WARSAW As a Financial Centre

www.ft.com/warsaw-finance-2012 | twitter.com/ftreports

Inside this issue Real estate Buoyant growth gives city clout Lack of office space spurs foreign Jan Cienski notes that one of the biggest and oldest groups to firms in the crowd in has been more region. “One needs to approach Page 2 successful than most other countries in the region more selectively. It’s the most The stock exchange regional rivals in liquid hub. If you want to do an Bourse promises a sharper developing a sector IPO in the region, you have to eye on small listings look at Warsaw.” Page 2 with a wider reach However, deal size is much smaller than in western Europe, Banks Conservatism has resulted in relative strength n international finan- a reflection that the companies Page 2 cial centre is seen as that have grown up in the the hallmark of a seri- region in the two decades since Privatisation State takes ous country – which is the end of communism have not strategic approach Awhy emerging economies from yet reached the scale of their to sell-offs Page 3 South Africa and Brazil to Rus- rivals from wealthier countries. sia, Turkey and Poland are all That keeps big international M&A The lack of credit is trying to build up their financial and pan-European groups on the likely to prompt a wave muscle. sidelines, dipping into Poland of consolidation Page 3 Poland has been more success- when the rare huge deal comes ful than many central European up, but otherwise leaving the After hours Frogs’ legs rivals in creating a sector that sector to local firms. and football has wider than national signifi- Last year, more than half of (left) are cance. In fact, Warsaw has left private equity spending in the on the other central and eastern Euro- region was on Polish assets and, menu. pean (CEE) capitals such as when firms turn to investors to Increasing Budapest and far behind raise funds, it is the country’s wealth has and, by some metrics, has economic strength that makes transformed the bleak grey city that passed Vienna. their pitches attractive. emerged from the soviet A significant factor in While private equity capital era Page 3 Poland’s growing financial clout roams the region looking for is its above-average growth. deals, the rest of the financial Fiscal policy The As the finance ministry never sector based in Warsaw is more government aims to extract tires of pointing out, Poland has limited in its reach. more tax alongside gas shown the most resilience of About two-thirds of the coun- Page 3 any EU country in the crisis. try’s banks are owned by for- Between 2008 and 2011 the eign groups, and their Polish Private equity Firms hope economy grew by 15.7 per cent, subsidiaries focus exclusively founders are willing to while the average for the EU on the Polish market – which stand down – at the was a 0.5 per cent contraction. means headquarters and the moment, the market tends The European Commission esti- bulk of pan-European analysts to be dominated by a few mates the economy will grow by Warsaw has become a regional hub for private equity Dreamstime and decision makers are based large transactions Page 4 2.7 per cent this year. in cities such as Milan, Frank- Poland’s biggest international tries, where the German-style exchanges, along with , ists educated in Polish universi- salaries than financial profes- furt and Vienna, not Warsaw. Business education financial success is the Warsaw system of bank-led capitalism Istanbul or Oslo.” ties – has grown up around the sionals in Lisbon or Madrid. The largest local bank, the Employers Stock Exchange, which now prevails. Its eagerness to attract list- WSE. Rodrigo Carvalho, the Warsaw has also become a state-controlled PKO BP, hoped are sceptical accounts for more than half of The Warsaw bourse is also a ings – it regularly leads the Poland director for Portugal’s regional hub for private equity. to become a regional business about the ’s share trading conduit for Poland’s interna- European rankings for initial Espirito Santo Investment Bank, The largest CEE funds tend to but expansion plans fizzled. value of an volume. tional financial ambitions, as public offerings – have caused says: “You have all the global have their headquarters in the Polish banks are more solid MBA. Some The exchange plays a big part increasing numbers of regional some problems, and the authori- players and a decent number of Polish capital, although they do than many in the eurozone. Tier schools link in the country’s financial sys- businesses choose to list there. ties are promising to focus more regional [ones], such as ING, also have representative offices one capital, a metric of a bank’s with foreign tem, and the option to go into The exchange even has an index on liquidity and quality. Deutsche Bank and Erste Group in cities such as Prague, Buda- financial strength, is 12 per institutions the market to obtain capital of Ukrainian companies. An ecosystem of traders, ana- on the scene in Warsaw.” pest and Bucharest. cent, well above international to underpin quality and enters into the calculations of Ludwik Sobolewski, the chief lysts, accounting and law firms He adds that his office has “Poland is very attractive,” requirements, and borrowers credibility Page 4 companies to a much larger executive, says: “I would like us and investment banks – who are only two non-Poles and 53 says Robert Manz, a managing degree than in other CEE coun- to be seen as one of the big increasingly hiring local special- locals, who tend to earn higher partner of Enterprise Investors, Continued on Page 2 2 ★ FINANCIAL TIMES WEDNESDAY MAY 23 2012 Warsaw as a Financial Centre Bourse promises a sharper eye on small listings Buoyant growth fourth largest IPO in Europe. Avtech Aviation & Engineering, plans for secondary offerings of tem last year saw some starting to issue debt, some- The stock exchange But as the numbers show, one a British company that saw its shares in large state-controlled resources diverted from priva- thing the financial services reg- large deal, such as JSW, can shares fall by 44 per cent on companies, such as PKO BP, the tised pension funds back into ulator favours, as it reduces reli- gives A rush of inadequately account for more than half of New Connect after its IPO last country’s largest bank, whose the state system – as a way of ance on short-term deposits. prepared companies IPO liquidity. summer. Trading in its shares secondary offering worth about reducing public debt. It was Andrzej Jakubiak, head of the There are numerous smaller was later halted, after it was 10bn zlotys (€2.3bn) was can- thought this would create prob- Polish Financial Supervision could tarnish a businesses, especially on the revealed the company had not celled last year because of mar- lems because the pension funds Authority, says: “If we can get city clout reputation for care and alternative New Connect mar- given information about its debt ket volatility. are largely limited, by law, to 20 per cent of assets to be long- ket. This pulled in 172 listings in in listing documents. Henning Esskuchen, co-head Polish investments and have er-term in 5 years, that would Continued from Page 1 a methodical approach. 