IFLR 1000
The Guide to the World's Leading Financial Law Firms

Polish banks were not hit very hard by the financial crisis. The banks have traditionally adopted a conservative approach and this served them well as they did not engage with sophisticated instruments....

Polish banks were not hit very hard by the financial crisis. The banks have traditionally adopted a conservative approach and this served them well as they did not engage with sophisticated instruments. Nevertheless, by virtue of being a network economy, if Europe slows down, Poland slows down too. "During the recession, I think we saw a slight slowdown and less new money deals in Poland for various reasons; one of them being the fact that most of the Polish banks are majority controlled by foreign capital and that includes Dutch banks, French banks, Italian banks, American, German. So to be quite frank a number of the central institutions or ultimate shareholders got focused on their own jurisdictions and decided to slightly wind down activities offshore," says one partner. As a result, the risk evaluation process in banks became stricter and this led to a slowdown and reduction in the size of lending. However, the money that was withdrawn from the market did not equal the amount that was withdrawn from some other countries in the region. Polish banks were in pretty good shape and still had a healthy capital base.

Despite the slowdown, new money has been on the increase of late. "I would say that generally my observation is that the market slowed down and the slowdown is still visible, however, as I said the market is waking up," says one partner. Another partner agrees: "Banks were blocked, but when the blockade ceased then I observed another process where, in fact, there was a run for new projects because all the banks which were waiting for a long time, not providing loans, they at the same moment appeared on the market with pretty good money and they were looking for projects. So the margins were again going down and there was no cherry picking."

Polish firms have also been occupied with restructuring work. In addition the returning appetite for lending resulted in more support to acquisition finance. "There are still a few banks that are willing to extend acquisition finance to private equity sponsors investing in the region and as I said it is more expensive now than it used to be but it didn't dry up like it did in the West. That trend is continuing, it's not decreasing, I think it's going the other way," says one partner.

Another trend has seen banks increasing activity in regard to portfolio transactions. Another partner observed an increase in the presence and interest of Asian banks: "We see that more and more Asian banks are active on the Polish market a few years ago we had hardly any transactions including Asian banks but now this is very much growing."

Another interesting trend that has been picked up by market commentators sees Polish banks gradually becoming centres of financing for the CEE (Central and Eastern Europe). "I was involved in six projects like this last year and the countries involved were the Czech Republic, Slovakia, Ukraine, Russia and right now I have financings to Spain," says one partner, adding: "I think it's some kind of expansion of [the] Polish banks or the other trend is that some of the Western institutions don't want to finance directly from Netherlands or England but are using Polish banks to finance to the East because we know the region much better."

Retail banking has been another area of interest. This sector has been subject to some major changes with Santander's takeover of Bank Zachodni WBK and Raiffeisen Bank's acquisition of a 70% stake in Polbank, the Polish subsidiary of Greek bank Eurobank EFG. "I think there are several processes which make this market a bit more shaky but definitely not unstable," says one partner, adding: "Retail banking is changing very rapidly and there is no one reason for that. The problem with mortgages is the market is a bit shaky, but not because banks have no money, but there are a lot of discussions on the regulatory basis, especially about granting loans in foreign currencies. There are much more restrictive, new regulations of the regulatory bodies and the banks are just working out a policy [of] how to react."

"Polish law is fully in line with European Union directives. It is a very transparent market and a very transparent regulatory framework, which always, I think, supports the development of the capital markets", says one partner....

"Polish law is fully in line with European Union directives. It is a very transparent market and a very transparent regulatory framework, which always, I think, supports the development of the capital markets", says one partner.

There's no doubt about it, such transparency is starting to bear fruit in Poland. This year sees Poland's capital markets in a much healthier state than before. "I think there's a rebound from the last year. I think maybe last year the statistics will show in terms of value it was a record year, or close to record year, with these huge companies and a lot of additional liquidity on the exchange," one partner says.

As the Warsaw Stock Exchange (WSE) turned twenty this year and continued to grow rapidly as it aims to become a regional hub. With over 400 companies listed on the main market and over 200 on NewConnect (Poland's equivalent of London's Aim), the WSE draws ever closer to its ambitions. "The Warsaw Stock Exchange is trying to make itself a market of regional importance and is encouraging companies based outside Poland to list on the market, and one country in particular for which that has proved popular is Ukraine," says one partner.

