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CAPITAL MARKETS

VSŽ issue picked as April market leader

The Slovak capital market once again picked a leader in speculative trading at the beginning of April: steel-maker VSŽ. The issue was last under the investor spotlight in May 2000, when shareholders attempted to strengthen positions before an extraordinary shareholders meeting at which final approval was given to an acquisition by U.S. Steel.
On the basis of the shareholders' decision, U.S. Steel, a member of USX Group, acquired all steel-making assets of VSŽ Košice, and the company was named U.S. Steel Košice. The newly founded company still has very close business ties to VSŽ, being by far and away its largest supplier, mostly of auxiliary materials.


Pavel Habšuda

The Slovak capital market once again picked a leader in speculative trading at the beginning of April: steel-maker VSŽ. The issue was last under the investor spotlight in May 2000, when shareholders attempted to strengthen positions before an extraordinary shareholders meeting at which final approval was given to an acquisition by U.S. Steel.

On the basis of the shareholders' decision, U.S. Steel, a member of USX Group, acquired all steel-making assets of VSŽ Košice, and the company was named U.S. Steel Košice. The newly founded company still has very close business ties to VSŽ, being by far and away its largest supplier, mostly of auxiliary materials.

The former VSŽ Košice used to employ 24,000 workers. Of these, 17,000 were transferred along with other assets to US Steel Košice under the acquisition. Before the transaction was finalised, USX Group acquired 25% of the steel maker's share capital with the support of state-owned companies such as the Slovenská sporiteľňa bank and Transpetrol pipeline, and the acquisition gained the final support of an overwhelming majority of shareholders.

At the beginning of April this year, the American owner announced its interest in strengthening its position in what remains of VSŽ Košice. If it wants to acquire more than 30% of all outstanding shares (its current holding is 25%), U.S. Steel will have to announce a public offer to purchase shares on the Bratislava Stock Exchange.

The public offer price must not fall below 50% of the NAV [Net Asset Value] per share calculated on the basis of the most recent audited financial statements, nor can it be below the average trading price on the capital market for the last six months.

This suggests that the price per share in a public offer would far exceed the price at which VSŽ shares have been traded between the start of this year and the beginning of April (75 - 249 Slovak crowns), providing a prime motivation for speculative investors to take short term investment positions in VSŽ shares.

Towards the end of April, however, VSŽ's share price weakened, mostly because of speculative concerns over the price at which the USX public offer will likely be called.

Left with only one licenced market organiser

As of May 1 there will be only one licenced capital market organiser in Slovakia - the Bratislava Stock Exchange. The licence period granted to the other capital market organiser, RM System Slovakia, a.s. (OTC market), expired on April 30.

The RM System had provided securities' purchase and sales services predominantly to physical persons across Slovakia. Small shareholders and Slovak citizens have been using the RM System mostly for sales of share stakes in Slovak corporates included in the first wave of voucher privatisation (1992).

The RM System represented the best means for the provision of share purchase services for physical persons since all legal entities as well as physical persons were allowed to go to RM offices and file orders for purchases or sales, either into anonymous auctions or in negotiated deals with a known counterpart.

On the other hand, the Bratislava Stock Exchange has only 40 members allowed to trade directly on the market, while other capital market participants have to use the direct members' commission services. The most attractive security on the RM System market in April was, as in March, National Property Fund (FNM) bonds, the price of which rose through the month.

Pavel Habšuda is a treasury member at brokerage house Slávia Capital. Comments can be sent to him at phabsuda@slavia.sk

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