2011, more than half the EU Mr Sobolewski wants to of CEE equity research at Aus- been a leading contributor to improve managing liquidity,” Jan Cienski reports total. However, those listings ensure that a rush of inade- turnover on the WSE. Trading on Catalyst, which are doing a better job of repay- had a value of only €133m. quately prepared companies to However, raising the percent- amounted to 579m zlotys in the ing their debts than most of Ludwik Sobolewski, WSE’s the market does not tarnish the ‘Foreign investors age of their assets that the first quarter, is still fairly thin, their peers elsewhere in the Too much growth can some- chief executive, who spends WSE’s reputation. account for about funds could invest on the but is growing. Turnover in the region. times be a bad thing – as the much of his time touring the Thanks to careful regulation exchange, has meant the market first quarter of 2010 was only But banks are increasingly Warsaw Stock Exchange, with region trying to drum up list- and a methodical approach to 50 per cent of the did not suffer a shock. 179m zlotys. reluctant to lend, a policy par- its big appetite for attracting ings from Russia, Ukraine, the building capital markets, the market but they are As it has developed, the WSE This year will also see one of tially driven by decisions taken listings to its main and alterna- Baltic countries, the Balkans bourse plays a much larger role has moved away from reliance the biggest changes in the func- in non-Polish headquarters, as tive markets, is finding out. and Israel, admits that the in the national economy than do only interested in the on equities, creating a mercan- tioning of the exchange, as it foreign institutions build up The WSE has long been one of exchange needs to slow down stock exchanges in most of the tile exchange, a bond market abandons its old trading system their capital. the EU’s top exchanges for new this kind of activity, especially rest of central and eastern most liquid stocks’ called Catalyst and buying an and in November adopts a plat- Bankers’ caution has an listings. In 2011, the main mar- listings of smaller and less liq- Europe. energy trading exchange. It has form built in co-operation with impact on real estate developers ket saw 31, up from 26 in 2010, uid companies that are less Nonetheless, the WSE has tria’s Erste Bank, says: “Foreign also welcomed exchange traded NYSE Euronext, the owner of and on Polish borrowers who with a total value of €2bn, sec- interesting to institutional been hit by the same flight from investors account for about 50 funds. New York Stock Exchange. find it more and more difficult ond in Europe after the London investors. risk that has affected other per cent of the market, but they The country’s corporate bond The new platform is part of to get a mortgage. “Both bank- Stock Exchange, which had 39 “We are going to raise the bar exchanges. Turnover fell by 16 are only interested in the most market is still small, but is Mr Sobolewski’s long-term plan ers and borrowers are much IPOs with a deal value of €13bn. a bit on New Connect, which per cent to 59bn zlotys (€13.6bn) liquid stocks.” growing strongly as companies, to modernise share, bond, treas- more aware of risk,” says The most prominent of War- may slightly slow the flow of in the first quarter of the year, The government’s attempts to mainly property developers, uries, derivatives and ETF mar- Andrzej Jakubiak, head of the saw’s new listings was Jastrzeb- new companies,” he says. although most other European navigate its way through the issue debt as an alternative to kets; building the bourse’s inter- country’s financial regulator. ska Spolka Weglowa, a coal One of the factors that has exchanges fared even worse. crisis have also affected the the financing that banks are national position and its infor- Poland also lacks some of the miner privatised by the govern- encouraged more vigilance was Volume should pick up if the stock exchange. now reluctant to provide. mation, sales and settlement institutions and investors ment, which raised €1.3bn, the last year’s scandal surrounding government implements its A reform of the pension sys- Banks themselves are also infrastructure. needed for a robust financial sector. One significant gap is the reluctance of local pension funds to get involved in areas such as private equity, prefer- ring instead to focus their atten- tion on government bonds and on equities traded on the Conservatism exchange. “There are a lot of countries that want to have international financial centres, but you need has resulted in two things for that to happen; a huge stock of savings and high levels of trade,” says Mert Yildiz, emerging market analyst with Renaissance Capital, a relative strength Russian investment bank. Although Warsaw has many more amenities than it had two as investors fled “emerging mar- decades ago – as the growth of Banks kets” and, as a result, hundreds decent restaurants and hotels of thousands of Poles now owe attests – it still lags behind Good headline figures more on their mortgages than Vienna as a city with interna- mask what could yet the value of their properties. tional draw. be a tricky year, The regulator began clamping down on foreign exchange mort- ‘Warsaw is becoming argues Jan Cienski gages even before the crisis and has made clear that it would a hinge between east like to see very few such loans Polish banks had their best year issued – advice that most banks and west – between ever in 2011. And despite wor- are now following. western capital and ries that a credit crunch in “We indicate in our regula- western Europe, problems with tions and supervisory actions eastern companies’ parent groups, a slowing econ- that this is not a product that is omy and tougher lending acceptable for us,” says Mr requirements by regulators Jakubiak. As a result, the Austrian capi- would damp prospects for 2012, Despite those problems, most tal is more likely to serve as a all the indications are that this Poles are still managing to pay base for Russian millionaires year will also be strong. off their loans – only 2.5 per and Balkan oligarchs, who also “Banks are being cautious, cent of mortgages are at risk. do