Another agrees: "This is a rapidly developing area of the market and there are a number of factors. One is the reaffirmation and further development of the WSE as the capital markets hub in Central and Eastern Europe (CEE) with some major privatisations and IPOs and secondary public offerings, with that and the establishment of a local presence by the major investment banks, we do see an increase in IPOs and that comes from pretty much all directions: Ukraine, Czech Republic, Slovakia and Slovenia."

It is apparent that the equity capital markets are bristling with activity. One significant trend has seen the State Treasury initiating many of the largest deals. Firstly, Poland has witnessed the continued privatisation of state owned enterprises; the State has been selling minority stakes in the top insurance and energy companies and even the WSE itself is now listed on its own platform. "I mean it's incredible now and I don't only believe that it's incredible only in our law firm, [it is] perhaps a more general feeling," says a partner. The reasons for this include the increasing liquidity of the Polish market and a feeling among companies that they have better visibility on the WSE, avoiding other densely populated exchanges.

The listings from Russia and Ukraine are dominated by those involved in the agriculture business. This is partly due to rising food prices and partly due to the simple fact that Polish investors are interested in such companies. Furthermore, the collapse of certain markets like Hungary has contributed to driving companies to look for alternative markets and the WSE is gradually becoming the obvious choice.

On the debt side, the market has been growing in sophistication since the establishment of 'Catalyst', a platform for trading in financial debt instruments. "The idea was that big companies and local governments will issue bonds which listed on the platform to make this instrument more liquid, this is something which is new and we see that the clients are really interested in that and asking about it," one partner says.

Poland has also been financing a lot of infrastructure projects (related to Euro 2012) through the issuance of project bonds. A reason for this is to escape the application of public procurement regulation. "Very often you don't have to prepare the prospectus, because the issuance is done as a private placement and then the bonds are just listed on the alternative market not on the main one. I think it's much easier much quicker and much cheaper," explains one partner. "Also the reason is that banks are not interested in financing the project through equity. They want to have the instrument which is purely [a] banking instrument and don't want to be treated as shareholders. They prefer to be treated as bondholders or creditors."

High-yield has been another growth area: "We have evidenced high-yield bonds for polish companies," says one partner. "I have clients right now looking into trying to tap the high-yield US bond market. So I do think that we have evidence of the more sophisticated bonds being completed."

It is difficult to predict exactly what lies ahead. Some market commentators feel that while we may have seen plenty of activity over the last year, there aren't too many huge IPOs in the works. Nevertheless, there are secondary sales and one might see the largest ever secondary sale of a listed bank soon.

In the last 12 months, the M&A industry continued to grow and activity on the whole has been much healthier in Poland. "I think it's moving from quiet optimism somewhere towards vibrant optimism," says one partner, with another adding: "I would say the M&A market is back to normal or even better than before the slowdown, this includes a lot of activity on the private equity side....

In the last 12 months, the M&A industry continued to grow and activity on the whole has been much healthier in Poland. "I think it's moving from quiet optimism somewhere towards vibrant optimism," says one partner, with another adding: "I would say the M&A market is back to normal or even better than before the slowdown, this includes a lot of activity on the private equity side." Market commentators have also observed a pickup in private equity as the willingness to buy has resurfaced. "There is much more activity. Clearly private equity houses are much more active, it includes the firms which are established here and which are much bigger than local private equity houses. They have more targets of this size which is of interest to them," says one partner. Furthermore, there is also a growing number of mid-size or bigger Polish privately held entities, which have proved interesting for both financial and strategic investors. "One may say that this movement has been started by private equity. There are some opinions on the market that most of the private equity houses started the thing about raising new funds and there are some internal obligations towards how much money you need to spend from the existing funds in order to be able to start raising new funds," says one partner.

Another significant trend has been the State Treasury's drive to privatise state owned enterprises. "Many countries adopted very rigid, very strict fiscal policies, increasing taxes [and] taking some other tough measures. [In] Poland, this year is election year, so the Polish government was very reluctant to adopt the same sort of measures. So, what they tried to do is to breach [the] budgetary gap by some other financial sources and accelerated privatisation of state owned companies," says one partner.

This drive has not only occurred on the Warsaw Stock Exchange, as one partner explains: "It's not just [the] capital markets; they were also selling assets in trade sale structures. So basically, one can say that both public and private M&A lawyers were deemed to be very busy within the last twelve months. I don't remember any period where it was stopped except for Christmas."

