BSE sets sights on expansion

After building a new market from scratch on the Warsaw Stock Exchange, Ludwik Sobolewski, the new CEO of the Bucharest Stock Exchange (BSE), is aiming to make the local exchange a challenger to Budapest and Prague in the next two years.

Ovidiu Posirca

What do you think the BSE is lacking at the moment?

It is lacking liquidity, turnover. It is lacking big companies that could be attractive to investors. There are only a handful of companies and there should be many more. Relations with firms and investors must be improved. The transparency of the companies must be improved. It is also lacking some markets like bonds and derivatives. They exist but only theoretically.

What development structure would you like for the BSE?

The model that must be adopted is to grow organically for the first period with some uncertainty as to how long this period will last. A lot must be built locally but so must a network of intermediaries – foreign intermediaries need to be improved along with visibility in the eyes of international investors.

Certainly not acquisitions or anything like this. Maybe some sort of alliance could be productive but only this type of association. There is simply too much to be done with regard to regulation, which now is a major obstacle to growth. This is a model and then, when we are much bigger, my aim is to have CEE composed of three visible markets: Warsaw, Vienna and Bucharest.

Do you have a timeframe for turning the BSE into the third largest player in the region?

I set myself the target that in the space of around two years, we should be more or less equal to Prague or Budapest. There is still a big difference between even those exchanges and Bucharest, but this is realistic if we work hard and we have support from our environment, for example as regards regulation.

Do you plan to attract foreign companies to achieve this goal?

I think it is too ambitious to think about foreign companies because the capital available in Romania is still small and the turnover of the stock exchange is very low. These are two barriers to the acquisition of foreign companies.

I would add that I managed to transform Warsaw Stock Exchange into a regional hub for foreign firms. More than 50 foreign companies are listed and October will see, for instance, the debut of the first Chinese company (e.n. packaging machinery manufacturer Peixin) on the Warsaw Stock Exchange.

In this context, I also thought that maybe even Romania or Bucharest could attract small businesses from very remote markets where they are considered small but they may be very interesting because they’re growth companies. It may sound a little bit abstract but I would say that if we start one day to make an active acquisition of foreign companies, it would be firstly in neighboring countries in SEE but also remote ones like China and Mongolia, which is also a growth economy. But this is in the distant future.

What can you bring to Romania from your time at the Warsaw Stock Exchange?

I was at the helm of the Warsaw Stock Exchange for almost seven years, from 2006 until the beginning of 2013. We can to some extent create new expectations, create new ways of doing business as, for instance, I did in Poland when everybody was skeptical that it was possible to launch a market for very small enterprises which then became New Connect.

The BSE needs something to be taken out of this stagnation, out of this mud in which it is now stuck. Here we have a very peculiar situation. We have for instance a very decent number of companies – 81 on the regulated markets – and hundreds of others on other markets including the Property Fund, Transgaz, Petrom and Transelectrica – quite a number of sizable companies. But it’s not productive in the sense that investors and other companies can benefit; it’s unproductive because we don’t have turnover, liquidity, so this is a peculiar situation. Market capitalization is a few times bigger than New Connect in Poland, a market for more than 400 small companies, but the turnover we generate here is sometimes lower than in New Connect.

Why is the market stuck?

I think there are a number of reasons. Regulation, which really results in the market being costly and poor with regard to the number of intermediaries connected, especially from outside Romania. Then the lack of certain solutions in the infrastructure like the lending and borrowing of securities, market making. Even the trading hours are a problem because trading apparently ends too early. If you take time differences into consideration, it ends in the middle of the trading day in London or during lunch. There is also a lack of good promotional marketing.

Do you have room to create new markets like you did in Poland?

This is a specific situation because theoretically there is a market for small companies but I don’t think it has brought a lot of benefits to the companies. Corporate bonds are also traded on the stock exchange. There is something but it must be developed, not really created from scratch. Derivatives practically do not exist and they will not exist as long as the equities market suffers from this low liquidity, so we have to work on liquidity in the equities market and then we can realistically think about launching the derivatives market.

Are you in talks with local companies keen to be listed on the BSE?

We already have one positive sign from AdePlast (e.n. Romanian construction material maker). This will be a EUR 15 million offering and it is a private company. I want to be engaged in this process to the full extent possible in order to show that there is a sense of private companies going public and being listed.

Have you been approached by any IT companies?

Yes, by one, and I also have some hopes it will be a company that will be listed in Bucharest on the medium term.

ovidiu.posirca@business-review.ro

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