The FINANCIAL -- The Warsaw Stock Exchange wants to be the exchange of first choice for investors and issuers in Central and Eastern Europe, including Georgia, according to the new strategy of WSE Capital Group. WSE’s ambition is to grow revenue by 7 percent Compound Annual Growth Rate (CAGR) by 2020. The Exchange Management Board expects EBITDA (an approximate measure of a company’s operating cash flow based on data from the company’s income statement) to double and the cost/income ratio to fall below 0.50 in that period.
“We are developing an international capital hub - to be the exchange of first choice for investors and issuers in Central and Eastern Europe - this is the main goal of the updated strategy,” Paweł Tamborski, President of the Management Board of WSE, told The FINANCIAL.
According to the strategy, the growth of the WSE Capital Group will be based on six pillars: a liquid equity market; a developed debt market; a competitive derivatives market; a commodity market attractive to investors; a comprehensive offer of information products for investors and issuers; and new business segments opened based on available competences. The Exchange wants to use the resources of the WSE Capital Group more effectively.
“We believe that we can grow our business mainly by making our products and services more attractive and by tailoring them to the genuine needs of our clients,” said Tamborski.
While focusing on business, the Exchange wants to further support the development of the capital market and improve its quality, among others, through education and by initiating legislative amendments. In order to provide market participants with the highest standards and safety of trading, WSE will also invest in state-of-the-art technologies, according to the strategy.
Q. How has WSE’s strategy towards attracting Georgian companies changed recently?
A. We have over 60 foreign companies listed on WSE, but unfortunately there are no Georgian companies listed on our exchange at the moment. The fact that Georgia is not an EU member country is a kind of a challenge for us as well as for the Georgian companies who would like to cooperate. There are certain requirements that every company must meet. If they meet those requirements, we see no problem for them to be a part of our exchange. Last year, for example, we held negotiations with Bank of Georgia who in the end decided to be listed on the London Stock Exchange, because their main competitor, TBC Bank, was already listed there. We are not saying that the London Stock Exchange is a bad choice, but Georgian companies should think about a market which is closer, more convenient and better suited for them. After several reforms have been implemented in Poland, the Warsaw Stock Exchange is back in the game. By “the game” I mean the effort to attract international issuers. For regional issuers Warsaw can offer access to more or less the same investor base as for example London, when it comes to emerging Europe investors. On top of this, Warsaw also offers access to Polish capital, including our investment funds, and very active retail investors.
For us Georgia is an interesting market with a lot of potential, and I hope that we can attract Georgian companies to WSE.
Q. The Warsaw Stock Exchange wants to be the exchange of first choice for investors and issuers in Central and Eastern Europe as you said before. How are you going to make WSE into the exchange of first choice and, if not WSE, which exchange is the first choice nowadays?
A. We were the market of first choice before the pension system reform in Poland. And then Warsaw had to answer the big question of how will the market look like after these changes. But that has now been resolved, we know the result and it’s better than many people expected. Having this issue resolved gives us an excellent opportunity to approach potential listing candidates, as well as investors, and tell them that Warsaw is back in business.
It needs to be also emphasised, thatcharacteristics of Warsaw and for example Londonare different, as they are markets for very different companies. WSE is an exchange for mid-sized companies by world standards. They can gain better exposure to investors and coverage by analysts here.
We need to show companies and investors that Warsaw Stock Exchange can be an attractive alternative for them. We want to achieve that by turning towards our customers and better tailoring our offer to the needs of the market.
The strategy of the WSE Capital Group takes into account the expected regulatory changes on the European financial market. It has also been brought into line with the standing of the Capital Group, market trends, and clients’ expectations.
In order to develop the equity market, the strategy envisages initiatives including active acquisition of new issuers, investors, and exchange members; simplification of procedures; promotion of short selling and securities lending; liquidity activation programmes; and strengthening of NewConnect as a source of new listings for the Main Market.
WSE plans to improve the attractiveness of the debt market, among others, by simplifying the Catalyst market structure and encouraging banks to become more active on the market.
In line with clients’ expectations, the Exchange is also planning to develop the derivatives market including products based on bonds, interest rates, electricity and natural gas, as well as other underlying instruments.
The WSE Capital Group will develop the commodity market, including the gas segment, by unlocking the potential of energy companies and financial investors. The Exchange wants to attract active financial investors to other segments of the market.
Q. Ukrainian companies eagerly entered WSE last year. The country’s economic difficulties have obviously adversely affected the condition of Ukrainian companies. How does the Ukrainian crisis affect WSE? How successfully does Warsaw attract new issuers in light of the recently tense situation in Ukraine?
A. Of course investors are a little bit worried about the situation in our region. However, in comparison to Ukraine, Russia and some other countries in the region, Poland is seen by investors as safe haven. The Polish capital market and Warsaw Stock Exchange offers investors a nice combination of stability of the EU regulated market with benefits and potential of the emerging markets.
In the past few years there was a boom of Ukrainian companies listed on WSE. 12 companies form our neighbour were newly listed on WSE during that time. Because of the uncertainty in regard to Ukraine’s future the appetite for Ukrainian companies is lower at the moment. The Ukrainian index which consists of 8 companies at the moment has dropped by 14 percent in the last three months. But should the situation with Russia be resolved and should Ukraine choose to work closer with the West, the capital market can play a fundamental role in its development.
Q. What will some of the key challenges for capital markets be in the coming years, including WSE? What are the optimal paths of development for the region?
A. One of the things we need to prepare for are the regulations coming from the European Union. We have to adjust the market in a way to meet new requirements. And these regulations are going in such a direction that we will be more ‘hampered’ by the increased competition. To answer this challenge we need to further unblock liquidity and adjust our offer to the growing investors and market participants’ expectations. Currently we are holding discussions with potential investors, looking for new funds, trying to attract new types of investors to our market.
We will be also developing the commodity market. Besides trading gas and energy we want to add new products, for example coal. Furthermore, Poland is one of the biggest agricultural countries in Europe and it seems natural to use this fact and create the segment of agricultural products as it could be useful to have a reference price for them.