Debt collector's default spooks Polish financial markets


Lucy Fitzgeorge-Parker
Published on:

Former CEO of private equity-owned firm arrested; regulator looks to curb bond sales to retail investors.

The default of debt collector GetBack and the arrest of its former chief executive have dealt a body blow to retail participation in Poland’s capital markets, according to bankers in Warsaw.


Konrad Kakolewski,

Konrad Kakolewski was detained by the country’s Central Anti-Corruption Bureau (CAB) at Chopin Airport on June 17 on charges including fraud, mismanagement and misinformation. He faces up to 10 years in prison if convicted.

The news came less than a year after GetBack completed an IPO on the Warsaw Stock Exchange that raised Zl370 million ($99.6 million) in new capital and the same amount for its shareholders, a private equity consortium led by funds owned by Abris Capital Partners.

GetBack, which has operations in Romania as well as Poland, was also a prolific issuer of short-dated bonds targeted at retail investors. At the time of its default in mid-April, the firm had around Zl2.6 billion of notes outstanding, with the majority held by more than 9,000 individual investors.

Things began to unravel on April 16 when GetBack announced that it was in negotiations with Polish state-controlled bank PKO BP and development fund PFR about a Zl520 million funding facility. Both institutions denied the story, sparking a sell-off in GetBack’s assets and prompting Poland’s financial regulator, the KNF, to launch an investigation into the announcement.


The following day trading in the firm’s shares and bonds was suspended, and GetBack’s supervisory board disclosed that it had dismissed Kakolewski with immediate effect. Deputy chief executive Anna Paczuska also left the firm, along with a member of the supervisory board.

GetBack subsequently confirmed partial non-payment on a number of its bonds, postponed its 2017 earnings announcement and initiated restructuring plans. Bondholders were offered 65% of the value of their debt over a period of six years, with the remainder converted into equity.

Unaudited results released in late May by the new chief executive, Przemyslaw Dabrowski, put GetBack’s losses for 2017 at Zl1.3 billion. A new supervisory board was also convened, including representatives of Abris and independent market experts, and plans to keep core operations going were announced.

Meanwhile the scandal had acquired a political dimension as opposition MPs criticized the ruling Law and Justice Party (PiS) for failing to prevent GetBack’s default.

In mid-June Polish media published leaked excerpts from letters written by Kakolewski to prime minister Mateusz Morawiecki between April 13 and May 8 requesting support for GetBack from state-controlled institutions and alleging that the firm’s default would damage the image of PiS.

It may get serious. The government may go after not only individuals who are close to this but also banks and institutions that were selling GetBack’s bonds 
 - Investment banker

The prime minister’s office responded by publishing the full text of the three letters online and denying any wrongdoing. Three days later Kakolewski was arrested. A Warsaw judge subsequently approved prosecutors’ request for three months’ temporary detention.

A spokesperson for Abris described the arrest as a “significant step” in the investigation and said the firm had been collaborating with the KNF and Polish law enforcement from the very beginning of their proceedings.

“Even though we have applied the best market standards of corporate supervision over the company, unfortunately there are early indications suggesting that we were dealing with the business managed in bad faith,” the spokesperson added.

Speaking shortly after Kakolewski’s arrest, an investment banker in Warsaw said more detentions were possible. “It may get serious,” he said. “The government may go after not only individuals who are close to this but also banks and institutions that were selling GetBack’s bonds.”

His words proved prophetic. On June 26 local media reported that another director of GetBack had been arrested by the CAB on charges of hiding and destroying evidence, while the head of a Polish brokerage house had been detained on similar charges to Kakolewski.

Bankers in Warsaw said the scandal had undermined the reputation of the Polish financial sector. “It’s the first big finance-related collapse we’ve had here,” says one.

“GetBack was the second-largest debt collection company in Poland. It’s owned by a reputable private equity firm, its bonds were sold through very reputable financial institutions and the IPO was run by very reputable banks and brokers. Everyone is affected.”

He adds that retail investors in particular have been “badly spooked”. “It’s a major setback for retail participation in the capital markets,” he says. “The average retail investor will be scared out of the market and even the wealthiest individuals will be extremely cautious. It will take a cycle for people to forget this.”


Locals said the problem was exacerbated by the fact that GetBack bonds were distributed to mass affluent clients through banks rather than brokers. “People were being offered these bonds as an alternative to deposits, but paying 6% instead of 1.5%,” says a Warsaw banker.

The KNF is now looking to limit the number of investors that can be targeted for private placements to 149 per year, as well as restricting banks’ ability to distribute corporate bonds to clients whose funds are covered by Poland’s deposit guarantee scheme.

“Bonds should not be offered to investors who are unaware of investment risk, who purchase these bonds without getting familiar with information about the issuer,” a KNF spokesperson tells Euromoney. “Further actions will be taken in this matter.”

Institutional demand for high-quality corporate bonds is not expected to be affected by GetBack’s default, however. “For the funds and banks that buy bonds from the likes of PKN Orlen, this won’t make a difference,” says a local investment banker.

He adds that this could even include established players in the debt collection sector, such as market leader Kruk. “Individuals obviously won’t touch these bonds, but institutions who have a relationship with these issuers will likely continue to finance them – although they may demand a premium for doing so,” he says.