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Dealers unimpressed by revamped BSE

Despite ambitious plans to turn around its flagging fortunes, the Bratislava Stock Exchange (BSE), according to dealers, is likely to remain in the doldrums for some time to come.
An announcement on August 15 that the BSE would be reorganising its markets in October failed to fire the imagination of largely disillusioned traders and analysts. Representatives of the BSE said that the number of markets on the bourse would be reduced from three to two, and would comprise a main listed market and a second free market. The listed market would consist of a market for trade in blue chip firms, a new market for fast-growing enterprises and a market for medium-sized firms.
"These changes are unlikely to have much effect," said Pavel Habšuda of brokerage house Slávia Capital.

Despite ambitious plans to turn around its flagging fortunes, the Bratislava Stock Exchange (BSE), according to dealers, is likely to remain in the doldrums for some time to come.

An announcement on August 15 that the BSE would be reorganising its markets in October failed to fire the imagination of largely disillusioned traders and analysts. Representatives of the BSE said that the number of markets on the bourse would be reduced from three to two, and would comprise a main listed market and a second free market. The listed market would consist of a market for trade in blue chip firms, a new market for fast-growing enterprises and a market for medium-sized firms.

"These changes are unlikely to have much effect," said Pavel Habšuda of brokerage house Slávia Capital.

Habšuda's remarks were echoed by many observers of the BSE. Having a capitalisation of only $3.3 billion and with its main SAX index now well below its opening levels of 1993, the BSE is regarded as the pauper of the central European bourses of the Visegrad Four group (including Poland, Hungary and the Czech Republic). The Prague exchange, for example, is over 10 times more heavily capitalised than the BSE.

"As for any changes boosting the market, well, to be honest I'm not that optimistic. The overall size of the Slovak market is a problem, and unless you have a country with a high equity culture, it's very difficult for a market [to take off]," said Dalibor Vavruška of ING Barings in London. "And it's very difficult to create that culture if people have had not had a positive experience of past dealings on the market," he added.

Many observers have seen Slovakia's capital markets as poorly regulated with insider trading rampant and little protection or even regard for the rights of minority shareholders.

However, the secretary general of the stock exchange, Juraj Lazový, is convinced that the planned shake-up of the bourse, combined with new legislation concerning financial markets and a shift in the attitudes of the government and the banking sector, will revitalise the bourse.

"The new structure will be important for companies, maybe not in the short term but in the long term. The aim is more for the long term, to prepare conditions on the market for fast-growing companies," said Lazový. "In the long term we need more companies on the market."

He added that new stricter obligations for companies trading on the stock market would help reassure investors of the transparency and working order of the bourse.

In May, along with approving legislation on the creation of an independent regulatory body for capital markets, the government also approved other measures to reinforce the image of a transparent bourse. Two draft bills on securities were passed, comprising a revision to the Securities Act that will change the present definition of publicly tradable securities. Under the first revised draft, a security becomes publicly tradable after its acceptance on the official stock exchange market, whereas at present a security is considered publicly tradable based on permission given by the Finance Ministry. Securities that are publicly tradable in line with the current law will be tradable on the stock exchange until the end of 2001, and an issuer will be obliged to observe disclosure duties.

The other revision to the stock exchange law lays down stricter conditions for securitiesş listings, bringing the law into harmony with EU regulations and also enabling the state more effectively to supervise the stock markets and share trading.

Despite the changes brought in this year, some analysts remain sceptical of the government's real comitment to the stock exchange. While its decision to put a part of the state's 36% stake in mobile phone operator Globtel on the market later this year is expected to breathe some life into trading, a recent National Property Fund privatisation agency decision to put just 3% of a 10% share in refinery Slovnaft, one of the BSE's blue chips, onto the market disappointed traders.

"The decision to sell just a 3% stake in Slovnaft was probably not such a good one. We had been hoping for the whole 10% stake," said Lazový.

Dealers have welcomed the government's move on the Globtel stake but have called for more stocks in state firms slated for privatisation to be put onto the market to kick-start activity on the stock exchange. Analysts have complained that with very few attractive stocks available for trading, there is little speculative investment and the BSE has found it hard to lift itself out of a vicious circle in which low market interest leads to low activity and thus to the reluctance of companies to put new issues onto the market.

"What is important for the stock exchange in the short run is privatisation, for the government to put some shares [in their stakes in firms] on the market. It's a good example to other investors and companies and good for a transparent privatisation process," said Lazový.

"To get companies using the stock exchange for finance... that's the crucial point," he added.

At present, companies have few options for raising finance beyond bank loans. However, with banks reluctant to lend to domestic companies and a credit crunch ongoing in Slovakia, revitalising the bourse so that companies can start raising funds is seen as vital for a parallel revitalisation of the corporate sector.

"Naturally, any company would take advantage of the increased activity on the bourse and probably feel more confident in issuing trades themselves," said Slávia Capital's Habšuda. "And of course they can begin to use this to get some more financing."

However, the outlook for the stock exchange is not all bleak, and recent trading in state bank Všeobecná úverová banka (VÚB) shares has provided encouragement for the government and some hope for dealers. The bank's shares soared by a massive 45% in July on the back of a successful government restructuring of the finance house. Due for privatisation some time in the second quarter of next year, the bank is likely to turn a profit for this year.

"With this current attractive issue we have to just wait and see if this interest is real or just speculative," said Habšuda.

"It may take more than a year to find this out," he added.

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