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April 2009 | ifr special report | SP9 EQUITY CAPITAL MARKETS

What a difference a year makes. Less than twelve months ago investors were queuing up to take part in the €1.3bn IPO by New World Resources, which led to great expectations that the positive momentum generated would lead to a steady flow from the region. But the financial crisis, and the recession that followed, have decimated the extensive pipeline of deals. Ian Forrest reports.

Investors retreat I

t is amazing to recall now that the IPO by Czech coal mining group NWR was more than seven times covered and priced at the top of the range at the beginning of May last year.

That encouraged the Polish government to prepare five privatisation IPOs and selldowns, including energy group Enea, banking group BGZ and chemicals maker Zaklady Azotowe Tarnow.

But, even before the banking crisis got into full swing in September last year there were signs that investor sentiment towards Central and Eastern Europe was beginning to wane. The Z294m (US$117.6m) IPO of ZAT in June was only completed because two strategic investors came to the rescue at the last moment, after institutional investors showed little interest. That led the Polish government to delay the US$1bn IPO of energy group Enea until September. The move surprised the market, given its qualities as a large, defensive stock. It was almost fatal because the deal then had to pause after two weeks of premarketing while the markets waited for the US administration to put together a rescue package for the US banking sector. When it resumed in late October it was aimed almost entirely at strategic investors.

A month later came the unsurprising news that the Z600m IPO of coal mining group Bogdanka and, more symbolically,

CEE equity and equity-related deals Volume (Lhs) US$m

1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000


Q1 Q2 Q3 Q4 05

Source: Thomson Reuters

Q1 Q2 Q3 Q4 06

Q1 Q2 Q3 Q4 07

Number of deals (Rhs)

No of deals 50

40 30 20 10

Q1 Q2 Q3 Q4 08


the IPO of the Giełda Papierów Wartościowych w Warszawie (Warsaw Stock Exchange) had both been cancelled. The Polish government has since opted for an auction in the case of the Warsaw exchange, but has barred the Wiener Boerse (Vienna Stock Exchange) from par- ticipating because of its desire to see one of the major European exchanges, such as Nasdaq OMX and Euronext, take control.

While some large new issues on the

Warsaw exchange have been delayed over the past year, it continues to challenge the London Stock Exchange as the venue for emerging market stocks. Some issuers have recently expressed concern that index tracking funds in the UK introduce volatility into stock performance. The issue is not so common elsewhere because there are fewer funds and trackers focus on just the main indices and therefore cover fewer stocks.

However, bankers believe that while there may be opportunities for other venues to pick up listings, the LSE still retains powerful advantages over some of its peers as a solid, international market with experienced regulators and operators. The speed of the deterioration of the region’s economic conditions is illustrated by the Czech government’s economic growth forecast, which at the start of the year stood at 2.9% for 2009. By the end of

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