PRAGUE (Reuters) - Faced with declining trade, the Prague Stock Exchange (PSE) is shaking up the classic initial share offering by giving smaller firms a new listing venue that bypasses expensive investment bank fees.
Trading volumes on the Czech bourse have fallen by a fifth since 2013 and stock buybacks have cut the free float of some of Prague’s 13 main-market stocks, raising the risk of delistings.
PSE Chief Executive Petr Koblic said smaller exchanges like Prague have been hit by a shift towards investors trading via brokers rather than directly on the exchange since the European Union’s MiFID market reform.
The exchange has also suffered from the enormous cash piles held by Czech private equity firms and from cash-rich private funds competing with investors for listed companies in recent years, he said.
Prague will launch the new START market on May 15 to attract firms valued at up to 80 million euros ($100 million) - a size that makes fundraising via IPOs costly in relation to fees but is too large for crowdfunding.
“There is this gap where companies don’t have access to public markets,” Koblic told Reuters in an interview on Thursday.
“Some companies don’t want to have private equity or venture capital as partners... Some companies want to stay independent, they want to grow but they need some equity.”
Prague has long sought to boost its capital markets in a country where firms have easy access to cheap bank loans.
With market capitalisation of 52.2 billion euros, the exchange is dominated by a handful of big stocks, like energy utility CEZ (CEZP.PR).
Trading will not be continuous on START but in auctions held four times a year. Four companies have already announced their intention to float and Koblic said up to 20 others are in talks.
Unmanned aircraft maker Primoco will be one of the first to list on START and plans to build a new production facility and testing ground with the money it raises.
“We had expected to find a strategic financial investor at some point but it did not develop quickly,” Primoco co-owner Ladislav Semetkovsky told Reuters. Traditional investors did not understand its business sector, he said.
Other companies planning to list on START include boot maker Prabos, 3D printing material maker Fillamentum, and shared office provider Hub Ventures.
With potential de-listings of betting group Fortuna Entertainment Group FORE.PR or refiner Unipetrol (UNPE.PR) from the main market, the new system can hardly make up for the lost trading.
Koblic said bigger companies were looking at IPOs on the main market, without giving any further details.
In a traditional IPO, an investment bank typically underwrites the share issue, markets the new shares to investors and sets a price for the shares.
Firms taking the START route will have an adviser, typically a smaller corporate finance consultancy, but standards will be more relaxed than for the regulated market.
They will issue a simplified prospectus, which must be approved by the Czech central bank, and a law firm and an authorised analyst will conduct due dilligence, but costs will be lower than in a traditional IPO.
“The advantage of START over other similar markets in Europe is minimal costs for the issuer,” the Prague Stock Exchange said on its website.
Koblic also said some banks were not happy with START.
“We disrupted the traditional situation,” he said. “But their traditional model doesn’t work for a 20 million euro IPO ... So we are trying to find another model.. without the lead manager.”
(This version of the story corrects Fillamentum description in paragraph 13)
Reporting by Jason Hovet, additional reporting by Petra Vodstrcilova; Editing by Adrian Croft