLN in the first half of this year, which is 70 percent of this year’s target. Looking several years back, I really can’t remember such a large part of a 12-month plan being accomplished in just six months. We still have several transactions in the pipeline to allow us to increase our privatisation revenues this year and reach the 15 billion PLN target.

Privatisation is a tricky process that must reconcile the laws of the market with the expectations of employees in privatised enterprises, who often seek to secure various guarantees and benefits. In the past several years, we have seen many conflicts and protests over privatisation in Poland. But just recently, it seems people’s approach has changed, with fewer reports of workers opposing specific privatisation deals. Politicians seem to have become less interested in privatisation as well...
That is correct. One of the main reasons to take action and finalize as many privatisation transactions as possible in the first few months of this year was the prospect of parliamentary elections this autumn. The less time is left to the elections, the bigger the risk of privatisation being turned into a political affair. Election years have always intensified attempts at political intervention in privatisation and that continues today, but admittedly, given the extent of the current privatisation transactions, such attempts have been very few.

Headlines are made by major projects, and many people have been directly involved in such projects as part of the civic shareholding program. The general public hears less about smaller privatisation projects, which are often more difficult and have always triggered some protests among staff and local communities. This is no longer the case; after 20 years of reforms, many people have come to appreciate the positive track record of privatisation. Politicians are far less keen to join the protests, because they can see that this is not what voters expect.

Is this because people have changed or because privatisation is being conducted differently than before?
This is a process that has been going on in the minds of people and in the attitudes of employees and trade unions. An October 2009 survey by the CBOS polling center shows that respondents have increasingly positive views of privatisation. A poll by Millward Brown SMG/KRC of September 2010 revealed that privatisation is chiefly associated with the development of the economy (according to 77 percent of those surveyed), improved company management (76 percent), and enhanced efficiency (75 percent).

Political and economic changes began in Poland a long time ago and the public is becoming more economically literate. On the other hand, the changes are also the result of painstaking educational efforts that the Treasury Ministry undertook four years ago. Together with a number of capital market institutions, we have been coming up with public education programs with very different communities as target groups. We have been working with nongovernmental organizations, students, pensioners and even clerics to persuade them that it is worthwhile taking part in privatisation projects prepared by the Treasury Ministry and being out there on the capital market as active investors. Our goal was to show that we have nothing to hide in privatisation. We have made all the procedures transparent, introduced special privatisation registers, and developed new tools to help individual investors take advantage of our offerings. We have shown that privatisation is for the people. Thanks to this educational campaign, those working in enterprises put up for sale are now more aware of what privatisation entails. They also realize that without an investor and extra capital, further development is out of the question. I have always said that poorly conducted privatisation projects are the worst enemy of privatisation.

Do you mean that your ministry has made no major mistake in the past four years?
Not one serious enough for the media to tout as “rip-off privatisation,” which used to be the case in the past. Nor has there been a general outcry against privatisation. This is largely because we have done a good job as a team. You could say we have been lucky as well, because with so many privatisation projects going on simultaneously, mistakes are bound to happen.

You have privatised more than 500 enterprises so far...
535 to be exact, with a total of 1,198 privatisation processes conducted.

When you look at what has become of them, are you sure privatisation was the best thing that could happen to them?
I am positive. In each and every case, really. This is particularly evident now, during the financial crisis. Privatisation is a cash injection thanks to which companies become solvent again and can develop and invest. It is a huge opportunity for them. A good example are health resorts which always struggled as they tried to obtain funds for development. Now that they have been privatised, they are making immense investments.

What do you consider the greatest success of your four-year term as minister?
What seems to be an undeniable success of the reform effort in this period is that, through privatisation, we have built a powerful capital market in Poland and strengthened the Warsaw Stock Exchange. We have proved to Europe and the rest of the world that Poland can conduct major privatisation transactions with the largest Polish and foreign investors on board, showing that the deals can comply with the highest world standards. As a result, the Warsaw Stock Exchange has reached sort of critical mass in its evolution, outdoing its regional competitors in terms of capitalization. The capitalization of the Warsaw Stock Exchange is now almost the same as that of the stock exchanges in Vienna, Prague and Budapest put together. In terms of the number and value of IPOs, the WSE ranked second in Europe in the first half of this year, ahead of Nasdaq OMX and the Frankfurt stock exchange. Warsaw is becoming a major financial hub in this part of Europe, which is the biggest success.

