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Stock market threatened by VSŽ sales

Capital market dealers have said that US Steel plans to purchase all available VSŽ shares will significantly weaken genuine trading on an already under-capitalised and poorly performing market.
Paling in comparison to the stock markets of its regional neighbours (the Prague stock exchange has a capitalisation volume 10 times higher than Bratislava's bourse), Slovak steel-maker VSŽ is one of just eight companies (see chart) included on the 'listed' capital market which drives the small amount of share trading in the country.
Considered one of the most important trades by dealers, US Steel's intention to become the dominant shareholder in VSŽ will leave few remaining attractive issues if the plans go through, traders say. The American company acquired the core steel activities of VSŽ last October and founded US Steel Košice, holding a current 25% stake in VSŽ.


The sale of SLSP's shares in VSŽ may benefit the FNM, but not dealers.
photo: Ján Svrček

Capital market dealers have said that US Steel plans to purchase all available VSŽ shares will significantly weaken genuine trading on an already under-capitalised and poorly performing market.

Paling in comparison to the stock markets of its regional neighbours (the Prague stock exchange has a capitalisation volume 10 times higher than Bratislava's bourse), Slovak steel-maker VSŽ is one of just eight companies (see chart) included on the 'listed' capital market which drives the small amount of share trading in the country.

Considered one of the most important trades by dealers, US Steel's intention to become the dominant shareholder in VSŽ will leave few remaining attractive issues if the plans go through, traders say. The American company acquired the core steel activities of VSŽ last October and founded US Steel Košice, holding a current 25% stake in VSŽ.

"If US Steel buys more than 95% of VSŽ tradable shares, there will be virtually no VSŽ shares left to trade, and there will be an obvious impact in the market," said Ivan Matúšek, a dealer with Slávia Capital brokers in Bratislava.

The loss of trading in VSŽ shares would leave only four interesting shares left on the market in the near future, according to traders: refinery Slovnaft, VÚB bank, pharmaceuticals maker Slovakofarma and IRB bank. This is a bleak prospect for those on the market floor who fear that with VÚB and IRB likely to be privatised within the next two months (a 70% share is up for grabs in both), even more meaningful trades will be lost. Hungarian oil and gas firm MOL is also expected to up its 36% share in Slovnaft to a majority one this year.

"VÚB shares are well-traded on the market but they are likely to leave as well," added Matúšek.

The USX Corporation, mother company of US Steel, earlier this month announced its intention to buy all VSŽ shares in state hands on the basis of a due diligence now being carried out. After the start of the due diligence on April 4, the share price rose 42.3% in just two weeks - from 299 Slovak crowns to 340 crowns - and following an April 17 sale of VSŽ shares held by the Slovenská Sporiteľňa bank to the National Property Fund (FNM), the state share in the steel-maker reached 41%.

US Steel has announced a public offer to buy minority shareholders' VSŽ shares, giving it complete control over VSŽ, with which the US firm still has many contracts.

The silver lining

But despite the threat to the market from US Steel's plans, there is a silver lining for the state: the cash-strapped FNM will get some money to pay back debts of 26.3 billion crowns. The fund has said that it will use the money from the sale of its shares in the steel maker to pay back the money it used to buy the shares from Slovenská sporiteľňa originally, and then start paying off bonds due to mature this year.

The fund has seen some privatisation proceeds earmarked for its own purse reallocated elsewhere, and said recently that it only has enough money to redeem bonds until this summer. However, it is pinning its financial hopes on privatisations later this year, mainly the sale of the state gas giant Slovenský plynárenský priemysel (SPP).

SPP is one of the few firms which would enliven the capital market, say traders. The firm, valued at between $6 and $8 billion crowns, may go partly on the stock exchange. The government has mooted the idea of putting 15% of a total 49% stake to be sold off this year on the capital market. Dealers and stock exchange officials say this would give the market fresh impetus.

"We are not satisfied with the current state of the capital market, especially with shares. But we hope it will improve. New issues from private firms as well as privatised companies will come onto the market," said BCPB head Juraj Lazový.

He emphasised that some of the most important emissions could be, apart from SPP, pipeline firm Transpetrol and mobile phone operator Globtel.

However, there is still a degree of scepticism surrounding the effect privatisation may have on the market. Legislation is still poor, and the state's plans to sell large stakes, such as those in VÚB and IRB, leave little for the markets.

Market observers doubted that the government would place any shares in SPP on the market, believing any bidder for the firm would want to take the entire 49% as a whole. They added that a lack of legal protection for minority shareholders had reinforced the approach many firms take to shares in Slovakia - to buy majority stakes in companies, effectively killing any trades by reducing the number of freely-traded shares in any one issue to a tiny volume.

"It's minority shareholders who create any kind of market [trading], but in our country the only reason to buy shares is an increase in decision-making power at a company. There is demand only for acquisitions of high share percentages. Very few entities would be interested in buying less then 10% of shares because they would have very insignificant shareholder's rights," said Pavel Habšuda, dealer with Slávia Capital.

"Compared to other Visegrad Four countries [Poland, Slovakia, Hungary and the Czech Republic] Slovakia is lowest [in terms of trading]. It was approached passively when the country was part of Czechoslovakia, and nothing's been done since 1993 [when the two countries split]. We can hardly catch the [trading] train now," he added.

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