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CAPITAL MARKET

Capital market revival sensed

The Slovak capital market has shown signs of a trading revival in the last couple of months. Even though the index for the last month (October 17 - November 17) remained at a stable level, it reached 98.74 points on October 23, 2000, representing the absolute high of the index since October 1, 1998 (when the SAX closed above 100 points).
Blue chips were traded fairly calmly, and largely followed their prices of recent months. The only significantly strengthened issue was IRB, which closed on November 16 at 340 crowns, while a month before its trading price was 150 crowns.


Pavel Habšuda

The Slovak capital market has shown signs of a trading revival in the last couple of months. Even though the index for the last month (October 17 - November 17) remained at a stable level, it reached 98.74 points on October 23, 2000, representing the absolute high of the index since October 1, 1998 (when the SAX closed above 100 points).

Blue chips were traded fairly calmly, and largely followed their prices of recent months. The only significantly strengthened issue was IRB, which closed on November 16 at 340 crowns, while a month before its trading price was 150 crowns. Less dramatic price improvements were also recorded for Slovakofarma, the pharmaceuticals producer, (closing at 1,700 crowns on November 16) Nafta Gbely gas storage firm (closing at 1,450 on November 16) and VÚB (closing at 670 crowns on November 15).

VÚB has been in the limelight for speculative investors for a couple of months, and it appears that the share price of the bank, which has been cleared of bad loans, is on the market at a fairly undervalued price and that the potential strategic investor, expected to enter by 1H01, will accept a far higher price than currently on the market.

Smaller investors appear to have accumulated larger stakes of VÚB shares on the anonymous and direct market, causing its price to rise 100% over the course of the last couple of months. A large, accumulated stake might nominally have a far bigger value than the small stakes sold on the capital market - on November 7, 198,000 units of VÚB shares changed hands at 1,200.

Slovnaft refinery issued 4,156,276 new shares on November 7, almost all of which were subscribed by the Hungarian investor MOL, which in two years will become the majority shareholder of Slovnaft. The Slovak company's total share capital thus increased to 20.6 billion crowns. The new issue will not be publicly tradable, and thus the market capitalisation of Slovnaft on the Stock Exchange will not strengthen and its weight on the SAX will remain unchanged (currently some 37% on the SAX).

The most attractive Slovak security on the market, the National Property Fund bond, traded stably over the month, closing at 11,460 crowns on the anonymous stock exchange market on November 17, while the positive outcome of the referendum, being reckoned with and calculated in the bond price before November 11, had no effect on market price development. The bonds will not be tradeable next year, due to the fact that they mature on December 31, 2000.

Their market price will, until the end of the year, depend mostly on supply and demand, while no dramatic movements of the price upward are to be expected. The current demand for National Property Fund bonds is driven mainly by entities involved in privatisation through the Fund before, and who are now motivated to pay back their commitments towards the Fund through the bonds, saving some money on the margins between the market price and the value for which the Fund will accept bonds from them. Furthermore, there are likely to be smaller private and large institutional investors for whom the yields for effective redemption (December 31, 2001) of 22% are still interesting.

The privatisers are, however, allowed to pay back their commitments to the Fund by means of bonds until only December 8, 2000, and investors are reluctant to accept lower effective yields than current ones. These factors might decrease the demand for the bonds, while on the other hand the supply of bonds is likely to increase in December.

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

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