their financial business but this shouldn’t be a bad Although new foreign there. year,” says Krzysztof Pietraszk- exchange loans are now rare, While the Vienna stock iewicz, the head of the Polish they still make up almost 60 per exchange has been bypassed by banking association. cent of outstanding mortgages the WSE, the city has remained The sector reported a record and the worry is that, if the the regional headquarters of a profit of 15.7bn zlotys (€3.6bn) in economy slows or unemploy- large banking sector that plays 2011, 37 per cent more than in ment rises, more borrowers will a leading role across CEE. 2010, and first-quarter results get into trouble. As a result Vienna is much for this year show that the “The Swiss franc will con- higher than Warsaw in the country’s banks are continuing tinue to weigh on those banks annual ranking of international to do well. that issued a lot of such loans. financial centres by Z/Yen But the good headline figures That will be the case for the Group, a think-tank. In the 2011 will be produced largely by next decade,” says Michal Hul- listing, Vienna was 34th while increasing fees and provisions, boj, an analyst at Austria’s Warsaw came 54th of 77 finan- finds a survey conducted by the Erste Group bank. cial centres. Polish Financial Supervision Still, Polish banks, which This is not to say Poland’s Authority (KNF), the regulator, have a tier one capital ratio of capital city does not have poten- and they mask what is likely to 12 per cent, are solid compared New heights: last year saw the completion of about 700,000 sq m of retail space in Poland Bloomberg tial. Two decades ago, the be a difficult year overall. with those in many west Euro- thought that Warsaw would be Under pressure from the KNF, pean countries, in large meas- home to the region’s largest which wants to ensure banks ure because – aside from foreign stock exchange and its skyline shore up their capital, many are currency loans – the sector is would be punctuated with making it harder to borrow. very conservative. Lack of office space spurs gleaming office towers filled Open Finance, a mortgage It takes deposits, issues loans with financial professionals consultancy, reports that the and steers clear of high risk would have seemed laughable. value of mortgage applications investments, such as mortgage- A large population, entrepre- it dealt with in the first quarter backed securities or Greek gov- neurial spirit and faster than fell almost 25 per cent compared ernment debt. foreign groups to crowd in average economic growth all with the same period in 2011. Another risk comes from the lend increasing weight to the Mr Pietraszkiewicz estimates fact that 65 per cent of banks financial sector. that this type of lending could are owned by foreign groups. Before the crisis, banks would saw is starting to push into an Europe before the crisis – the “Warsaw is becoming a hinge fall by as much as 10 per cent They were instrumental in pro- Real estate lend 75 per cent or more of interesting category to invest Spanish and Irish were particu- between east and west – over the year. viding capital and knowhow to the cost of a development, many in.” larly enthusiastic participants – between western capital and In an attempt to rein in costs build a modern sector, but now German and Austrian of which were built on specula- In the first quarter of this has now become a purely eastern companies,” says and remain competitive in a the troubles of overseas parents funds have joined the tion. year, commercial transactions national market, with develop- Mikolaj Budzanowski, the treas- tightening market, medium- could rebound on Poland. Now, they are often unwilling came to €728m. Almost all of ers selling directly to homebuy- ury minster. sized Polish banks are laying off Several foreign institutions UK, US and Spain to lend much more than 50 per this came from foreign inves- ers. thousands of workers and shut- have had to sell off their Polish in taking advantage cent, and a project must show a tors, with retail properties domi- There is no sign that foreign ting branches. operations after being rescued high level of pre-lease or pre- nating; analysts expect the total investors, who have been hit by Property developers are find- by their home governments, of strong growth, sales to attract a banker’s inter- figure for the year to be similar the general decline in house Contributors ing it very difficult to obtain including Allied Irish Banks, says Jan Cienski est. to 2011. building and buying across the Jan Cienski financing for speculative which sold its Bank Zachodni Last year saw the completion “This year and next are look- continent, will be returning to Warsaw Bureau Chief projects, and some have turned WBK affiliate to Santander. The of about 700,000 sq m of retail ing pretty grim in the rest of the Polish market soon. to financing construction out of Spanish group went on to buy space around the country, more Europe,” says Nikos Koulouras, The sovereign debt-induced Adam Easton their own pockets or by issuing Kredyt Bank from Belgium’s he Warsaw skyline has than in 2010, but less than in director and head of real estate gloom in western Europe is also FT Contributor corporate bonds. KBC, creating Poland’s third a feature that has 2009 – the level for 2012 should at Salamanca Capital, a London- casting a shadow on some The KNF is also pressing largest banking group. almost disappeared from be similar. based investment group that aspects of the real estate Liam Nolan FT Contributor banks to pay out less in divi- Polbank, the Polish subsidiary the panorama of many There were 120,000 sq m of has property interests in War- market. dends. Andrzej Jakubiak, its of Greece’s Eurobank EFG, was TEuropean cities: cranes. offices built, the lowest level saw and nearby Lodz. One area of risk is the Kamil Tchorek head, says: “We are living in sold this month for €460m to These physical signs show since 1998, and almost all of “But in Poland, there is a sharp currency fluctuations as FT Contributor conditions of quite large uncer- Austria’s Raiffeisen. that, despite increasing caution them in Warsaw. huge appetite for anything investors move into or out of tainty. Capital is the best Regulators also worry that among banks in funding devel- This year, office completions the zloty, depending on how Ursula Milton buffer.” foreign parents could try to opments, the Polish capital has are expected to come to about they feel about the riskiness of Commissioning Editor There is also the aftermath of drain liquidity from their Polish continued to attract large build- 230,000 sq m, while 2013 should ‘In general, the Poland the wider CEE region. an overheated