The energy sector is well represented by these privatisations. "It's true, privatisation has been focused on energy in the last twelve months and it's not over yet. Infrastructure goes without saying [and] telecoms," says one partner. Renewable energy is latent and will duly develop, however, the coal-fired industry is predominant in Poland and there is a perceived shortage in traditional energy. Therefore, priorities lie in developing hard coal power plants. In other sectors, there has been some small privatisations in pharmaceuticals and some private equity activity in the food sector and healthy movement in the consumer market retail business.

The financial sector has also been a source of M&A activity. In retail banking we have observed Raiffeisen Bank's €490 million acquisition of a 70% stake in Polbank and Santander bank's €3 billion takeover of Bank Zachodni WBK. The penetrative force of foreign capital in Poland's banking sector is among the highest in Europe. As a result, foreign and international owners that suffered in the crisis but had relatively healthy Polish assets decided to improve balance sheet and cash flow primarily by selling Polish assets. "We see is a shift of power in this sector, so Santander is one of the big winners of the turmoil. So [it's] a question whether other winners would be so acquisitive and so ready and willing to expand because they are rather cautious," says one partner.

The immediate future also looks very promising. Zygmunt Solorz-Zak the Polish billionaire agreed to buy Polkomtel, the country's second largest mobile phone operator at €3.8 billion. Importantly, this will be Poland's largest ever LBO and the largest in Europe since 2007. "There is one deal that is probably going to be the largest leveraged buyout in Europe. It's a deal consisting of ten deals and it spans everything from the most intricate financing to the simple financing to the mergers the whole thing."

Generally, the nature of M&As in Poland is friendly. However, in recent times, Eurocash attempted a hostile takeover of Emperia. "All of a sudden, a hostile takeover appeared which is a sign of a very mature market," one partner says.

In the last 12 months, energy and infrastructure have dominated discourse on project finance in the Polish legal market. However, practitioners are quick to point out that project finance is a relatively new concept in Poland....

In the last 12 months, energy and infrastructure have dominated discourse on project finance in the Polish legal market. However, practitioners are quick to point out that project finance is a relatively new concept in Poland. "It's very true to say that at the moment the experience on the project finance side in Poland is pretty limited and in particular, I guess when you look at the Polish banks, they are not that sophisticated to cope with the financing on a project finance basis. It is very difficult and very often international banks are involved," says one partner.

Other commentators communicate their dissent with regard to the classification of project finance. "People will tell you that it's project finance but the classical project finance is not happening here, the classical project finance is still a rarity here," says one partner adding: "Project finance is [at] a very very beginning stage. There were already several times that it happened over the years but very few of those. I can assure you that if you have a list of thirty law firms, there were maybe six, seven firms involved, but the remaining twenty did not even lick it."

Renewable energy is still a relatively small sector in Poland but it is generating momentum and holds much potential. "Due to the fact that Poland is part of the European Union, [the] Polish government is obliged to generate approximately 12% of the total production of the energy by renewable sources. At the moment some rough estimation says that only a little bit above 1% of such energy is produced by renewable sources," says one partner.

This year, the market saw EBRD (European Bank for Reconstrcution & Development) and a number of commercial banks engage with the €136 million financing of Poland's biggest wind farm to date. The 120MW wind farm in the municipality of Margonin, north of Poznan is sponsored by Portugal's EDP Renováveis (EDPR).

In traditional energy, the Polish power market is divided into a few large integrated companies. These energy groups have huge balance sheets and low-level debts. As a consequence, they have few problems in obtaining financing in the European bond markets, or by simple corporate lending and so they are less inclined to go down the project finance route.

The PPP (public-private partnership) model has been subject to some intense debate in Poland and conflicts of interest has prevented it from being as effective as purely state or private projects. "PPP is a good slogan but in practice I don't observe that it's an efficient way of financing infrastructure," says one partner. Another says: "PPP legislation was changed like one year ago and it's actually just entering into force in terms of practice. Still I think in Polish public philosophy it is considered dangerous because of potential criminal responsibility so they are not very keen to use this form of financing."

Poland is playing host to the Euro 2012 football championships. With regard to this, there is not too much scope for the private sector. "On the infrastructure side for 2012 there's a lot going on. There's plenty of projects happening, not only motorways but also waste or the utilities at government or municipalities level. The thing, which is not making us utterly happy as lawyers, is that the vast majority of this is financed by government spending and EU funding," says one partner.

"You wouldn't see even the EBRD or EIB (European Investment Bank) or similar multinational financial institutions wandering around doing this type of transaction because it's with government money," one partner says.