1. Corporates
Poland
Special Report
Polish Corporate Bond Market
Analysts Summary
Arkadiusz Wicik, CFA Fitch Ratings believes that the Polish domestic corporate bond market, which has
+48 22 338 62 86 experienced a slowdown in issuance to‐date in 2009, may revive in 2010. Bond
arkadiusz.wicik@fitchratings.com
issuance is considered an attractive funding option by a number of large corporates
Raymond Hill with solid creditworthiness as bank loans are more difficult and costly to raise than
+44 20 7417 4314 before the global funding crisis. In addition, there is increased investor demand for
raymond.hill@fitchratings.com
corporate bonds with strong credit ratings as they offer a hefty credit spread over
treasury bonds. In this environment, several Polish companies operating in the
Related Research power and oil and gas sectors announced plans to launch sizeable corporate bond
· Poland (May 2009) issues in the domestic and international bond markets in 2010 mainly to fund rising
· Polish Corporates Face Economic Slowdown capital expenditure.
and Funding Challenges in 2009
(February 2009)
Despite expected increase in corporate bond issuances in 2010, the agency does not
· South African Bond Market Overview
(October 2009) envisage a major structural change in external financing of the Polish corporate
sector as bank loans are expected to remain the largest source of debt for
corporates in the next five years.
The agency notes that the domestic bond market has become more selective for
issuers due to increased risk aversion of bond investors and banks arranging the
issues. As a result, companies with weaker credit quality or small and medium‐sized
entities are not likely to be frequent issuers of domestic corporate bonds at least
until the economy returns on a path of strong growth.
One of the obstacles of the domestic bond market is limited liquidity, transparency
and scarce information on bond pricing, credit spreads and default statistics. The
agency believes that Catalyst, a new trading platform for the secondary bond
market launched by the Warsaw Stock Exchange and BondSpot S.A. on 30
September 2009, has the potential in the medium to long term to increase
investors’ interest, in particular institutional investors, in this asset class by
improving market liquidity, transparency and information on bond valuation.
Market Development
Polish Corporate Bond Market in 2009
The corporate bond issuance in the domestic market slowed down in January to
September 2009 as the economic slowdown and weaker economic outlook caused
companies to reduce their borrowings and scale back capital expenditure plans. In
addition, it became more difficult to place bonds in the domestic market due to
increased aversion of investors to corporates with higher credit risk. As a result of
redemption of maturing bonds and lower new issuance, the outstanding value of
domestic corporate bonds with maturities of over one year declined by 9% to
PLN13.7bn (EUR3.3bn) at end‐September 2009 from PLN14.9bn at end‐December
2008. Fitch believes that first signs of recovery were seen in September 2009, when
corporates issued PLN1.2bn bonds with maturities of over one year following limited
issuance from January to August 2009 of only PLN0.3bn.
The commercial paper segment, which includes issuance by corporates and banks
declined by 6% to PLN12.2bn between December 2008 and September 2009 (see the
Debt Issuance by Polish Companies table).
The same declining trend, albeit less pronounced, was evident in bank loans to
companies, which decreased by 1% between December 2008 and August 2009 to
PLN213bn, according to National Bank of Poland data. This was partly driven by
www.fitchratings.com 14 October 2009

2. Corporates
banks’ increased restrictions to corporate lending resulting in substantially higher
credit spreads for corporate borrowers, increased loan security requirements and
also tightened lending policy related to higher risk sectors or companies. The
decline in corporate bank loans also stems from weaker corporate demand for
external funding in the unfavourable economic environment.
The only growing segment in 2009 to‐date has been corporate bond issuance in the
international markets. The outstanding value of this segment rose to PLN5.7bn at
end‐September 2009 from PLN2.9bn at end‐December 2008. This growth was driven
by two issues by Telekomunikacja Polska S.A. (‘BBB+’/Stable), which through its
finance subsidiary issued bonds with a total value of EUR700m in May and July 2009.
Despite the increase in 2009, the international issuance of bonds by Polish
companies is well below the level seen in 2005 as several companies have
redeemed their long‐term bonds between 2006 and 2008 and new issuance has been
limited.