real estate mar- operations, although that did ing projects. see about 330,000 sq m, as build- That can have a knock-on Steven Bird Warsaw office market Designer ket that ended with the collapse not happen in 2009, and has not The most prominent is Zlota ers take advantage of low is quite tight. But only effect on the retail sector. While of Lehman Brothers in 2008 to happened this year, despite a 44, a largely residential tower vacancy rates to push through customers pay in zlotys, almost Andy Mears deal with. Until then, mortgages rush by eurozone banks to meet designed by Daniel Libeskind, a new projects. builders with equity all shops in modern develop- Picture Editor denominated in foreign cur- tougher capital requirements. celebrity architect who has Brian Burgess, managing ments in city high streets or rency were very popular Moreover, the strong economy Polish roots. This “topped out” director of the Polish office of can even think of shopping malls pay rent in For advertising details, because they were cheaper than and the solid profits of the sec- at 54 stories this year after Savills, the real estate agency, starting projects’ euros. contact: zloty loans thanks to lower tor continue to draw in years of delays caused by the says: “In general, the Warsaw If the zloty loses more ground Jim Swarbrick on: interest rates in the entrants. A Chinese bank crisis-induced financial troubles office market is quite tight. But against the euro, retailers could +44 (0)20 7873 3708; eurozone and recently received permission to of Orco, its Luxembourg- only builders with equity can ‘prime’. Investors are especially have a problem paying their email: [email protected] in Switzer- operate in Poland, while Rus- registered developer. even think of starting projects.” interested in central Warsaw.” rents or could start to demand or your usual representative land. sia’s Sberbank, which bought “There are fewer and fewer Investor interest is still The popularity of retail prop- rebates. H o w - most of the regional opera- projects like this in [central and largely limited to office develop- erty resides in its ability to gen- Financing from banks is All FT Reports are available on ever, the tions of Austria’s Volks- eastern Europe] because there is ments in the Warsaw business erate a steady stream of cash. another worry. So far, they have FT.com c r i s i s bank International, has less and less financing,” says district and to retail properties. Polish consumers have proved been particularly willing to help Go to: www.ft.com/reports ended the expressed interest in a Jean-François Ott, Orco’s chief Last year saw transaction vol- remarkably resilient in the face provide money for transactions z l o t y ’ s possible Polish acquisi- executive. ume of €2.5bn, compared with of the crisis and have gone on that generate cash, such as Follow us on twitter at s t e a d y tion. Mr Ott went, as he says, “to about €2bn in 2010 and the high- shopping. retail. www.twitter.com/ftreports apprecia- hell and back,” to extricate his est since 2007, as German and “We are active in retail [prop- But increasing demands from t i o n . Krzysztof Pietraszkiewicz: indebted company from bank- Austrian property funds joined erty] and we see really strong regulators that they increase All editorial content in this Instead it ‘Banks are being ruptcy proceedings and line up investors from the UK, US and interest in Poland,” says Rachel their capital cushions, combined supplement is produced by the f l u c t u a t e d cautious but this the financing needed to finish Spain taking advantage of Lavine, chief executive of with problems at the foreign FT wildly or shouldn’t be a the tower. Poland’s healthy economic Atrium European Real Estate, parent groups that own about dropped, bad year’ The developers of other growth to seek out deals. which has a €2.1bn portfolio two-thirds of the Polish sector, Our advertisers have no projects have to have sufficient Colin Dyer, chief executive of mainly in Poland and the Czech could make it even more diffi- influence over, or prior sight of, resources of their own to fund Jones Lang LaSalle, the prop- Republic. cult to get financing. the articles or online material the works, so as not have to erty group, comments: “They’ve Residential real estate, which “Banks will only lend for good scare the banks by applying for got a lot of cash and, after Lon- was a popular asset class for projects and to companies with credit. don, Paris and Frankfurt, War- medium-sized investors across a good record,” says Mr Ott. FINANCIAL TIMES WEDNESDAY MAY 23 2012 ★ 3 Warsaw as a Financial Centre State takes Liquidity issues may strategic force deals

85 per cent of these share- approach M&A holdings, including power generators Enea and Tightness of credit Energa in their entirety, is likely to and has already sold some shares of PGE, the largest prompt a wave power company, regarded to sell-offs as a strategic asset. of consolidation, An attempt by Turkish finds Liam Nolan Airlines to acquire Lot coal, energy, finance and copper Polish Airlines, which is 93 Privatisation mining, not allowing its holding per cent controlled by the in those companies to drop below Twenty years ago, Poland’s government, may be a sign There will be more 25 per cent. of things to come. disposals this year but, Also unlikely to ruffle many market was worth a mere ZE PAK, one of the larg- feathers is the planned initial trickle. est national utility and notes Jan Cienski, the public offering of PHN, a com- However, the rapid devel- power companies, is negoti- treasury is hanging on pany that groups many of the opment of a free-market ating the purchase of two government’s property holdings, economy after the fall of state owned mining compa- to stakes in coal, energy which could raise as much as 3bn communism, the develop- nies from the treasury. and finance companies zlotys for the treasury. ment of a string of regional Lejb Fogelman, senior However, that sale could be private equity houses and partner at the Warsaw complicated by the diversity of the arrival of international office of Dewey & LeBoeuf, ikolaj Budzanowski the company’s holdings, which investment banks have a law firm that is represent- rules a rapidly range from undeveloped land to turned Warsaw into a cen- ing ZE PAK and has shrinking empire, as aged office buildings and residen- tral and eastern European worked on many of the the Polish treasury tial villas, and also by low valua- hub for M&A. country’s high profile M&A Mminister continues with the gov- tions for Polish real estate. News of last year’s €4.8bn deals – believes this year ernment’s long-term plan of shed- Easier sales should come in the sale of