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CAPITAL MARKET REPORT

First half '96 saw strategic ownership changes

The Slovak capital market performed much better in the first half of 1996 than in all of 1995. Liquidity more than doubled and due to the application of disclosure rules (regarding the breaking of set thresholds in ownership), the market became more transparent. Apart from foreign investors who decided to downplay the persistent political concerns, the main impetus in the capital market was a changing of majority stakes in companies by strategic investors and the restructuring of major investment portfolios. Examples of the change in ownership include: SES Tlmače, Drovotňa, Považské strojárne and more recently, Váhostav. Increased interest in Slovak shares resulted from positive results turned in by major Slovak companies and the country's regionally stunning macro-economic figures, such as the lowest inflation rate in central Europe.

The Slovak capital market performed much better in the first half of 1996 than in all of 1995. Liquidity more than doubled and due to the application of disclosure rules (regarding the breaking of set thresholds in ownership), the market became more transparent. Apart from foreign investors who decided to downplay the persistent political concerns, the main impetus in the capital market was a changing of majority stakes in companies by strategic investors and the restructuring of major investment portfolios. Examples of the change in ownership include: SES Tlmače, Drovotňa, Považské strojárne and more recently, Váhostav. Increased interest in Slovak shares resulted from positive results turned in by major Slovak companies and the country's regionally stunning macro-economic figures, such as the lowest inflation rate in central Europe.

Slovak indices reached new yearly highs. Consequently, market capitalization of the 50 largest Slovak companies increased by almost 50 percent. BSE turnover during the first six months of 1996 reached 50 bn Sk, exceeding last year's total turnover by almost 10 bn Sk. Decreased BSE fees for anonymous trades, the introduction of block trades and the resumption of trading of VÚB Kupón, once the most liquid share on BSE, also increased trading volumes.

Capital market activity in the second half of July slowed with lower than average volumes and share prices declining moderately. Slovnaft returned to its nominal value, VSŽ lost ground to 645 Sk, and financial sector shares weakened. Exceptions to the rule were Nafta, where large transfers temporarily pushed its share price to 2,400 Sk, and Slovakofarma, which reached a price slightly below 2,900 Sk. The latter company recently signed a supply agreement to US optical giant Bausch and Lomb. We expect the generally relaxed market trend to continue in August. Nevertheless, increasing tension regarding the privatization of financial institutions may provide some excitement in September.

Bargain hunters might have taken advantage of the almost forgotten Tesla Piešťany. The company's shares were available at 1 Sk when the company was on the brink of bankruptcy. Following Prime Minister Vladimír Mečiar's announcement of a government-supported rescue plan during his visit to the company (see Business Bytes on this page), the share rocketed to 29 Sk. Despite the fact that the press announced the company's filing for bankruptcy the following day, Tesla's share price continued to increase to its recent 58 Sk per share.

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

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