The privatisation model adopted in Poland stands out with a wide range of privatisation tools and types. One of the objectives of Polish privatisation is to support the development of capital markets and the stock exchange. We have pursued this objective by placing offerings on the stock exchange, strengthening the stock exchange infrastructure and finally, by privatising the Warsaw Stock Exchange itself. The Treasury still has corporate governance of the Warsaw Stock Exchange, but we have ceded many seats on the supervisory board to market players. This has completely changed the way the Warsaw Stock Exchange is perceived. The market has also been strengthened by leading investment banks, which have arrived in Warsaw along with brokerages and well-known law firms which provide assistance during privatisation transactions. If Poland wants to draw companies from the region and all of Europe to the Warsaw Stock Exchange, the exchange has to keep growing. The Polish capital market is drawing a lot of interest, as shown by the fact that foreign capital accounts for 48 percent of all trading on the Warsaw Stock Exchange.

Domestic capital has played a significant role in the development of the Polish capital market in recent years. Public privatisation offerings have drawn vast groups of private Polish investors.

The idea of civic shareholding is certainly a pillar of privatisation through the stock exchange. During the IPOs of the companies that we brought to the stock market, retail investors signed up for more than 1 million subscriptions for shares. Over the past four years, the number of investment accounts in brokerages has increased by half. At the start of our term, there were 1 million accounts; today there are more than 1.5 million, and the figure continues to grow. The civic shareholding program, designed to encourage people to invest their money on the capital market, can be regarded as one of the most successful projects in the Polish economy in recent years as the latter has undergone reform. However, the program would not have taken off without creating appropriate conditions for it first. In order to encourage people to take part in privatisation, we developed mechanisms to allow even people with modest means to buy shares through public offerings, with having to incur big loans.

You said a few months ago that you wanted this term to be your last as minister. Why is that?
I fully meant it when I said in spring that I would only remain Treasury minister until the end of this term. I believed that the head of the giant corporation that the Treasury Ministry is, someone who manages an immense volume of assets and companies, should advise the market as to when he or she is planning to leave. I have not changed my mind since. Until recently Treasury ministers in Poland were replaced very frequently, every 10 months or so. Making it through an entire term, I will break a record and I believe that is enough.

I think that the results of my four-year term are on the positive side and that is not just because the ministry has managed to sign over 43 billion PLN worth of privatisation contracts—with the total for the last two decades at 135 billion PLN . Of the 20 largest privatisation transactions to date, 12 have been carried out during my term, including four of the top five transactions. You could add to this the 15 billion PLN which companies have raised through new share issues that the Treasury Ministry prepared. Plus at least 2 billion PLN which we are planning to earn from privatisation still this year. In total, this is over 60 billion PLN and I believe that is a good result.

Civic Shareholding
Civic shareholding is a long-term program launched by the Treasury Ministry during last year’s stock market flotations of insurance company PZU, energy giant Tauron PE, and the Warsaw Stock Exchange company, and supported with an educational campaign to promote investment on the stock market.

The idea behind civic shareholding is to interest retail investors in taking part en masse in privatisations carried through the stock exchange and to encourage them to become actively involved in other transactions on the Warsaw Stock Exchange.

The ministry’s program is based on specific solutions for retail investors to make it easier for them to buy shares in state-owned companies privatised through the stock exchange. Each time a fixed number of state-owned company shares that may be purchased by individual investors is set (at around 20 to 30 percent), as well as a maximum number of shares that one person may subscribe for. This makes it possible to ensure that there is no credit leverage when buying shares and that individual investors can more precisely determine the range of costs related to their investment.

Unlike previous forms of mass privatisation, civic shareholding is not about handing out shares. Instead, individual investors buy shares in line with market rules, learning the basic mechanisms of how the stock exchange operates.

At the same, the Treasury Ministry is pursuing an educational campaign called Civic Shareholding: Knowing How to Invest. It is designed to show people the workings of the capital market and teach them how to actively manage their savings and take advantage of investment opportunities offered by the stock exchange. Top capital market institutions such as the Warsaw Stock Exchange, the National Depository for Securities, the Association of Individual Investors, and the Chamber of Brokerages, in addition to the now-listed companies PZU and Tauron PE, are taking part in the educational projects involved.
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