Polkomtel, a tele- will see more public to pri- ding most of its ownership stakes form of secondary offerings of communications company, vate acquisitions “simply in state-controlled companies. powerful local companies such as to Zygmunt Solorz-Zak, the because prices are good”. Last year under Aleksander PGE, the leading energy com- billionaire entrepreneur, A number of construction Grad, Mr Budzanowski’s predeces- pany. The government raised attracted attention across businesses – bogged down sor, the government sold 13bn zlo- 2.5bn zlotys by selling a 7 per cent Europe. It was the conti- in delivering underpriced tys (€3bn) of a planned 15bn zloty stake in PGE in February. nent’s largest leveraged motorway tenders for the sale of state property, with the Also planned are sales of small in 2011. Understand- Euro 2012 football tourna- most significant being the initial stakes in PKO BP, the leading ably, leading international ment – have suffered a public offering of Jastrzebska bank, and PZU, the country’s larg- funds have kept a close eye mauling on the Warsaw Spolka Weglowa, the country’s est insurer, to ensure the govern- on Poland since. Stock Exchange since Janu- largest coking coal producer. ment does not lose control. There are promising signs ary, some recording share The sale raised 5.4bn zlotys for In some cases, political and eco- for 2012 and some large price falls of more than 40 the government and 57 per cent of nomic complications have made a transactions have been per cent. the company remained in state transaction impossible. Lotos Group is the second-largest oil refiner. It is not for sale at the moment, says the treasury minister Bloomberg sealed. In February, BNP “The industry has trou- hands. Lotos Group, the second-largest Paribas and Rothschild bles and is overindebted”, This year’s target is 10bn zlotys oil refiner, has long been on the trapped in shale rock formations. “I certainly want to complete it closed a €2.1bn acquisition says Jacek Radziwilski, in privatisation proceeds, of block, but when very few offers This could transform the coun- this year,” Mr Budzanowski says. of Canadian mining group head of UniCredit in which the ministry has already came in, the ministry decided to try's energy situation and make it Poland’s struggling national Quadra FNX on behalf of Poland, who believes the achieved 3.1bn zlotys. The goal for halt the sale process late last self-sufficient. airline Lot, which last year KGHM, the Polish copper need to restructure will 2013 is 5bn zlotys. In all, about 300 year. “Lotos has some shale gas con- reported a loss of 146m zlotys, and silver producer. make the construction sec- companies will be sold. Before this, the only companies cessions that need to be adminis- is also scheduled for sale this year However, most of War- tor a target in 2012. “Our [run] of offerings is that had expressed interest were tered,” says Mr Budzanowski. – Turkish Airlines is the most saw’s investment bank Mr Pawlowski says a shrinking and in the near future Russian, which would have cre- Another politically tricky trans- active bidder. Analysts believe executives agree that deals it will end,” says Mr Bud- ated acute political difficulties action was the sale of Enea, the Lot could be worth as much as of this grand size are not on zanowski, whose voice is nearly because of Poland’s still compli- third largest power generator. 2bn zlotys. the cards for 2012. ‘There is no drowned out by workers from a cated relationship with its former The ministry pulled out of final Mr Budzanowski is continuing Lukasz Pawlowski, head appetite to return state controlled sugar company imperial master. talks with Jan Kulczyk, the coun- with the ministry’s longstanding of M&A at the Warsaw who are shouting slogans and set- “Lotos is not for sale at the try’s wealthiest man, at the last strategy of pushing as many pri- office of Portugal’s Banco to large bank deals, ting off fire crackers outside the moment,” says Mr Budzanowski, moment in late 2010, but Mr Bud- vatisations as possible through Espírito Santo, suspects buying big balance ministry in protest at the planned a technocrat who took over as zanowski now says Enea will be the Warsaw Stock Exchange as a that the vast majority of sale of their company. minister late last year. In some cases, sold this year. way of ensuring liquidity and the transactions this year will sheet exposures’ Some of the transactions are The refiner is being directed to political and The minister is also determined steady flow of large initial public be between €20m and €80m uncontroversial, such as the 8.5m combine forces with other energy to push through the final sale of offerings that have made the WSE but that the number of zloty disposal this year of a horse and state controlled companies to economic the chemical sector; past efforts the region’s largest. deals will be similar to 2011. “general lack of liquidity” farm, or the planned sale of a help in the extraction of “shale complications to dispose of the companies have The exchange itself was priva- The predominance of will most probably create health spa. gas”. been hampered by a lack of inves- tised via an IPO in 2010. medium-sized deals since deal flow, as construction In other areas, the government New drilling and extraction have made a tor interest, but the hope is that “We are interested in the January makes it “difficult companies “may be forced has decided to hang on to 47 com- techniques are helping unlock the sector’s revival after the crisis aggressive expansion of the to find any particular pat- to divest operations”. panies in strategic sectors such as huge reserves of oil and gas transaction impossible will spur bids this time. WSE,” says Mr Budzanowski. tern” in the market says Technology, media and Jacek Chwedoruk, manag- telecoms, which accounted ing director of Rothschild in for 35.3 per cent of acquisi- Poland. tions in 2011, is also likely He believes a number of to see further consolidation. transactions will be spread The word is that Netia, over fast moving consumer the Polish-Icelandic tele- goods, telecommunications, coms company with a mar- Frogs’ legs and football are on the menu industrial manufacturing ket value of 386m zloty, and utilities. could be put up for sale this Heinrich Pecina, a founder stock response when wealthier parts of the Legia, a premier league of Poland’s Jews – 10 per According to DealWatch, year. After hours of Vienna Capital Partners, customers tried to order continent. team. Across the river is cent of the population the average value of an The recent sale of 70 per a most items on the menu. U Kucharzy, a restaurant the enormous new national before the war against 0.08 M&A