ERSTE GROUP BANK AG: Introduction of IPO could revive Serbian Capital Market

Once among the most liquid, today Agrobank shares are excluded from trading. After "Campine" had given up, "Imlek" recorded a decline as well. All in all, while investors on the BSE are expecting "Telecom" shares, a new hope that might fix things comes from announcements of the Authorities that they are finally ready to launch the first IPO (Initial Public Offering - IPO ) in Serbia.
How is the IPO a good choice for securing the necessary capital, is it the best way to privatize our public companies, or at least what was left of the former giants, as well as experience with the stock exchanges in Central and Eastern Europe, exclusively for "eKapija" respond Martin Hintegger and Marianne Rickl, chair people of Corporate Finance Sector of Erste Group Bank in Vienna, which will participate in the BELEX IPO 2012 Conference, on June, 5th, in Belgrade.

eKapija: What is the lifecycle of IPO, and how long does it take, generally, for IPO cycle in CEE?
An initial public offering (IPO) usually needs approximately three to six months preparationfrom the transaction kick-off, depending on the complexity of the project and if the shares are placed internationally or not. The detailed timetable is closely connected with the financial year and reporting timeline. Typical windows for the launch of the transaction are March/April (based on the FY financial statements) or September/Oktober (based on the HY financial statements). Also periods where investors are not very active at the market have to be taken into consideration, such as Christmas or summer holidays. As most of the Austrian transactions and IPOs in our core region CEE are placed internationally, the standards for an international placement have to be fulfilled. These include for a public offering the preparation of an international prospectus (preparation typically 6 to 8 weeks), marketing to institutional investors (pre-marketing 2 weeks before launch of the transaction, roadshow) including research reports prepared by the syndicate banks (4-5 weeks preparation based on the analyst presentation of the issuer’s management).
What type of companies in CEE are generally most often going IPO and what istheir prevalent reason for doing so?
The companies which decide for an IPO are looking for a long-term sustainable source offinancing. An IPO means strengthening the equity base and shifts the company to a higher level in its expansion plans. Public companies can use their shares as acquisition currency.The IPO offers the possibility to stay independent by distributing the shares to a large number of institutional investors instead of selling it to one strategic investor.
For a private equity sponsor holding a stake in a company, the IPO is often a logical exitalternative. Privatisations are often offered via a public offering (IPO and/or SPO). But not all companies are compliant for IPO: IPO-investors are usually looking for an attractiveindustry, for companies with a clearly defined unique position in this industry and a sustainable competitive advantage. And the company should be prepared to live like a public company (with all reporting and transparency requirements), share the control of the company with somebody else and ready to finance its growth with a partner.
(Martin Hintegger)
How many IPOs do you have annually in CEE? Was that number affected by thecrisis in recent years?
The global equity capital markets are still affected by the volatile situation on the financialmarkets. IPO volumes and number of deals world-wide were nearly zero during the crisis year 2008, recovered 2009 and were dominated by large Asian transactions in 2010, in the first quarter of 2012 a 24% decrease was recorded compared with Q1 2011, with a slightly improved sentiment and reduced market volatility recently.
(Marianne Rickl)
EMEA region (Europe, Middle East and Africa) ECM deal volume still suffering from the crisiswith 7% decrease in Q1 2012. Recently we have seen already a number of deals in Europe - mostly rights issues – but also the first IPOs in CEE. A number of transactions took place in Warsaw in 2011 and Q1 2012 and Poland remained the most active market in CEE. However, in 2011, we saw the first IPO in Austria (AMAG, volume EUR 526m) after the crisis years and a number of rights issues even with higher volumes, such as Lenzing (volume EUR 619m) and OMV (volume EUR 750m). This year up to now only one capital increase took place on Vienna Stock Exchange.
Do you think that IPO is a good way to privatize big companies still owned by thepublic? Did you have such examples in Austria?We think that an IPO (or SPO – secondary public offering, if only existing shares are offered) is a common, attractive and transparent option for the privatisation of state-owned companies active in a business which would be seen attractive by investors. The state benefits from realising maximised proceeds and at the same time is able to keep the control of the majority or at least the blocking minority of the shares after the privatisation. Successful privatisations are a good stimulus for the local capital market creating interesting investment opportunities for local retail and institutional investors, such as pension funds. Also other private companies would be encouraged to issues shares on the local stock exchange. Privatisations increase the awareness in the international investor community and will have a positive impact on future transactions on the capital market and the inflow of foreign capital investments.

Privatisations could lead to an increase in the company’s efficiency and its potential forinnovation and technological progress due to the reduced political influence. And through a capital increase enable the company to finance its future growth and expansion (partly) with investors.

Privatisations contribute to the restructuring of the state budget. E.g. Romania has a large privatisation pipeline agreed with the IMF and started its privatisation program with the SPO of Transelectrica in February of this year. Austrian privatisation started with OMV (Austrian oil and gas company) in 1987, followed by AUA (Austrian Airlines). Verbund (utility), voest Alpine (steel), Austria Tabak (tobacco, privatised and then completely sold to a strategic investor), Flughafen (Vienna Airport), Telekom Austria, EVN (utility), Austrian Post (last sizeable privatisation in 2006).
Who are the main investors in IPO in Austria/CEE?An IPO is usually placed to a large extent to international institutional investors and to a lower extent to national institutionals and retail investors. At Vienna Stock Exchange, the initiator of CEE Stock Exchange Group, 75% of its investor base are international investors and 25% Austrian investors. A breakdown of the institutional investors active at Vienna Stock Exchange shows that US and UK investors dominate with 43%, followed by some 16% Austrians, the rest being mostly other European and Japan investors.
We think that the fact that Anglo-Americans account for a large portion of investor activity is not only an Austrian phenomenon but is also relevant for other developed CEE markets.
Global IPO Volume (Source: Dealogic)

Recent CEE – IPO and follow-on Transactions (Source: Ipreo)

Beogradska berza a.d. Beograd

ERSTE BANK-AUSTRIJA

Agrobanka a.d. Beograd

Nova Agrobanka a.d. Beograd

Međunarodni monetarni fond-MMF Beograd

Telekom Srbija a.d. Beograd

Telekom Austria AG Wien

FrieslandCampina Cheese Specialities Wolvega

Warsaw Stock Exchange Varšava

Wiener Börse AG Wien / Bečka berza

OMV Aktiengesellschaft Austria

Imlek a.d. Padinska Skela

BELEX IPO 2012

Inicijalna javna ponuda

sekundarna javna ponuda

IPO

SPO

CEE Stock Exchange grupa

privatizacija javnih preduzeća u Srbiji

Martin Hintegger

Marianne Rickl

Tranelectrica

OMV

AUA

Austrian Airlines

Verbund

voest Alpine

Austria Tabak

Flughafen

Bečki aerodom

EVN

Austria Post

Lenzing

EMEA region

rights issue

Varšava

berza u Beču

berza u Varšavi