VZCZCXRO4858
RR RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHWR #1723/01 2201454
ZNR UUUUU ZZH
R 081454Z AUG 07
FM AMEMBASSY WARSAW
TO RUEHC/SECSTATE WASHDC 4929
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHKW/AMCONSUL KRAKOW 1777
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS SECTION 01 OF 02 WARSAW 001723 
 
SIPDIS 
 
SENSITIVE, SIPDIS 
 
DEPT FOR EUR/NCE, EUR/ERA, EEB 
EUR/NCE FOR BPUTNEY 
COMMERCE FOR 4232/ITA/MAC/EUR/JBURGESS, JKIMBALL, MRODGERS 
TREASURY FOR MGAERTNER 
 
E.O. 12958: N/A 
TAGS: ECON EINV ETRD PL
SUBJECT: WARSAW STOCK EXCHANGE BOOMING BUT FACES CHALLENGES 
 
REF:  Septel 
 
WARSAW 00001723  001.2 OF 002 
 
 
¶1.  (U)  Summary:  Until a long-expected correction in July 2007, 
Warsaw Stock Exchanges (WSE) indices have been breaking new records 
and reaching new highs for over three years.  The WSE is central 
Europe's leader in IPOs with 39 in less than 7 months.  The number 
of foreign companies on the WSE is also increasing.  Despite the 
fact that the exchange's status as one of the few state-owned 
exchanges in the EU has proven problematic, the GOP's desire to 
retain ownership and control is strong.   End Summary. 
 
---------- 
Background 
---------- 
 
¶2.  (U)  The Warsaw Stock Exchange is the largest stock exchange in 
Central and Eastern Europe.  As of June 2007, its total market 
capitalization amounted to $322 billion with 314 listed companies. 
The WSE is a member of the World Federation of Exchanges and the 
Federation of European Securities Exchanges.  Stocks, bonds, 
subscription rights, allotment certificates, investment 
certificates, and derivative instruments, futures, options and index 
participation units actively trade on WSE. 
 
--------------------------------------- 
Organizational and Regulatory framework 
--------------------------------------- 
 
¶3.  (U)  The Warsaw Stock Exchange is a non-profit joint-stock 
company founded by the Polish State Treasury.  The company has a 
share capital of PLN 41,972,000 ($ 15,425,211.32) divided into 
59,960 registered shares.  At the end of June 2007, WSE's members 
included 39 entities including banks, brokerage firms, an Exchange 
company and the State Treasury.  The General Meeting is the WSE's 
highest decision-making body.  Its role is to implement changes to 
the Statutes and Rules and to elect members of the Supervisory 
Board.  It consists of representatives of the State Treasury, banks 
and brokerage houses and WSE's shareholders.  The Supervisory Board 
controls the operation of the exchange, admits securities for 
trading, and grants and recalls stock exchange membership.  It 
consists of 12 members appointed by the General Meeting.  The 
Management Board co-ordinates the WSE's day-to-day operations.  The 
Management Board consists of five members.  The President, elected 
by the General Meeting for a three-year term, directs Management 
Board activities. 
 
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History 
------- 
 
¶4.  (U)  The WSE was established in 1817 and was the first stock 
exchange in Poland.  It was closed with the outbreak of the 2nd 
World War.  Attempts to reactivate the WSE operation after 1945 
failed under the Communist regime.  It was reestablished by the 
State Treasury on April 16, 1991.  At the same time, the Polish 
Securities Commission, with a chairman appointed by the Prime 
Minister, was created.  The legal framework establishing the WSE and 
capital markets activities, the Act on Public Trading in Securities 
and Trust Funds, was adopted in March 1991.  From the 
reestablishment of the WSE, electronic paperless trading was 
utilized.  On the first trading day only 5 stocks were listed with a 
turnover of $2,000. 
 
----------------------------------- 
Warsaw Indices Breaking New Records 
----------------------------------- 
 
¶5.  (U)  2006 was the third subsequent year that the WSE's main 
indices achieved positive rates of return.  The index of the 
smallest listed companies, the sWIG80, recorded the highest return 
of 132%.  The runner up was the mWIG40 with a growth rate of 69%. 
The broad market index, the WIG, climbed by 43%, while the WIG20, 
the index of major companies grew by 24% throughout the year. 
 