transaction in Poland cent of Polbank by Greece’s Increasing wealth advisory company. “This More than two decades in a bustling former hotel stadium – where the Euro per cent (30,000) today – increased significantly from EFG Eurobank to Raiffeisen place has really changed.” of capitalism have kitchen is a particular 2012 football championship and a modern art gallery €18.1m in 2009 to €36m in Bank for €490m might be has transformed Mr Pecina should know. produced a transformation. favourite of visiting kicks off next month – are under construction or 2010. seen as indication that the bleak grey city He helped arrange the Nowadays, this city of business groups, while designed to be a skyline- being planned. Last year, despite the more activity in the bank- financing that led to the more than 2m offers many Robert Mielzynski’s wine dominating red-and-white Shoppers can find Polkomtel deal, the average ing sector will follow. that emerged from completion of the LIM of the amenities common bar has bottles sourced play on a traditional Polish modern malls in almost value dropped slightly to Not so, thinks Mr the soviet era, building in 1989, Warsaw’s in western Europe, but wicker basket. every district. The per €33.9m. The total number of Chwedoruk, who says that first modern hotel and spiced up with a bit of the Five years ago, the site capita shopping area is not deals was 516 last year, overall, “there is no appe- writes Jan Cienski office development and a energy that goes was a ruin with far off the west European down from 581 in 2010. tite to return to large bank project the bankrupt with life in a cracked seats and average and, as Poland has Marek Sawicki, partner in transactions and big bal- A group of waiters swoop communist government fast-growing an abandoned become wealthier, retail the Warsaw corporate ance sheet exposures”. in unison towards a table, had left half-finished, a emerging pitch that premises are going department at CMS Cam- He predicts transactions sliding plates containing a symbol of its economic market. housed upmarket. eron McKenna, the law will occur around the “out- soup of frogs’ legs, fennel mismanagement. Dug-up Europe’s largest The new Wolf Bracka firm, believes “there will be skirts of financial institu- and chard in front of At that time, Warsaw streets that open-air flea building looks like a some movement in the tions”, among technology diners. The eight-course was a grey city, where the mark the market. granite and glass ocean cable television sector”. and specialised meal is finished with winter air had the tang of path of the Moving to more liner and has Gucci, Last year, the cable TV firms, for example. spruce ice cream on a bed coal-fired heating, horses new east-west static forms of Bottega Veneta, Yves Saint industry saw UPC buy Many investment bank of edible earth. were occasionally seen underground entertainment, the Laurent and Diesel outlets, Aster for 870m zlotys chiefs say that the first four All part of a “normal” clopping along suburban line, as well as best museum is that among others. (€200m). The sector is months of 2012 have been dinner at Atelier Amaro, roads and where there highway projects on the devoted to the 1944 Marcus Bernie, managing tightly packed and there relatively slow, but that one of the Polish capital’s were certainly no modern outskirts, have created uprising against the director of Salamanca are four main providers. activity is heating up. top new restaurants, whose offices. traffic chaos and show that from around the world. Germans that ended with Capital Investments One of the largest, Multi- However, the question chef Wojciech Amaro Most people lived in this is a city still under For non-foodies or those 200,000 killed and left Poland, a property media Polska, is reported to remains whether banks in recently won the country’s dilapidated concrete construction. But the foodies who also enjoy Warsaw in ruins. investment group, be up for sale, with the ven- Warsaw are large enough to first Michelin “rising star” apartment blocks and the progress is unmistakable. other pastimes, Warsaw A museum of the history comments: “That’s the dors expecting to receive shepherd deals through on award for his molecular first phrase foreigners Mr Amaro’s restaurant is has two new sports kind of thing you'd expect between €500m and €700m. their own, or if they will cuisine. learnt when they visited only one of a host of stadiums. On the west side The new national stadium is to see in London’s Mayfair The treasury ministry, have to turn to London or “It’s hard to believe I’m restaurants was nie ma – amenities that would not of the Vistula river is the designed to resemble a – it shows how the city is which has stakes in many New York for technical in Warsaw,” marvels “we don’t have it”, the be out of place in new 31,000-seat home of traditional wicker basket evolving.” big companies, plans to sell skills. Government aims to extract more tax alongside gas

is forging ahead with explo- the moment. The total tax regime will probably whether any of these areas talk of open tenders for pro- The uncertainty ahead of “There’s too much poli- Fiscal policy ration, as opening up the rate for conventional oil include a combination of an can be made commercial duction licences. the government’s an- tics involved and the indus- reserves could be a blessing and gas production is less exploitation fee, corporate and that involves a lot more The more than 100 explo- nouncement is giving try pays the price.” There is no specific as the country is currently than 21 per cent and con- income tax, and the new work, a lot more drilling, a ration licences that have pause to some operators, The government is also regime for shale gas dependent on expensive sists of a corporate income tax, says Maciej Grabowski, lot more testing. already been awarded were says Tomasz Maj, country encouraging state control- Russian energy imports. tax, an exploitation fee and deputy finance minister. “That costs money and on a first come, first served director for Talisman of led companies in the oil and at the moment, A number of companies, a property tax. Mr Grabowski says that a we are in an environment basis, so that an operator – Canada. gas sectors and power and says Adam Easton mostly foreign, have drilled Piotr Wozniak, deputy total government take of where money is hard to which must invest $10m for He says: “You’re poten- mining, to team up and 23 exploration wells in the environment minister and about 50 per cent would every vertical well it drills tially going to see activity share costs. country’s Ordovician and the government’s chief geol- be fair, without giving in a concession area – has restricted