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CAPITAL MARKET

Turnovers improved due to bond trading

Market developments
Bratislava Stock Exchange saw high turnovers during the last two weeks, mainly due to bond trading. This is quite usual for this time of year, since investors are busy re-pricing their portfolios. SAX, the stock market index, reached 177.23 on December 9, the highest value since the end of October. SAX increased mostly due to gains in the share price of Slovnaft refinery, which exceeded its nominal value of 1,000 Sk. On the very next day, however, the index slumped an incredible 10.24 points due to heavy losses on the Slovnaft share, although only one Slovnaft share was traded, for 902 Sk. For a moment it almost seemed that somebody was trying to manipulate the value of SAX. The floor market also reported several direct trades with large stakes of Slovnaft shares. It is possible that the ownership structure of this refinery may be changing.

Market developments

Bratislava Stock Exchange saw high turnovers during the last two weeks, mainly due to bond trading. This is quite usual for this time of year, since investors are busy re-pricing their portfolios. SAX, the stock market index, reached 177.23 on December 9, the highest value since the end of October. SAX increased mostly due to gains in the share price of Slovnaft refinery, which exceeded its nominal value of 1,000 Sk. On the very next day, however, the index slumped an incredible 10.24 points due to heavy losses on the Slovnaft share, although only one Slovnaft share was traded, for 902 Sk. For a moment it almost seemed that somebody was trying to manipulate the value of SAX. The floor market also reported several direct trades with large stakes of Slovnaft shares. It is possible that the ownership structure of this refinery may be changing.

Corporate developments

Slovnaft's General Director, Slavomír Hatina, recently announced that the refinery plans a pre-tax profit of 3.1 billion Sk ($90 million) for this year, which would be a 35 percent annual increase. The company expects sales of 40.2 billion Sk ($1.17 billion, a 19 percent annual increase) and revenues of 47.1 billion Sk ($1.37 billion, a 17 percent annual increase). According to Hatina, Slovnaft currently controls 73 percent of the gasoline market and 92 percent of the diesel market in Slovakia. At the moment, the company controls 61 percent of all gas stations in Slovakia (82 percent in 1995), and, according to the 1995 decision of the Anti-Monopoly Office, its market share must decrease to maximum 50 percent by the end of 2000. Hatina also announced that Slovnaft had increased by 900 million Sk the registered capital of Benzinol, the largest petrol distributor on the Slovak market, increasing its stake from 51 percent to 63.8 percent. The further downstream integration is very positive news, as the petrol market in the region is expected to grow fast.

Slovenská poisťovňa (SP), the largest Slovak insurance company, announced a pre-tax profit of 294 million Sk ($8.5 million) in 1-3Q97, and its FY97 net profit is estimated to be 310 million Sk ($9 million), down 8.8 percent compared to 1996. Revenues from insurance premiums totaled 9 billion Sk ($261 million), up 820 million Sk from the same period last year. The company paid 5.5 billion Sk in compensation for damages, a 21 percent increase compared to same period last year. This was due mostly to July floods and a fire at the PT paper mill in Žilina. The share is currently trading at a seemingly attractive PER of 6.0x. However, the National Property Fund (FNM), a state privatization agency, controls 51 percent of the company and the market therefore views SP as a black box because of the management's reluctance to provide credible information about the company's financial situation.

IRB's December 19 EGM is expected to decide on the 1 billion Sk ($30 million) increase in registered capital. According to Národná obroda daily, the capital increase should come from SP (600 million Sk) and VSŽ (400 million Sk). The bank needs at least 2.5 billion Sk ($73 million) worth of new resources. The IRB failed to carry out its restructuring project prepared by former management and approved by the NBS. The project needs to be amended now. The most problematic loans of IRB are those provided to armament companies hit by conversion. Vladimír Turzák, the IRB provisional president, said that the restructuring process will require 3-4 years.

The Hungarian privatization agency, APV, announced that VSŽ, the East Slovakia steel giant, won the second tender for purchasing Diósgyör Steel Works (DAM). VSŽ offered to raise the company's capital by 4.5 billion HUF ($30 million), which will be matched by an equal amount from APV. VSŽ will pay a symbolic one US dollar for 68.15 percent of shares and 87.21 percent of voting rights and will take over DAM's debt, worth 2.8 billion HUF and owed to APV. This investment is in line with VSŽ strategy to become a dominant Cental European steel producer. The acquisition of DAM fits well into VSŽ production portfolio, as DAM produces long products and high-grade steel which are not produced by VSŽ.

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