As part of the Strategy for Responsible Development - Capital Building Program, one of the directions of the changes being considered by the Ministry of Development ("Ministry") is the total scrapping of Open Pension Funds ("OPF"), under whose control fall assets of 134.9 billion zł (according to data from the end of June 2016). Assumptions regarding changes related to the liquidation of OPF presented by the Ministry are only general guidelines that will certainly be the subject of further work. At the same time they constitute evidence that the Ministry has not found a ready solution, nor ruled out any possible scenario of liquidation of the OPF. Therefore, already at this stage we present the possible scenarios and their impact on the situation of public companies in the portfolio of Open Pension funds.
Scenario 1
The first of the possible scenarios is the division of the assets of OPF in such manner that:
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25% of liquid assets other than shares in Polish public companies (mainly corporate bonds, shares of foreign companies and cash), characterized by a rapid degree of liquidity will be transferred to the State Demographic Reserve Fund managed by the Polish Development Fund, while
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participation units that OPF[1] are entitled to, which assets will correspond to 75% of the existing assets of OPF assets, in the form of shares in Polish public companies, will be transferred to the Individual Retirement Account s("IRA") maintained for each `participant.
This scenario - if it does not change - will not change the situation of shares in Polish public companies found in the portfolio of OPFs, because the funds transferred to the IRA will constitute private assets. The same scenario also assumes that OPR replaces the investment funds managed by the Investment Fund Company (“IFC") arising as a result of the transformation of the Universal Pension Fund Companies (“UPFC"). Currently, it is not clear how the separation of assets, their allocation in funds or additional management of shares of Polish companies by IFCs would operate; it is also not known what degree of freedom to dispose units of the IRA will be granted to the right holders. One cannot therefore exclude the risk of dispersal of shareholdings in companies with a significant financial commitment to real estate OPFs.
Scenario 2
The next possible scenario is the consolidation of OPFs in one fund opened and managed by a specially appointed state entity. This fund would become similar to a classic sovereign fund, namely a sovereign wealth fund, but due to the control of the State Treasury, with a limited degree of independence. The acquisition of control over the assets of OPF by the Treasury through the new entity will be associated with a significant change in the position of a number of public companies.
Depending on the current share of OFE in the shareholding of these companies, the Treasury would receive the rights of the shareholders, depending on the size of the shareholding, including the possibility of appointing one member of the Supervisory Board as part of group voting. In the case of some public companies the Treasury would reach thresholds enabling it to actually exercise negative control or even positive (the actual execution of more than 50% of the votes at the general meeting, taking into account the dispersion of the remaining shareholdings and even legal control (i.e. more than 50% of the total votes at the general meeting of the company). One should also pay attention to the right of the State Treasury to challenge resolutions of the general meeting.
The above scenarios are only preliminary, and a general analysis presented by the Ministry (at least in the media) of assumptions regarding the directions of changes and their impact on the public companies in which the shareholding of OPFs are present. In order to determine the consequences of each of the above liquidation models of OPF for individual public companies, it is prudent to at this stage conduct an individual analysis (including the shareholding structure and corporate documents) and prepare actions to mitigate the risk of the above-mentioned impact of the Treasury on the management or governing bodies (e.g. to take measures to reduce the impact in case of full nationalization of assets of OPF).
Notes:
[1] The problem here is whether it will include only OPF participants or also people who gave their share in OPF and whether the actual value and the method of calculating and separation of 75% of assets per unit of participation in a fund, should be considered.