to the minimum Mr Maj comments: “In the Poland’s government plans Silurian shale basins since ogist, says: “The level of details. ‘The level of the right to start production required under the conces- beginning, foreign compa- to take advantage of the 2010. government take in Poland That figure has already government take if it finds gas. sion agreements. nies were made to feel prospect of domestic shale None have yet proved is extremely low and every- caused jitters among opera- But Poland is under pres- “Everyone will keep extremely welcome. Now gas production by announc- economic, but the operators body, including investors, tors. Head offices have been is extremely low sure from the European working. I don’t see foreign there’s talk of them coming ing this month a new and the government are expects it to rise. calling Warsaw asking if and everybody, Commission to introduce companies pulling out, to exploit us. hydrocarbons tax and optimistic that techniques “In my opinion, the rise such a rate is economical. competition to the award- rather adopting a wait-and- “The issue is not about amendments to the Mining will soon be developed. should be very, very moder- It’s too early to be including investors, ing process. see attitude.,” money, it’s skill and know- and Geological Law. Much of the attraction for ate, because we need those talking figures, says Kam- As a result, Warsaw intro- Industry participants how.” This should create a regu- the operators is that, investors here. lesh Parmar, country man- expects it to rise’ duced tenders for explora- have also noted a marked Donald Tusk, the prime latory framework. despite the fact that wells “There are not enough ager for 3Legs Resources, tion licences at the begin- politicisation of the issue. minister, visited Canada Despite concerns in parts in Poland cost up to three companies; we don’t have the UK-based independent come by. What I would like ning of this year. Pawel Poprawa, once a this month and shale gas of Europe about the envi- times more to drill than in an oil industry in Poland at that was the first operator to see is the authorities “If they introduce tenders shale gas expert at the was a big topic of discus- ronmental impact of “frack- the US, gas prices are up to all. It’s in our interest to to drill and test two hori- making an effort to encour- for production, why am I Polish Geological Institute, sion. ing” – the fracturing tech- seven times higher than incentivise rather than dis- zontal shale wells in age investment in this going to invest? I’m the one says: “One political party The message foreign oper- nique used to blast open across the Atlantic. incentivise.” Poland. industry.” investing all the money in was saying to the govern- ators are now hearing is shale rock formations and Poland has no specific fis- Although the tax rate is Mr Parmar adds: “We Another big concern cited the development of the ment, you’re giving away that the government is release gas and oil – Poland cal regime for shale gas at not yet known, the new now need to look at by operators is government licence,” says one operator. everything to foreigners. open to co-operation. 4 ★ FINANCIAL TIMES WEDNESDAY MAY 23 2012 Warsaw as a Financial Centre Firms hope founders are willing to stand down

Before 2009, entrepreneurs based Private equity the value of their business on the strong years that followed Poland’s Jan Cienski reports that, 2004 entry into the EU. In the after- at the moment, the market math of the crisis, the prices that their business could expect to fetch tends to be dominated by dropped but their expectations did a few large transactions not. That is now changing. “I think that we would have seen more founder sales, were it not for the ojciech Inglot is fre- crisis,” says Jacek Korpala, co-manag- quently subjected to ing partner of Arx, a regional private solicitation. But the equity firm. “There are founders who Polish owner of Inglot are in their 50s and 60 and, if they Happy shopper: the Zabka convenience store chain was bought last year by Mid Europa, a regional fund, for €400m WCosmetics is not being asked to buy don’t have obvious heirs, they are products. He is being asked to sell his thinking about what to do with their command can help with consolida- owner Telekomunikacja Polska, the ing interest to large foreign funds. “Everyone is fundraising now,” business by private equity companies business.” tion. former telephone monopoly. Thierry Baudon, founding partner Cezary Pietrasik of Warburg Pincus eager to get a slice of his fast-growing Last year saw a total private equity “The initial signal this year is that Close behind was the €400m pur- of Mid Europa, comments: “By and said during a recent private equity company. deal value of €1.2bn, compared with there will be a pick-up in deals,” says chase by Mid Europa of Zabka, a large, west European players have not conference, noting that in 2007 “I’m just not interested,” he says. about €657m in 2010, according to Robert Manz, managing partner of chain of convenience shops. The ven- done particularly well in the region, regional funds pulled in about €15bn He wants to focus instead on continu- analyses by the European Private Enterprise Investors, one of the dor was Penta Investments, a Czech which creates more traction for guys in capital, while after 2008 that ing his company’s rapid international Equity and Associa- region’s largest and oldest funds. like us.” dropped to €1bn to €3bn. “Everyone growth, funded from its own reve- tion and Exen Bastion Group and While sales by a founders are a pos- While the scale of most Polish com- will be back in the market in the next nues. Gide Loyrette Nouel. sibility and funds such as Arx are ‘We have founders in panies may be small for big interna- 12 to 24 months, ” he said. Poland’s private equity industry is Secondary sales also revived after a noticing more such transactions in their 50s and 60s who, tional funds, smaller national funds For local funds, that means manag- counting on other entrepreneurs be post-crisis decline. the pipeline, they still account for focus on the strongest part of market, ers will be spending a lot of time ing more eager to sell, thereby help- In one example, Mid Europa, a well under half of deal flow. if they don't have obvious with acquisition of mature companies outside the country persuading insti- ing build up a sector that is struggling regional fund with €3.2bn under man- That leaves the market dominated heirs, are thinking accounting for about three-quarters of tutional investors to put money into to regain its pre-crisis size. agement, sold Aster, a cable operator by a few large deals, which is one deal flow. Start-ups, which