Pavel Habšuda |
Even though the last half of 2000 seemed to be encouraging for the further development of the capital market, it appears that at the beginning of the current year it has slipped back into its old trading rut.
The encouragement as 2000 came to a close had been seen in the trading of issues which enlivened the entire capital market, including Nafta Gbely (the dominant gas storage company), VÚB (a state-owned bank about to be privatised), IRB (another state financial house set for sale) and SES Tlmače (a power engineering company). Trading with Nafta Gbely culminated with the entry of a minority investor, Westfälische Ferngas AG, which took an aggregate stake of 40% on outstanding share capital. We also saw the conclusion of a Memorandum of Understanding with the majority shareholder in the Slovak Gas Company (SPP), the state gas utility.
Privatisation tenders at VÚB and IRB are pending, and accumulated stakes in these firms are likely to be offered to strategic investors entering the state-owned commercial banks or financial investors interested in controlling at least 10% of the share capital - the lowest threshold at which an investor can obtain certain minority shareholder rights.
In February, speculative investors' interest was concentrated mostly on the issue of shares in Doprastav (a road construction firm). Trades with the issue represented some 45.6% of the total trading with shares in the second month of the year, while the price of the issue firmed by some 48.8% to 2,000 crowns. Most interestingly, some 486,480 pieces of the Doprastav issue, which is included in the SAX (main Slovak share index) calculation, were traded on February 26; this volume represents 48.2% of the entire issue, hinting at sizeable reshuffles in minority shareholder interests.
The RM System (Over-The-Counter - OTC market), which is the second licenced capital market organiser in Slovakia, launched trading with receivables derived from FNM privatisation agency bonds on March 1. The security was the most attractive issue on the Slovak capital market in 2000, with many foreign and domestic institutional investors purchasing at favourable yields to effective maturity (December 31, 2001) of above 30% and, towards the end of trading, above 20% p.a..
Investors view the risk deriving from the receivables as comparable with state-issued securities, and prefer them due to the difference in yields to maturity the former bonds and current receivables offer. In the first two days of trading, liquidity was extremely low, with strong bids and few offers on the market, resulting in a rapid price increase of the receivables.
Banks still top interest
The interest of investors still tends toward the issues of state-owned commercial banks and issues picked for trading by selected market makers, such as Slovnaft (oil refinery) or Slovakofarma (pharmaceuticals producer). However, the trading does not at all appear to mirror genuine trading but rather speculative trading.
Those involved in trading on the capital market focus on issues where the free float shares are undervalued. The free float is collected by these short-term holders, and is subsequently offered as one collected stake to a final investor with a premium significantly above the market price. Once this process is completed, the remaining free float of the issue becomes uninteresting for investors, since a fractional shareholding does not offer them minority shareholder rights, and usually no dividends are paid. Moreover, the mood on the market is rigidly pessimistic, with little chance to sell back the shares at a better price on the market.
The 'deformed' trading on the Slovak capital market routes back to 1996 (during the government of Vladimír Mečiar), when the FNM privatised large and majority stakes in lucrative formerly state-owned companies at prices far below their market value. Portfolio investors became sceptical, and were unwilling to invest into holding tiny share volumes in issues at higher prices than privatisers, which in addition did not offer any dividend payments nor any easy way out of the situation through a sale on the capital market, because of exceptionally low liquidity.
The distrust of investors has since then become rigid, and an extreme investor distrust still permeates the market.
The Bratislava Stock Exchange, in co-operation with the Ministry of Finance, has attempted to enliven trading by picking selected market makers who trade with the most attractive blue chip issues as mentioned above, in order to allure other traders to start active trading. However, the market makers keep exchanging the issues at stable or continuously lower prices, which discourages other traders from participation on the capital market.
Pavel Habšuda is a treasury member at brokerage house Slávia Capital. Comments and questions can be sent to him at phabsuda@slavia.sk
