Engineering company Motorpal is considering expanding to India and China, but before the Jihlava-based company can make the jump, it must first enter a place that is almost as foreign to Czech firms — the Prague Stock Exchange (BCPP).

"Our first steps to the expansion will lead through the stock exchange," Motorpal spokesman Jan Nováček said.

Having considered an initial public offering (IPO) for nearly two years, Motorpal announced in October that it would like to get listed on the BCPP by the first half of 2007. The company intends to raise 20 million euros ($25.2 million/566.8 million Kč) through its IPO.

The offering would be the first new BCPP stock in two years and just the second IPO in more than a decade. The announcement comes during a period of stagnation for the BCPP, and analysts question the stock exchange's necessity.

Motorpal joins a half-dozen Czech companies announcing plans to enter the exchange recently, including AAC Czech, BGS Levi Group, and coal mining company OKD.

Some of those companies have since abandoned the idea.

New IPOs are likely to determine the future direction of the BCPP and, quite possibly, its very existence, said Markéta Šichtařová, director of NextFinance.

"The sole purpose of a stock exchange is to provide a place where companies go to raise money," she said. "If BCPP fails to serve this purpose, there is really no need to have it."

Many obstacles

A new wave of IPOs has been long awaited in Prague. The bourse, which began trading in 1993, has seen only one company launch an IPO. Pharmaceutical maker Zentiva introduced its stocks to the BCPP market in 2004.

The exchange saw high trading volume in the early 1990s, when shares of many state companies were sold thanks to massive coupon privatization. But companies have left it over the years. Last year, the number of total stocks fell from 55 to 39.

Generous bank loan policies gave companies little incentive to raise capital on the stock market. A sea of application paperwork is a disincentive.

"Being listed on a stock exchange is a prestigious thing, and many companies would like to be on it," Šichtařová said. "But when they realize what needs to be done in order to enter the BCPP, they change their minds."

Jan Procházka — an analyst with brokerage company Cyrrus, which is expected to introduce the Motorpal stock on BCPP — said managers are hesitant to post regular quarterly reports, which they would need to do once their company is listed on the exchange.

"Everyone here prefers making annual goals and reporting at the end of the year," Procházka explained.

Losing ground

While the BCPP has held steady, other exchanges in the region have grown.

The Vienna Stock Exchange saw four IPOs this year, and Warsaw had more than 20.

BCPP spokesman Jiří Kovařík said that the high number of IPOs in Poland was due to the presence of several pension funds on the Warsaw market, a result of pension reform in Poland.

"Poland's pension funds create high demand for new investment opportunities, and this pulls the entire Warsaw Stock Exchange," Kovařík said.

He said pension reform in the Czech Republic would increase the role pension funds played on the stock market, and the possible privatization of some of the remaining state-held companies such as ČEZ and Czech Airlines would breathe new life into the BCPP.

The BCPP's call for privatizing state-held companies worries some analysts. Under the current economic conditions, Šichtařová said, BCPP has an insignificant economic impact and could well be canceled.

Kovařík insisted the existence of the exchange is justified, since it has been holding steady and still represents an alternative source of financing for businesses.

No sure thing

Motorpal started restructuring to launch an IPO and has begun determining how much interest there would be from potential investors.

"If there is no interest whatsoever, there would be no point in making an IPO," Nováček said.

Cyrrus's Procházka admitted that while the Motorpal IPO was not "100 percent certain," it is likely that it would become one of about four IPOs that are expected to join the stock market in 2007.

Kovařík said the BCPP expected to add more IPOs currently in the pipeline, adding that some should launch within half a year.

The BCPP hopes Motorpal's example will blaze a trail for companies and rejuvenate the exchange.