account the country. The hope is that the founders who for €595m to UPC, the dominant pro- reason for the wide variation in about what to do with for less than 5 per cent of invested Polish pension funds, on the other built the first successful Polish com- vider. annual statistics. A couple of larger money in 2011, have been perennially hand, have so far played no role in panies in the burst of entrepreneurial- This year looks like it will be simi- transactions – in Poland this means their business’ underfunded. the industry. Local capital has largely ism after the collapse of communism lar to 2011. Sectors that look interest- those worth more than €300m – can As the number of transactions come from angel investors at the two decades ago are growing tired of ing include renewable energy, retail, skew the statistics. and Slovak fund, making the deal an increases, the funds accumulated by periphery of the market. running a business and are thinking health services and consumer goods – The largest last year was the €425m example of a secondary transaction. private equity companies before the “We have the headache of having of cashing out. especially in fragmented industries acquisition by Montagu Private Otherwise, deal size is usually crisis are being used up and they no local funding source,” says Mr Another factor that might push where the management skills that Equity of TP EmiTel, a telecommuni- significantly smaller, which is are turning to the market for more Manz. “Our private equity association founders to sell is the economic crisis. private equity firms have at their cations company put up for sale by its why Poland tends to be of only fleet- capital. has long been trying to change this.” Employers sceptical of value of an MBA

Business education Kamil Tchorek says some schools seek credibility and quality from joint degrees with foreign institutions

Poland’s economic success has been built largely on cheap labour and proximity to the wealthy markets of western Europe. But as businesses have grown, so has the need for trained managers. Many Poles now in senior positions studied abroad for a master of business admin- Warsaw School of Economics offers MBAs istration (MBA) degree. The former deputy treas- European law at the univer- local MBA courses to place ury minister, Krzysztof Wal- sity. personnel – especially in endczak, now Poland chief “In fact, it was his stipu- the energy, pharmaceutical for Société Générale, the lation, and that’s clearly and media sectors. French bank, is a Harvard what makes the place suc- Piotr Wielgomas, the alumnus. Grazyna Pio- cessful.” president of Bigram, says: trowska-Oliwa, chief of Prof Kozminski founded “The Polish courses might PGNiG, the state-owned oil the institution in 1993, hav- not yet match Insead, but and gas company graduated ing taught management at they are a hunting ground from Insead business the University of California for local recruiters. They school. Los Angeles, and at Rouen are the easiest place for us Many of the next genera- Business School in France, to find interesting and tion of managers are being among other places. ambitious young people, turned out by local institu- Not all the country’s busi- who are still open-minded tions such as Warsaw Poly- ness schools have been so enough to learn from their technic, the Warsaw School careful about laying solid next job.” of Economics (SGH), the educational foundations. Mr Wielgomas says he University of Warsaw and During the initial burst of has looked for MBA stu- the private Kozminski Uni- growth in the mid-1990s, dents from the Warsaw versity. management training was School of Economics, War- Maciej Owciarek, chief heavily influenced by saw University, Warsaw executive of Enea, a large American and western Polytechnic, Jagiellonian power company, has an European organisations, University in Kraków and a MBA from Warsaw Univer- such as the European Bank new Warsaw branch of sity, while businesses such for Reconstruction and Spain’s well-regarded Iese as Lotos Oil, an oil distribu- Development, which paid Business School. tor, and KappAhl, the cloth- for staff from middle-rank- The reality, for employers ing chain, have executives ing western degree pro- and for candidates, is that with Polish MBAs. grammes to teach in the networking opportuni- Elzbieta Bienkowska, the Poland. ties provided by MBAs are minister for regional devel- For the lucky few appli- more important than the opment, who is closely cants who got on to the best management theory learnt. involved with Poland’s tens programmes at the time, an However, some hirers are of billions of euros of EU MBA course was a fast especially sceptical. funds, has an MBA from the track to a leadership post in Lukasz Fijalkowski, client Warsaw School of Econom- post-communist Poland. training academy director ics. Since then, trends in the at the Warsaw office of The Financial Times MBA MBA industry have fol- PwC, the consultancy, says: ranking regularly puts Koz- lowed those in the wider “MBAs are now so common minski at the top of the list world. that it’s irrelevant to my – for Poland and the whole High demand was met hiring decisions. of central and eastern with fast-growing supply, “I spend a lot of time Europe. and quality fell. The coun- explaining to candidates Its success has been try has 300 private universi- that MBAs are nice to have driven by its founder, ties educating 630,000 stu- but less important than Andrzej Kozminski, who dents a year, Europe’s high- demonstrable work experi- has attracted gifted lectur- est private-sector enrol- ence, which is my main ers. For its 406 MBA stu- ment. measure of their skill, their dents, there are specialist While some business edu- ability to communicate and courses in IT, engineering, cation is lacklustre, other to adapt.” health, finance and human schools have sought to He adds: “Most Poles resources. maintain quality and credi- have been given the impres- Jan Barcz, a former bility by issuing certificates sion by parents and teach- ambassador to Austria, in conjunction with foreign ers that degrees are proof of says: “When I first thought institutions, such as the professional ability. That’s about working there, I was universities of Illinois (War- not necessarily true. very interested in how Koz- saw University), Minnesota “Degrees are not enough minski was making sure and Montreal (programmes to give an edge in the there is a close connection at the Warsaw School of recruitment process. This between the studies and the Economics). idea is now common in Brit- world of business and poli- Bigram, a Polish head- ain and the US, but it still tics.” Mr Barcz lectures on hunting company, scours shocks Poles.”