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November 17, 2010 1:20 PM

Baker Continues CEE Capital Markets Run with Complex Cross-Border IPO

Posted by Chris Johnson

Continuing its run of capital markets deals in central and eastern Europe, Baker & McKenzie advised UniCredit SpA and Erste Group Bank AG as joint underwriters on Czech betting company Fortuna Entertainment Group NV's novel public offering.

The transaction, which raised €78.3 million ($109m) and closed in late October, was the first Czech IPO in almost 18 months and the first ever dual-listing on the Prague and Warsaw exchanges. The offering came a month after Baker advised Polish telecom company Polkomtel S.A. on its debut €1 billion ($1.36bn) Euro Medium Term Note program, which was also arranged by UniCredit.

“It’s an important deal as it shows a renewed interest in listing on the Prague stock exchange,” says London-based Baker capital markets partner Roy Pearce, who was part of the firm's four-office team led by Warsaw securities cohead Jakub Celiński. “We’ve seen quite a bit of focus on Warsaw in recent years, but less attention has been paid to Prague. We fully expect to see more companies listing in Prague as part of a sustained interest in the CEE. People are going to be looking to the region as a very important source of investment under the current market conditions.”

Including Fortuna, the region’s largest bookmaker by revenue, there are now just 27 companies listed on the Prague Stock Exchange, according to the exchange's November market capitalization report. That's down from more than 150 a decade ago. The Warsaw Stock Exchange, meanwhile  has seen its popularity boom in recent years, with the total number of listed companies jumping from 225 to 388 during the same ten-year period. 

The radical decline of the Prague stock market, Pearce says, is partly due to a lack of liquidity from “thin trading conditions." Another factor, he adds, is the government's decision to sell state-owned companies such as car manufacturer Skoda Auto A.S. to private companies, rather than to publicly list them.

In Warsaw, state assets have primarily been shifted into private hands via IPOs, while the country's stock exchange also benefits from regulations that oblige Polish pension funds to invest 95 percent of their assets in domestically listed securities.

The Warsaw Stock Exchange currently has over €70 billion ($95bn) of assets under management by Polish pension and investment funds, according to data jointly prepared by the Polish Financial Supervision Authority and the country’s Chamber of Fund and Asset Management.

“It has given a real boost to the Polish domestic IPO market and gives the Warsaw stock exchange a real advantage on cross-border deals,” Pearce says. “It’s a captive market.”

Interest in the Fortuna listing was strong, with the IPO almost 100 percent oversubscribed, the company said in a statement. The Baker team also oversaw concurrent retail offerings in the Czech Republic, Poland, and Slovakia. Fortuna handled its legal advice in-house.

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