Debt Issuance by Polish Companies (Outstanding debt in PLNbn at end of period)
2005 2006 2007 2008 Sep 09
Corporate bonds in the domestic market (maturity over 365 days) 8.9 8.8 13.9 14.9 13.7
Corporate bonds in the international markets (maturity over 365 days) 9.5 7.2 4.5 2.9 5.7
Total corporate bonds (maturity over 365 days) 18.4 16.0 18.4 17.8 19.4
Commercial papera 8.6 12.9 13.8 13.0 12.2
a
Commercial paper include issuance by corporates and banks
Source: Fitch Polska
Case Study: Selected Bond Issuers In 2009
Telekomunikacja Polska S.A. (TPSA)
TPSA, Poland’s leading telecoms operator, was one of the first central European corporate
issuers together with Czech Republic’s utility CEZ, a.s. (‘A‐’/Stable) to tap the eurobond
market following the global financial crisis in 2008. TPSA, which used to be a frequent
bond issuer in the international markets, established a EUR1.5bn European medium‐term
note (EMTN) issuance programme in May 2009. Its finance subsidiary TPSA Eurofinance
France S.A. issued bonds of EUR500m in May 2009, followed by a tap issue of EUR200m in
July 2009. The bonds have a coupon of 6%, are due in May 2014 and are guaranteed by
TPSA. The company issued bonds in order to rebalance debt structure between bank loans
and bonds, extend debt maturity profile and secure liquidity in anticipation of refinancing
needs in 2010‐2011.
Miejskie Wodociagi i Kanalizacja w Bydgoszczy Sp. z o.o. (MWiK)
In June 2009, MWiK (revenue bond rating of ‘BBB‐’), a water company operating in the
City of Bydgoszcz (‘BBB’/Stable), issued in secured revenue bonds of PLN100m due in
2029. The issue was launched in the domestic market under the company's secured
revenue bond programme of PLN600m, which is intended to co‐fund MWiK's sizeable capex
programme of PLN1bn. The June 2009 bond issue was oversubscribed. Since 2005, MWiK
has issued bonds totalling PLN320m and plans to issue the remaining PLN280m under the
programme over the next few years. MWiK bonds maturing in 2024 and 2029 have one of
the longest maturities among domestic corporate bond issuers.
Increased Credit Spreads
Fitch notes a substantial increase in credit spreads in the domestic bond market as
well as bank loans in 2009. The spreads on bonds of issuers rated in the ‘BBB’
category rose to about 200‐300 basis points over WIBOR from about 30‐50 basis
points before the funding crisis. However, the increase in borrowing costs for such
issuers was less pronounced, as the widened spreads were mitigated by lower base
rates as the three‐month WIBOR declined to 4.2% from 6.5% in June 2008.
Polish Corporate Bond Market
October 2009 2

3. Corporates
Domestic Non‐Government Bond Market
Corporate bonds are the largest asset class of the non‐government domestic bond
market, accounting for 32% of the total market value, followed by the CP segment
(28%), bank debt (27%) and municipal bonds (13%).
The value of the domestic non‐government debt market decreased by 4% between
December 2008 and September 2009, following several years of strong growth (see
Polish Non‐Government Domestic Debt Instrument Market table) as corporates and
banks reduced their borrowings from bonds, commercial paper and other debt
instruments. The municipal bond segment remained on a growth path despite the
economic slowdown.
Polish Non‐Government Domestic Debt Instrument Market
(PLNbn, outstanding debt at end of period)
2005 2006 2007 2008 Sep 09
Commercial paper 8.6 12.9 13.8 13.0 12.2
Corporate bonds (over 365 days) 8.9 8.8 13.9 14.9 13.7
Bank debt (over 365 days) 4.3 6.0 10.8 12.4 11.6
Municipal bonds 3.3 3.8 4.1 4.5 5.4
Total debt 25.1 31.6 42.6 44.8 42.9
Source: Fitch Polska
As in many other counties in the region, including the Czech Republic, Slovakia,
Hungary and Turkey, the domestic bond market in Poland is dominated by
government debt, which constitute about 91% of total outstanding debt (at end‐
June 2009), followed by non‐government debt (9%).
Corporate bonds versus bank loans
According to the agency’s estimates corporate bonds account for about 10% of the
total debt of Polish companies as bank debt remains the predominant funding
source for the corporate sector, constituting about 90% of the total debt.
