Bloomberg News

Warsaw Pushes Debt Trading on Fastest-Growing Europe Market

September 15, 2011

(Updates with Finance Ministry comment in sixth paragraph.)

Sept. 15 (Bloomberg) -- The Warsaw Stock Exchange, Europe’s fastest-growing equity market, is seeking to boost corporate bond trading by allowing banks for the first time to buy and sell the securities without using a broker.

The bourse’s two-year-old Catalyst bond market, with more than 30 billion zloty ($9.5 billion) of debt, had 3.4 million zloty of trades yesterday, compared with an average daily turnover of 1.12 billion zloty in stocks this year. The amount of trading in Polish non-state debt was less than 5 percent of the transactions on the Istanbul Stock Exchange in the first eight months of the year, according to data from the Federation of European Securities Exchanges.

“Turnover is too small,” Warsaw bourse Chief Executive Officer Ludwik Sobolewski said in an interview. He said a proposal to let banks trade bonds was sent to the Finance Ministry in July.

Sobolewski is pushing for increased bond trading after 144 companies listed on Poland’s sole equity market this year, more than for all western European markets combined and second after China among emerging countries, according to data compiled by Bloomberg. The market value of companies listed on Warsaw’s state-controlled exchange, founded two decades ago after the fall of communism, has grown to $147 billion, the third-biggest among European developing nations after Russia and Turkey.

Warsaw Bond Trading

Warsaw trading of domestic, non-public sector bonds totaled 101 million euros ($139 million) in the first eight months of the year, compared with 2.1 billion euros in Istanbul, according to data from the Federation of European Securities Exchanges.

The Finance Ministry is analyzing the proposed changes to the law and their compatibility with European Union regulations and best practices of other countries in the bloc, it said in an e-mailed response to questions from Bloomberg News.

“The problem of the Polish corporate bond market is that investors, for example banks, participate in debt offerings and then hold the bonds till maturity, treating them like a loan,” Kamil Stolarski, a Warsaw-based analyst at Espirito Santo Investment Bank, said by phone. “It’s good that the exchange is taking steps to improve liquidity on the market but in my opinion not much will change soon.”

Higher profits from bank loans are hampering new bond sales, Sobolewski said in the Sept. 13 interview at his office in Warsaw.

‘Product Diversification’

“I hope that increasing expectations, by companies seeking broader product diversification, will gradually change the situation,” he said.

The amount of corporate and municipal bonds rose 34 percent to 78.5 billion zloty in the first half from a year earlier, according to data from Fitch Ratings. That’s still 33 percent of the total 237 billion zloty in corporate loans in Poland, data from the country’s financial regulator showed.

Polish pension funds favor government debt and equities, with non-government securities accounting for less than 10 percent of their total 226 billion zloty of assets at the end of August, according to data from the financial regulator. Investments in stocks stood at 76.2 billion zloty and government debt 119.4 billion zloty.

Forty-three foreign companies from 20 countries are listed in Warsaw, including 11 Ukrainian companies, and the market may see the first listing by a Russian company, Sobolewski said.

Russian Development

Ukrainian and Russian companies “may arrive to the market by end of this year,” he said. “Russia is something totally new to us. It never happened before that Russian companies considered the Warsaw capital market as a place for further development.”

Valinor Public Ltd., a Russian agriculture producer, and ViOil Holding SA of Ukraine postponed their Warsaw initial public offerings in July, citing worsening market conditions.

The benchmark WIG20 Index jumped 3.1 percent to 2,277.59 at 4:35 p.m. in Warsaw, trimming its drop this year to 17 percent. Poland’s government bonds have returned 5.14 percent in the first eight months of this year, according to Bank of America/Merrill Lynch index.

--Editor: Nathaniel Espino, Stephen Kirkland.

To contact the reporter on this story: Pawel Kozlowski in Warsaw pkozlowski@bloomberg.net

To contact the editor responsible for this story: Gavin Serkin at gserkin@bloomberg.net


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