-------------------- 
Warsaw as IPO leader 
-------------------- 
 
¶6.  (U)  With its 20 IPOs in the second quarter of 2007, the WSE 
ranked second in Europe for new issues after the London Stock 
Exchange which posted 36 IPOs.  The WSE expanded drastically in the 
first half of this year.  There have been 39 IPOs year to date, more 
than the 38 IPOs recorded in 2006.  The two IPOs issued in late July 
set a new WSE record of nine IPOs in a single month, beating the 
previous  record set in July 2005 of six IPOs.  The value of this 
 
WARSAW 00001723  002.2 OF 002 
 
 
year's IPOs has been close to PLN 16 billion ($ 5.87 billion), 
including PLN 13.7 billion ($5.03 billion) of new share issues. 
This sets a historical record for the WSE as the value of IPOs in 
the record-breaking year 2004 was PLN 13.1 billion ($4.81 billion), 
including only PLN 1.5 billion ($.55 billion) of new share issues. 
Mr.Sobolewski, the President of the WSE, predicts that the WSE may 
host 60 IPOs this year.  However, with 39 IPOs already launched and 
many more in the pipelines, that estimate may be conservative. 
 
------------------------ 
Foreign company presence 
------------------------ 
 
¶7.  (U)  The presence of foreign companies on the WSE is increasing. 
 Mr.Sobolewski is upbeat about the WSE's future activity as five 
more foreign companies are expected to list this year.  He notes 
that the WSE may have more foreign listings before the end of the 
year than all companies listed in Vienna combined.  There are 16 
foreign companies listed on the WSE as of July 24, 2007. 
 
----------- 
GOP control 
----------- 
 
¶8.  (SBU)  The current GOP's desire to retain ownership of the WSE 
as a strategic asset is unwavering.  The State Treasury's stake is 
currently 98.81%, which Mr. Sobolewski described as an "exotic 
structure".  The WSE's status as one of the few state-owned 
exchanges in the EU has been nothing but problematic for the 
institution.  State ownership was the key reason that the WSE lost a 
bid to purchase the Vilnius exchange.  (The private Nordic exchange, 
OMX, won the bid.) 
 
¶9.  (SBU)  The Polish government has been considering selling a 
minority stake of approximately 40% in the exchange, possibly later 
this year.  However, Treasury Minister Jasinski is only interested 
in selling to Polish investors.  The European Commission recently 
told the GOP that it may not discriminate among EU Member States. 
This played into President Sobolewski's hands as he supports 
privatization.  Sobolewski told us that "we have to aggressively 
strengthen our position.  We can't think of ourselves as only a 
national market."  Sobolewski plans to buy stakes in other central 
European exchanges in addition to brining in new listings from other 
countries in the region.  Market analysts agree that it is important 
for the WSE to expand, especially to be able to attract Polish firms 
which are large enough to list on bigger and more liquid regional 
exchanges. 
 
-------------- 
Vienna Rivalry 
-------------- 
 
¶10.  (SBU)  The Vienna stock exchange is Warsaw's biggest rival due 
to its similar size and regional expansion plans.  Sobolewski 
questions whether Vienna even belongs to the CEE region.  However, 
he stresses that Warsaw has a leg up on Vienna due to its "special 
expertise in former communist countries transitioning to 
capitalism."  Market analysts agree that his ambitions for expansion 
are realistic and stress that Warsaw is a more natural place for 
Ukrainian or Bulgarian firms to list, as Vienna is perceived as a 
Western exchange. 
 
------- 
Comment 
------- 
 
¶11.  (SBU)  The WSE has been crucial in building the foundations of 
a market economy in Poland over the last 17 years.  Listings and 
prices have been booming as Polish pension funds can invest up to 40 
% of the value of their assets in shares in Poland.  However, the 
WSE CEO's dream of becoming the main regional stock exchange will 
only come true if the GOP allows a partial privatization.  In the 
current political situation there seems little likelihood the 
current GOP will give up control of the WSE as it is considered one 
of its most important institutions. 
 
Hillas