Polish Corporate Debt by Source of Funding
Outstanding Amount at Period­End
Bank loans Corporate bonds a Commercial paper b
(PLNbn
200
150
100
50
0
2005 2006 2007 2008 Aug‐09
a Corporate bonds issued in the domestic and international markets
b Commercial paper include issuance by corporates and banks
Source: National Bank of Poland, Fitch Polska
Planned Corporate Bond Issues
Among companies that plan large bond issues is Poland’s largest power group, PGE
Polska Grupa Energetyczna S.A. (PGE, IDR of ‘BBB+’, senior unsecured rating of
‘A‐’), which plans a eurobond issue of at least EUR500m within the next six months.
The proceeds will be used to co‐fund the capex programme. Another large state‐
owned power group, Tauron Polska Energia S.A., also plans a bond issue in the
medium term to raise funds for substantial capex.
Polish oil and gas company Polskie Gornictwo Naftowe i Gazownictwo S.A. (PGNiG)
may be another significant issuer as it considers about PLN4.5bn bond issue in the
Polish Corporate Bond Market
October 2009 3

4. Corporates
domestic and international market in 2010 in order to refinance maturing
syndicated loan facility and fund capital expenditure.
Fitch believes that the eurobond market may be a viable option mainly for highly‐
rated Polish issuers planning to raise large debt, of EUR300m and above. Otherwise,
such amounts may be difficult to raise through syndicated bank loans in the current
constrained bank loan markets or in the domestic bond market given its limited
depth. The first nine months of 2009 saw increased investor demand for investment
grade corporate bonds in Europe and record corporate issuance.
According to Fitch estimates about PLN2.3bn of corporate bonds issued in previous
years matures by the end of 2010 and a part of this is likely to be refinanced by
new bond issues, particularly in the case of issuers with solid financial standing. For
instance, Polish railways company Polskie Koleje Panstwowe SA issued five‐year
PLN650m bonds in September 2009 mainly to redeem its maturing bonds. The bonds
are guaranteed by the state.
The agency expects that new issuers of revenue bonds may tap the domestic bond
market in 2010, as municipal companies plan to fund their large capex plans related
to infrastructure projects in the water sector and transportation, which are often
co‐funded by the European Union. Revenue bonds combining municipal and
corporate risk, which usually have long‐term maturities, are often purchased by
institutional investors with long‐term investment horizon, such as pension funds.
Market Infrastructure
Investors of Other Non­Govern­
Originators, Arrangers and Investor a
ment Debt , end­ August 2009
Base Insurance Other
According to Fitch Polska S.A., 77 issuers co mpanies 4%
P ensio n 4%
had outstanding domestic corporate funds
Companie
s
39%
bonds with maturities of over one year at 7%
end‐September 2009. In addition, three Fo reign
Polish corporate issuers had outstanding entities
1 %
1
eurobonds.
Investment funds B anks
14% 21%
The main arrangers of domestic
corporate bonds include domestic banks, a This catego ry comprises mainly co rpo rate bo nds
which are active in corporate finance Source: The Natio nal B ank o f P o land
services, including Bank Pekao SA (‘A‐’/
Negative), ING Bank Śląski (‘A’/Stable),
BRE Bank SA (‘A’/Stable), Bank Handlowy w Warszawie (Support Rating of ‘1’) and
Powszechna Kasa Oszczednosci Bank Polski (Support Rating of ‘2’).
Among the largest investors of domestic corporate bonds are companies, banks and
investment funds (see the Investors of Other Non‐Government Debt chart). Fitch
estimates that a substantial part of corporate bonds purchased by companies are
intra‐corporate group bond programmes related to cash management within a group.
In such programmes, companies with liquidity needs issue intra‐group bonds to
companies with a liquidity surplus. Such programmes were launched by several
Polish issuers rated by Fitch, including PGE, Polski Koncern Naftowy ORLEN S.A.
(PKN, ‘BB+’/Rating Watch Negative) and TPSA. According to Fitch estimates, intra‐
group bonds accounted for around 15% of outstanding corporate bonds with
maturities over one year at end‐September 2009.
In addition, some corporate bond issues are effectively quasi‐bank debt as the
banks arranging the transactions purchase the bonds, for instance through full
underwriting and these issues are not always sold to investors at a later stage.
