Stock market waits with baited breath for 1998 corporate results

Since the beginning of March, the equity market has registered moderate trading activity. Average daily turnover decreased to 67 million Slovak crowns from mid-February. The official SAX index weakened by 3.8% over the two week period and closed at 84.63 on March 9. Behind the drop in the equity index was a 14.3% fall in the value of Slovnaft shares; the oil refiner has the highest weight in the SAX index.
The only shares to perform favourably were those of steelmaker VSŽ, which gained 25 crowns per share to close at 180 crowns. Pharmaceuticals firm Slovakofarma lost 2.4% and is trading at 2,050 crwosn.

Since the beginning of March, the equity market has registered moderate trading activity. Average daily turnover decreased to 67 million Slovak crowns from mid-February. The official SAX index weakened by 3.8% over the two week period and closed at 84.63 on March 9. Behind the drop in the equity index was a 14.3% fall in the value of Slovnaft shares; the oil refiner has the highest weight in the SAX index.

The only shares to perform favourably were those of steelmaker VSŽ, which gained 25 crowns per share to close at 180 crowns. Pharmaceuticals firm Slovakofarma lost 2.4% and is trading at 2,050 crwosn.

The market is quiet in expectation of corporate financial results for 1998, which should be announced by the end of March. Major market players such as Slovnaft, VSŽ and state-owned insurer Slovenská Poisťovňa have already indicated that they expect worse performance results than in 1997, which has not improved market sentiment.

State budget already in deficit

The state budget posted a deficit of 3.168 billion crowns in February. Total revenues reached 22.545 billion crowns, while expenditures rose to 25.713 billion. During the same period in 1998, the state budget posted a surplus of 238 million crowns.

Producer prices rose in January by 0.5% month-on-month and 1.4% year-on-year. This rise can be attributed to the government's move to increase regulated prices, especially those of commodities like electricity, gas, heat and water.

Foreign direct investment increased by 1.825 billion crowns in November to reach 13.861 billion crowns for the first eleven months of 1998. The current account posted a deficit of 66.245 billion crowns ($1.83 billion) at the end of November 1998, compared to 63.4 billion in the January to October period.

The trade deficit in January was 2.6 billion crowns. Exports totalled 25.97 billion, while imports reached 28.56 billion. The government cancelled wage regulations and approved an increase in the minimum wage by 600 crowns to 3,600 crowns ($85) per month.

Change in means of reserve calculation approved

The central bank approved changes to the base used for calculating minimum reserve ratios. The new base will include non-resident deposits. The reserve ratio will be reduced, so the overall volume of reserve requirements will not change. The new calculation will benefit Slovak banks, which have lower non-resident deposits than their foreign competitors.

While the government was declaring its resolve to have the 1996 privatization of gas storage firm Nafta Gbely ruled invalid by the courts, Nafta's majority shareholder, Vladimír Poór, who is closely tied to the HZDS party of former Prime Minister Vladimír Mečiar, sold his 45.9% stake to Slovak businessman Jozef Majský. Majský is the current owner of troubled Sipox Holding, the nation's seventh largest non-financial company.

The future of Nafta Gbely is unclear, as the FNM state privatization agency has not yet decided how it is going to solve the problem of repaying the state for losses incurred in the notorious 1996 sale (the Nafta stake was sold to Poór for 500 million crowns, less than one sixth of its market value at the time).

Prime Minister Mikuláš Dzurinda has announced that the government will take legal action against Druha Obchodna, the firm controlled by Poór and which currently owns the Nafta Gbely stake. The cabinet has declared it neither recognises nor will take into account the actions and interests of Majský.

The government is also revising the management buyout of Slovnaft, which was also sold far below its market value in 1995. Deputy Prime Minister Ivan Mikloš said he expects the refinery's majority shareholder, Slovintegra, to repay part of the difference between what it paid for Slovnaft and what the firm was worth, or return some of the shares.

The FNM has reached a preliminary agreement with Slovintegra, by which the owners will return 10% of their stake or repay the 1 billion crowns that the stake is worth. The difference between Slovnaft's 1995 market price and the price for which Slovintegra gained its 54% stake in Slovnaft exceeded 7 billion crowns.

FDI support programme approved

The government approved an investment programme designed to lead to an increase in Foreign Direct Investment (FDI). Firms which may now qualify to receive investment support are those which are involved in modernising low valued-added production, and those which contribute to an increase in Slovak exports.

New companies exporting more than 60% of their production and investing at least five million euros will qualify for a five-year tax holiday. Imports of technological equipment and supplies will be exempt from VAT and customs duties. Firms investing in the tourism sector and in regions with high unemployment will gain further benefits.

Tomáš Kmeť is an equity analyst with investment bank
ING Barings

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