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CAPITAL MARKET

Not a happy market so far in June

Bears dominated the BSE floor market during the first two weeks of June. Most blue chips declined as a result of continued expectations of crown devaluation, low liquidity in the interbank money market and increased political instability resulting from the marred referendum. VSŽ, the most liquid share, lost ground, falling by 70 Sk to 610 Sk. Slovnaft slumped more than 100 Sk to 900 Sk. Slovakofarma remained steady within a band of 4,200 Sk and 4,300 Sk. Other blue chips were traded in very small volumes. The current situation with money market liquidity being squeezed should force companies to seek funds through the equity market. However, the currently non-functioning Slovak equity market is not an alternative source of finance for Slovak companies. The capital market reform approved by the government will probably had to resolve the problems of the capital market since the relevant authorities still have not understood the importance of impartial regulations or market transparency.

Bears dominated the BSE floor market during the first two weeks of June. Most blue chips declined as a result of continued expectations of crown devaluation, low liquidity in the interbank money market and increased political instability resulting from the marred referendum. VSŽ, the most liquid share, lost ground, falling by 70 Sk to 610 Sk. Slovnaft slumped more than 100 Sk to 900 Sk. Slovakofarma remained steady within a band of 4,200 Sk and 4,300 Sk. Other blue chips were traded in very small volumes. The current situation with money market liquidity being squeezed should force companies to seek funds through the equity market. However, the currently non-functioning Slovak equity market is not an alternative source of finance for Slovak companies. The capital market reform approved by the government will probably had to resolve the problems of the capital market since the relevant authorities still have not understood the importance of impartial regulations or market transparency.

The OTC market reported the transfers of large stakes of VÚB at prices of 1,860 Sk and 1,880 Sk per share, or 20% above the market price. We believe that investors close to VÚB's management are strengthening their equity position in bank.

Biotika, the second largest Slovak pharmaceutical producer announced its 1996 results. The company ended its financial year with a net profit of 8.8 million Sk ($267,000) and an EPS equal to 8.91 Sk, which is a decline of 67 % year-on-year on sales of 1.2 billion Sk. The decline in the company's profit margin was caused by a significant decline in the global price of penicillin, due to new Chinese production facilities. 41.6% of Biotika's sales were domestic, 14% were exported to the Czech Republic and 44.3% were exported to other countries. The main shareholder of Biotika is G.V. Pharma (owning 42%) - which is closely connected to Slovakofarma's management.

The National Property Fund sold an 11.58% stake in aluminum producer ZSNP to Bank Slovakia. The purchase price has not been released but, according to Bank Slovakia spokesmen, the stake was purchased at its market price. Bank Slovakia was created by the Slovak government and is very closely tied to the current political elite.

The insurance company Slovenská Poisťovňa will distribute a dividend per share of 100 Sk for 1996, equivalent to a 44.2% pay-out ratio.

In the past month, some investors were forced to take losses on the bond market to fulfill their liquidity requirements and the turnover on the market was relatively high at this time. However, following the battle between speculators and the NBS for the Slovak crown, the central bank pumped some money into the system, which slightly eased cash requirements of the major bond market players. As a result, investors were not forced to obtain funds from the market, which resulted in no Slovak bond market activity in the past two weeks.

Prepared by ING Bank N.V., Bratislava branch in cooperation with ING Baring Securities (Slovakia), o.c.p.,a.s.

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