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ECM: Pensions shake-up hits Polish privatization

Internationals take a majority of Energa; IPO slides in secondary market

The biggest IPO in Poland since 2011 traded down in the secondary market on its first day of trading in December. The state treasury’s sale of a 34.18% stake in electricity firm Energa, the fifth of Poland’s utility privatizations, was oversubscribed, raising an equivalent of around $778 million, at Z17 ($5.60) a share.

Early selling by employees contributed to poor performance in initial secondary-market trading. Another factor was the relatively low allocation to local pension funds, which have previously offered consistent support to the local stock market and the state’s privatization revenues since the 2008 crisis.

In December, Polish lawmakers approved government plansto shake up the country’s pensions system by transferring private pension funds’ holdings of sovereign bonds to the state, and at the same time ending obligatory contributions to private pension funds.

"Polish institutional investors are focusing on stock they already own rather than buying into new equity, given the uncertainties in the regulatory environment," says Tomasz Witczak, head of equity capital markets in Poland at UniCredit. "They’ve also invested a lot in energy utilities in recent years."

Other utility privatizations – including Tauron in 2011 and PGE in 2012 – have resulted in a majority of shares being allocated to locals. The most recent sale comparable to Energa – a $465 million IPO of state-owned rail freight firm PKP Cargo – involved Polish institutional investors taking just under half of the deal.

In Energa’s case, a majority went to international investors, with the Polish allocation at 42%. The retail tranche was set at 22%. Of the institutional tranche, 20% went to local pension funds, 21% to local mutual funds, 33% to international long-only funds and 24% to hedge funds.

International investors could look to Poland’s relatively bright economic prospects, as an export-led recovery gained momentum towards the end of 2013. "This was a good opportunity for international investors who felt they were underweight in Poland to gain good exposure to the market," says Witczak.

JPMorgan and UBS acted as global coordinators. Other joint bookrunners were Banco Espírito Santo, Bank of America Merrill Lynch, Citi, PKO Bank Polski and UniCredit, with Alior bank, Bank Ochrony Srodwiska, BRE Bank and Ipopema Securities as co-lead managers.