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SHARE OFFERINGS ON THE BRATISLAVA STOCK EXCHANGE DECREASE

Abandoning a sinking ship

THE NUMBER of share offerings traded on the floor of the Stock Exchange in Bratislava has continued to shrink as large and small companies lose their motivation to place their shares for trading.
In May five share offerings were withdrawn from the stock exchange floor with a nominal value of Sk202 million (Ř5.3 million). Currently 296 offerings of shares and mutual fund certificates are traded in the Stock Exchange in Bratislava (BCPB). At the end of last year it was 306 offerings while in 2001 the number stood at 888.

THE NUMBER of share offerings traded on the floor of the Stock Exchange in Bratislava has continued to shrink as large and small companies lose their motivation to place their shares for trading.

In May five share offerings were withdrawn from the stock exchange floor with a nominal value of Sk202 million (Ř5.3 million). Currently 296 offerings of shares and mutual fund certificates are traded in the Stock Exchange in Bratislava (BCPB). At the end of last year it was 306 offerings while in 2001 the number stood at 888.

Companies see hardly any advantages of having shares traded on the stock exchange. Not only do they have to pay quite high fees but also regularly provide the stock exchange with data on their performance.

"The whole capital market is about effectiveness. The capital market is an alternative to financing through debts to banks. You as a client can decide whether you take a loan in a bank or you issue securities. And if the securities with all the fees are more expensive than a loan in a bank you have no reason to issue securities. Decreasing numbers of offerings is evidence that the situation is like that," Robert Kopál, director of the Securities Brokerage Association, told The Slovak Spectator.

As a result even large companies such as Slovenská poisťovňa, VSŽ steelworks, ZSNP, and Nafta decided to leave the floor. There are not many big titles left to be traded. "Currently, shares of ironworks Železiarne Podbrezová, Slovnaft oil refiner and VÚB bank are traded the most," said Vladimír Jurík, the head of treasury's client department of Tatra banka.

Kopál considers the presence of large companies at the capital market crucial. "When there are big companies on the capital market, the smaller companies gain courage [to be there as well] because they can see that the capital market is functional, liquid and they are able to gain unoccupied financial resources through their offerings," he said.

According to Kopál Slovakia made a mistake when it did not use the capital market for the privatisation of strategic companies. Hungary, Poland and the Czech Republic decided to take advantage of their stock exchanges during privatisation and today they enjoy active, functional capital markets.

"Unfortunately, in Slovakia there is not even one example when the government privatised a strategic company through the capital market," Kopál pointed out. A potential investor on the BCPB thus lacks strategic energy and telecom companies that provide interesting dividends and are the backbone of each capital market.

Poor trading at the capital market has a negative impact not only on the potential traders but on the more than one million Slovak citizens who invested their pensions in the II. capitalisation pillar as part of the new pension system.

The legislation pertaining to pension reform requires pension fund management companies to invest 30 percent of their financial resources on the domestic capital market. The intent of the decision-makers was to enliven the Slovak market.

"However, this is counterproductive because bonds are the only thing you can buy on the Slovak market. However, returns on bonds are not very lucrative and they are not a tool for long-term savings. The people will thus get lower returns than they would get with a normally functioning capital market," Kopál explained.

Additionally, poor capital markets deprive companies of the possibilities to acquire financing for their projects other than bank loans. "Not everything can be financed by loans," Kopál added. "A functioning capital market enables you to finance projects that could be not realised otherwise. For example, Microsoft might not exist without the capital market."

As a solution, he suggests the cabinet sells the shares it still owns through the stock exchange. There are still companies where the state owns the majority share, for example, the gas company Slovenský plynárenský priemysel (SPP). "If the state offered at least 15 percent of shares on the capital market, it would be enough."

The recent takeover of the Central Securities Depository, which registers securities and settles transactions, by the BCPB from the Finance Ministry also gave hope for improving services and lower fees for transactions. The takeover also creates conditions for possible future privatisation of the stock exchange.

Some think the Vienna stock exchange plans for creating a Central European Stock Exchange could also help. "It would surely be at least a partial solution to an unfavourable situation. The Slovak market would gain more than it would lose in such a union," said Radoslav Stopiak, head of trading in the treasury division of Slovenská sporiteľňa bank.

However, insiders emphasize that due to poor traded volumes the BCPB is not as attractive for the foreign partners of the future Central European Stock Exchange as are its Czech, Polish and Hungarian counterparts. The Slovak stock exchange would have to first improve its position to be able to become a strong partner in the joint project.

The BCPB saw a turnover of more than Sk1,000 billion (Ř26.4 billion) last year, approaching record turnover from 2003 and rising 131 percent year-on-year. However, the structure of transactions on the BCPB is unsatisfactory, SITA wrote. Share trading remains minimal and government bonds are keeping the stock exchange afloat.

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