On the day following the publication of the over 700-page long issue prospectus, binding share subscriptions were already being taken from individual investors.
Moreover, the principles of share allocation in the case of a reduction in subscriptions, favoured those, who had subscribed early. This mechanism was quoted by vitally interested Polish newspapers, which were including full-page advertisements for the offer and it created a stampede amongst natural persons.
The media involved in the offer were vying with each other in hotting up the temperature. The Polish public were made to believe, through semi-official leaks amongst other methods, that there was enormous interest in the offer and this was to have the effect of a large drop in subscriptions. Aleksander Grad, Minister of the Polish Treasury, who is extremely well versed in EUREKO’s business, was talking young people into persuading their grandfathers to purchase PZU shares. This is a most unusual situation for a minister to make such recommendations in the securities market.
Many private investors, who were subscribing for PZU shares, were convinced that it was a privatization scheme. In actual fact, EUREKO is selling 10% of the PZU slice directly, 15% is being sold by special purpose company KAPPA (in which EUREKO owns 67.11% of equity while the Treasury has 32.89%) and 5% by the Treasury.
There was no mention of EUREKO in any advertising for the offer in the Polish press, instead of EUREKO there was symbolic representation of the Treasury and the emblem of the Republic of Poland. Full use was made of the authority of the Polish state in order for Eureko to sell shares to the general public.
The link to the advertisement in Polish press:
http://img199.imageshack.us/img199/1619/pzueureko.jpg
It turns out that despite a huge witch-hunt by Polish media, there will be no reduction in subscriptions for natural persons, at the same time the price for institutions has already been set no higher than that for natural persons.
The daily newspapers involved in the offer, although they were severely mistaken with regards to the course it took, continue to create the reality, this time trying to make the public believe that there has been an oversubscription for institutions – a solution, which does not function in the offer at all.
The PZU offer is a social engineering exercise directed at natural persons, but also at institutions. We have no accounts relating to what the book-building subscriptions were like for institutional investors – it is the price nevertheless, which gives an indication of interest.
We can be positive that the offering party defended – as far as possible – the maximum offer price for individual investors, as a lower price would demonstrate that the institutions view the offer differently to sellers and the public. Therefore, the answers to what the finalization of the subscriptions was really like and who made the potential book-building emergency subscriptions, or “simulated subscriptions”, in order to indicate demand, cannot be determined – only Eureko, Goldman Sachs and a few others are in a position to know the true course of events…
Whereas, two facts, the price for institutions matching that for private individuals, and the lack of a reduction in offer subscriptions, reveal a totally different picture than that presented by the media „inspired” by the offer.
It appears that the issue prospectus was lacking in terms of any risk related to a conscious action by the Offering Party, as a result of which individual investors were denied the right to fully familiarise themselves with the issue prospectus, prior to placing binding share subscriptions.
It is also important to note that those from abroad may not be aware of the risk, which results from the fact that the Treasury has become the company’s single primary shareholder. In Poland, large companies subject to control by the Treasury are under pressure from political party activists of the currently ruling coalition, who insist on posts for their deserving party members. This risk includes not only the highest authorities, but concerns all departments and establishments of the company. State-owned companies, in particular, those with an extensive territorial structure, are regarded as job sources for those connected to the ruling camps.
Investors should also consider the statements made during the public offer by Treasury Minister, Aleksander Grad, whilst share subscriptions for individual investors were still being taken; the minister stated that a reduction in subscriptions will probably follow despite increasing the number of shares on offer, and the Treasury selling its 5 percent of the PZU slice:
“The interest in the PZU shares was so great that the Treasury Minister will sell 5 per cent more of the company’s value than the agreement with Eureko requires. To sum up, small players may end up with as much as 7.745 million worth of shares instead of the 6 million planned earlier. Despite this, a reduction in subscriptions will probably follow – admitted Treasury boss, Aleksander Grad.
Rzeczpospolita daily, April 28, 2010:
In a similar fashion, the Treasury Minister, Aleksander Grad, publicised information relating to the course of subscriptions in the institutional investors tranche, and fuelled emotions:
– At present, the oversubscription in the institutional investors’ tranche is substantially over four-fold, whilst the sale price for this tranche will be made public on Friday – advised Aleksander Grad, the Treasury Minister, on Thursday”.
Warsaw, 29 April (PAP)
Whatever oversubscription was supposed to mean (as after all, what is significant is the price for which an investor makes a pledge), Minister Grad was disclosing information from the course of the offer.
Not only the Minister, but Polish daily newspapers were hotting up the offer, in a similar manner to Polish news agency correspondents, (who were stuck in the same crowd) and participated in an identical tone. This is how it is in Poland, journalists and correspondents often present that, to which they have been won over by a company or a lobbying group.
Only Eureko, the selling party, kept quiet, so quiet, in fact that one could hear a pin drop… Something is not quite right, one can see that the quietly-sitting shareholder, who is quite capable of backstage negotiations, has made an above average lobbying effort amongst other things …to avoid using its own name.
PZU’s debut should be successful as maintaining euphoria in Poland is beneficial for the influential group surrounding those selling shares. In addition, those in charge of Polish funds are swayed by various arguments, where it can be seen in hindsight that the decisions made were not the right ones and differed from foreign investments too. That is just a tradition of Poland…there is an expression in the market (OFERMA), which means klutz in Polish, taken from the abbreviation OFE, which stands for Polish retirement funds. Although another description would be more apt.
Joseph Evans