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CAPITAL MARKET REPORT

Strong year spurs demand for VSŽ, Slovakofarma, Váhostav

The Slovak capital market experienced a partial revival of investor interest in the last two-week cycle. Interest was renewed by the excellent 1996 results of several Slovak companies and their positive 1997 prospects. VSŽ's shares remained the most in demand, and they continued their upward trend over the past two weeks. VSŽ's share price is now attacking its Sk700 upper barrier, fluctuating in a range of Sk690 - Sk697, but there seems to be a psychological barrier to overcome. The steel company intends to purchase the poorly performing Hungarian engineering company Digép in Diosgyör and, following the purchase of this company, intends to privatize a steel mill in Ozda (see corporate news on page 5 for more info). This step is the culmination of VSŽ's long-term effort to strengthen its position in Hungary.

The Slovak capital market experienced a partial revival of investor interest in the last two-week cycle. Interest was renewed by the excellent 1996 results of several Slovak companies and their positive 1997 prospects. VSŽ's shares remained the most in demand, and they continued their upward trend over the past two weeks. VSŽ's share price is now attacking its Sk700 upper barrier, fluctuating in a range of Sk690 - Sk697, but there seems to be a psychological barrier to overcome. The steel company intends to purchase the poorly performing Hungarian engineering company Digép in Diosgyör and, following the purchase of this company, intends to privatize a steel mill in Ozda (see corporate news on page 5 for more info). This step is the culmination of VSŽ's long-term effort to strengthen its position in Hungary. Presently, VSŽ's exports to Hungary are limited by an agreement dating from 1994 which restricts its steel exports to 50,000 tons annually. Moreover, Prime Minister Vladimír Mečiar and Transportation Minister Alexander Rezeš recently confirmed that VSŽ had acquired a strategic stake in the commercial bank IRB. It is still questionable if this acquisition was legal since the NBS did not allow VSŽ to gain more than a 15% stake in IRB.

Strong demand for the pharmaceutical producer Slovakofarma continued, with its price soaring to an all-time high of Sk 5,200, an exceptional increase of more than Sk 1,200 since the beginning of February.

In more good news, Slovakofarma's management announced that its net profit for 1996 will be approximately Sk500m ($15.6m), the same as in 1995. This figure is less optimistic than the preliminary company's net profit estimate of Sk678m. The company confirmed its intention to pay a dividend of approximately Sk200 per share.

The construction company Váhostav will distribute dividends worth Sk65 ($2) per share for 1996. This translates into a 28% pay-out ratio. Last year, according to preliminary results, the company made a pre-tax profit of almost Sk200m ($6.2m) i.e. a net profit of Sk102m - 105m ($3.1-3.2m) on revenues of Sk5bn ($154m).

Investments this year will reach Sk526m (16.2m), going mainly to switch the company's orientation from dam projects to highways and infrastructure construction. This year, the Žilina dam will produce 35% of the company's total revenues, apartment construction 10%, and the rest will be in more sophisticated building projects. Váhostav is participating in five highway projects. Váhostav will benefit strongly from the government's stepping up of highway construction, and we have registered increased investor interest in the company's shares which now trade at a price of up to Sk2,300.

Parliament approved an opposition proposal to prohibit further privatization of the largest financial institutions (VÚB, IRB, Slovenská Poisťovňa - SP and Slovenská Sporiteľňa - SLSP) to the year 2003.

The unclear situation resulting from internal polticking to reverse this vote (see story on page 1) has had powerful repercussions for VÚB, and has resulted in a powerful domestic financial group beginning to strengthen its position in the commercial bank. Several transactions were reported with large VÚB stakes at prices between Sk1,700 and Sk1,900 on the OTC market.

The president of the Swedish company AssiDomän Packaging, Ulf Kilander, said that AssiDomän now owns a 90% stake in paper mill JCP Šturovo and plans to acquire 100% of the company. This means that 30% of JCP's equity which was sold by the FNM to the KK Profin company for Sk100 per share is now owned by the Swedish company which probably has bought KK Profin.

The annual meeting of the Securities Traders Association (AOCP) passed a motion urging the association to be more active in seeking methods to protect minority investors and improving corporate information. The AOCP will attempt to obtain legal status as a self-regulating organization with obligatory membership required for all subjects holding a license for security trading. It will urge the creation of a Securities Commission that would be independent from the Finance Ministry and outside political influence.

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

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