Polish Corporate Bond Market
October 2009 4

5. Corporates
Primary and Secondary Market
Despite its growth in recent years, the Polish non‐government bond market is
underdeveloped in value and infrastructure terms compared with some other
emerging market countries’. Its value is much lower than the domestic markets in
Russia, South Africa or its regional peer, the Czech Republic (see the charts Non‐
Government Debt Market in Selected Emerging Markets, and Corporate Funding —
Domestic Debt Securities and Bank Loans as % of GDP). Fitch considers the
transparency of the Polish non‐government bond market to be limited currently as
the vast majority of domestic bond issues are launched as private placement with
limited information on credit spreads and investor base. The secondary market,
existing in the form of trading offered by the banks arranging the bond issues, has
low liquidity and limited bond pricing information.
The agency believes that the recent start‐up of Catalyst, an organised market in
debt securities, has the potential to improve the liquidity and transparency of the
corporate bond market. However, this will take time and any major qualitative
changes to the domestic market are unlikely in the short term. Catalyst will
facilitate corporate and municipal bonds issuance and provide secondary trading for
qualified and individual investors. The trading platform is also likely to improve
investor access to timely information on issuers given Catalyst’s disclosure
standards.
Non­Government Debt Market in Selected Emerging Markets at End­2008
(USDbn equivalent) Co mmercial P aper Co rpo rate B o nds B ank Issuance M unicipal B o nds
80
60
40
20
0
Russia So uth A frica* Czech Republic P o land Hungary
* Data fo r So uth A frica at end­M arch 2009
So urce: Fitch P o lska, Central B ank o f Russian Federatio n and cbo nds.info , the B o nd Exchange o f So uth A frica,
Czech Natio nal B ank, Hungarian Financial Superviso ry A utho rity
a
Corporate Funding ‐ Domestic Debt Securities and Bank Loans as % of GDP
(At YE08) Domestic debt securities by corporate issuers as % of GDP
Bank loans to non‐financial corporations as % of GDP
50%
40%
30%
20%
10%
0%
Spain Italy France Germany Czech Republic Poland Hungary
a
Domestic debt securities by corporate issuers in Poland based on Fitch Polska data
Source: Fitch, Bank for International Settlements, European Central Bank
Conclusion and Outlook
The agency believes that the tightened credit market conditions and expected
increase in issuance by corporates with stronger business and financial profiles are
likely to increase the share of bond issues with lower credit risk in the total
domestic bond market. It remains to be seen to what extent the economic
Polish Corporate Bond Market
October 2009 5

6. Corporates
Fitch Public Ratings for Corporates in Poland
Bonds Bonds
outstanding as a % total
Issuer Rating Outlook at YE08 (PLNm) debt at YE08
Miejskie Przedsiebiorstwo Komunikacyjne ‐ Revenue Bond Rating of ‘BBB‐’ n.a. 165 44.7
Lodz Spolka z o.o. (MPK)
Miejskie Wodociagi i Kanalizacja w Revenue Bond Rating of ‘BBB‐’ n.a. 230 100.0
Bydgoszczy Sp. z o.o. (MWIK)
Orbis S.A. National Long‐Term Rating of Negative 0 0.0
‘BBB+(pol)’
PGE Polska Grupa Energetyczna S.A. (PGE) IDR of ‘BBB+’ Stable 1,632 21.7
Polski Koncern Naftowy ORLEN S.A. (PKN) IDR of ‘BB+’ Rating Watch Negative 1,205 8.6
Przedsiebiorstwo Wodociagow i Kanalizacji National Long‐Term Rating of Stable 0 0.0
Sp. z o.o. Olsztyn (PWIK) ‘BBB(pol)’
Telekomunikacja Polska S.A. (TPSA) IDR of ‘BBB+’ Stable 1,276 17.6
Fitch also rates 23 municipalities, five regions, 12 financial institutions and two insurance companies in Poland
Source: Fitch
downturn will impact the credit quality of issuers operating in more cyclical sectors
and default statistics of bonds issued at times of stronger economic growth.
Only a limited number of domestic corporate bond issuers have assigned credit
ratings (see the Fitch Public Ratings for Corporates in Poland table). The agency
expects that more issuers in the domestic market will seek to obtain ratings as bond
investors increase their emphasis on the creditworthiness of issuers. Fitch believes
that a more widespread use of ratings, be it national or international ratings, is
likely to increase the transparency of the domestic bond market.
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Copyright © 2009 by Fitch, Inc., Fitch Ratings Ltd. and its subsidiaries. One State Street Plaza, NY, NY 10004.Telephone: 1‐800‐753‐4824,
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Polish Corporate Bond Market
October 2009 6