The CEE Stock Exchange Group (CEESEG) has re-affirmed its interest in partnership opportunities with its regional rival the Warsaw Stock Exchange (WSE), despite the Polish bourse's dogged rejection of its overtures.
In an interview with Euromoney, Michael Buhl, joint CEO of the CEESEG, said: “We both have totally different set-ups and combining these two things would make a lot of sense. We would like to see more cooperation with the Warsaw Stock Exchange, but they see us, well mainly Vienna [which heads the group], as their biggest competitor, as their benchmark."
Jaroslaw Derylo, head of investment banking for Poland at Wood & Company, an investment bank focused on emerging markets in Europe, agrees that cooperation or a merger between the exchanges would be beneficial.
“There might be a rationale for collaboration or maybe even consolidation between Vienna and Warsaw, especially when you compare the exchanges to others in the broader region," he says. "Turkey is still much larger and Russia is huge in comparison. To become a legitimate competitor, to decrease transaction costs, increase investor access and enhance liquidity, consolidation of the exchanges would be a logical choice.
However, when it comes to competition between the bourses, Derylo argues there is a clear leader.
“If a Czech or Slovenian company were considering listing within the region, they would probably seriously consider listing on their local stock exchange and on the WSE, or just on the WSE," he says. "This is because there is a captive investor base in Warsaw, with money to spend, and they can effectively tap these substantial sources of liquidity only by listing in Warsaw."
Pension funds and mutual funds based in Warsaw looking for investment opportunities are a captive audience for companies that choose to list on the exchange there. Poland also offers a vibrant retail investor base that helps aftermarket liquidity, which also encourages companies to list on the WSE, says Derylo.
In addition, a foreign company that chooses to list in Warsaw tends to get more attention both from investors and research analysts, he adds.
It was a combination of these factors that encouraged Exillon Energy to became the first Russian oil firm to seek a secondary listing on the WSE last month. Exillon Energy is already listed on the London Stock Exchange.
One source, who has been following the relationship between the bourses, commented that Buhl approached Ludwik Sobolewski, the CEO of the WSE, on a number of occasions to initiate talks for collaboration, the last being around two years ago. However, Sobolewski showed distrust towards the CEESEG, according to the source, and repeatedly avoided meetings with Buhl.
“Basically, Sobolewski thought that Vienna would cut the line and sabotage Warsaw’s exchange,” said the source. “And if the thinking is like this from the outset, how on earth can the exchanges have a meaningful relationship?”
While the Polish bourse's organic growth-strategy has focused on attracting new listings, in 2008 Vienna acquired a 92.74% stake in the Prague bourse, beating off a bid from Warsaw. It was a similar story with Ljubljana in 2009.
“They have been missing out on various acquisitions for various reasons," says Buhl. "Actually, as a result of this, Warsaw became a lot more centralistic, whereas we are a lot more decentralized.”
The CEESEG stemmed from Vienna’s appetite for acquisition, which began in 2004 when it took an initial 14% in the Budapest Stock Exchange. Now the group combines 50.45% of the Budapest exchange, with both the Ljubljana and Vienna stock exchanges in their entirety.
“We would expand further but this depends on the business case,” says Buhl. “For instance, now we will not partner with anything in which we do not have the majority on the trading and post-trading side. Moreover, we do look for low valuations.”
As of October 31, the CEESEG accounted for 42.4% of total market capitalization in the area. Warsaw accounted for nearly 41%. “The remainder, Belgrade, Zagreb, Bucharest, and others account for less than 2% of the total trading volume,” says Buhl. "They are very, very small, and must be very, very cheap."
However, following the acquisitions and the creation of CEESEG, Warsaw fought back when it developed a long-term and strategic partnership with NYSE Euronext in 2010. Despite the apparent one-upmanship, Buhl remains adamant that the bourses are not in competition with one another, in a bid to assuage Warsaw's concerns.
“I have always clearly stated that I am open and willing to any cooperation with Warsaw," says Buhl. "Maybe we could do something together on the index side, or on the data side, but there are no current talks.”