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CAPITAL MARKET REPORT

Securities measure to depress market

The Slovak stock markets are still waiting for an impetus. Blue chips are trading in small volumes, and their prices are mixed. VSŽ eased to 625 Sk per share, VÚB to 1,750 Sk, Nafta slumped to 1,800 Sk and Slovenské Lodenice to 925 Sk. Conversely, IRB surged to 1,380 Sk. SES Tlmače was in strong demand, and its share rose 7 Sk to 477 Sk. SES has recently won several contracts, among them a120 million Sk order to reconstruct Bratislava's Heating Plant II and supplying technology for the Vojany thermal power plant.
Slovnaft's share price slumped below 896 Sk, and it seems that investors are not willing to pay more for this share because of recently published 1-3Q96 results and the EBRD's probable sell-off (see story, page 1). Slovnaft posted a pre-tax profit of 1.37 bn Sk ($44m) for the first nine months of this year, which is only 40% of last year's figure.

The Slovak stock markets are still waiting for an impetus. Blue chips are trading in small volumes, and their prices are mixed. VSŽ eased to 625 Sk per share, VÚB to 1,750 Sk, Nafta slumped to 1,800 Sk and Slovenské Lodenice to 925 Sk. Conversely, IRB surged to 1,380 Sk. SES Tlmače was in strong demand, and its share rose 7 Sk to 477 Sk. SES has recently won several contracts, among them a120 million Sk order to reconstruct Bratislava's Heating Plant II and supplying technology for the Vojany thermal power plant.

Slovnaft's share price slumped below 896 Sk, and it seems that investors are not willing to pay more for this share because of recently published 1-3Q96 results and the EBRD's probable sell-off (see story, page 1). Slovnaft posted a pre-tax profit of 1.37 bn Sk ($44m) for the first nine months of this year, which is only 40% of last year's figure. However, the refinery's results for 3Q96, when the company made a pre-tax profit of 1.08 bn Sk, is much better than what it registered in 1Q96 (a loss of 132m Sk) and 2Q96 (a profit of 424m Sk). The increase in retail fuel prices should help to increase Slovnaft's revenues (see Corporate News). Slovnaft, however sells petrol to retail distributors for 6.96 Sk per liter and diesel for 5.92 Sk per liter. The excise tax is 53% of the retail price for petrol and 58% of diesel's retail price and it is expected that this will be hiked next year, causing a further increase in fuel prices.

Regarding the reported EBRD sale, the bank's statement that it is "unambiguously simpler and wiser to participate here through lending and less through capital participation" is a serious warning to investors about the privatization process here.

The state-run privatization agency FNM has published a list of 155 companies' shares which will be exchanged for FNM bonds. The sale can be carried out either as a direct sale through the RM-System at the market price, or through FNM representatives, who are yet to be appointed for each large city. The sale is supposed to begin this year. However, neither Slovnaft nor Benzinol are included in the list. The shares of several spas (except for the most lucrative Piešťany) are, nevertheless, listed.

The government approved an amendment to the Securities Act, allowing dematerialized securities to be converted into materialized securities based solely on the decision of the security issuer, i.e. the majority shareholder. Thus shares will not have to be traded on the stock exchange, and they will practically be turned into worthless pieces of paper for minority shareholders. The information about ownership will be less transparent if the shares are materialized.

In our analysis, the amendment is politically motivated and is meant as a tool to protect new owners of property privatized in the second privatization wave. It is also potentially bad news for the stock market and will add to distrust of the market by foreign investors who are deterred by the unhealthy political situation, privatization methods and poor protection of minority shareholders. Therefore we anticipate a further decline in share prices and volumes on the Slovak stock market as a result of diminishing investor interest.

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

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