Pavel Habšuda
Over the past two years the Slovak capital market has been struggling to make itself attractive to domestic as well as foreign investors. But although the Association of Securities Dealers has worked in cooperation with the Bratislava Stock Exchange and the government in finding ways to revive Slovak securities trading, their efforts have so far not paid off.
However, over the first half of this year the capital market found an interesting security for traders, namely the bond issued in 1994 by the state privatisation agency (the National Property Fund - FNM) on January 1, 1996 to every Slovak citizen older than 18 years (the bond coincided with the launch of the second wave of 'voucher privatisation'). Even though the bonds are at present traded only on the RM System (OTC market), their trading on the BSE is in preparation and was expected to have been launched by the time The Slovak Spectator went to print.
Trading in the 1994 FNM bond currently represents the pillar of trading on the OTC market, and will be a welcome security on the stock exchange floor as well. The trading of these bonds on the BSE would represent a contribution to trading as well as to the stock exchange. The BSE would benefit from the exceptional attractiveness of the security among investors, while trading would benefit from significantly lower trading fees on the anonymous market.
The market price of the FNM bonds has been increasing steadily since they were first offered on the OTC market on December 3, 1999. In mid January 2000 overnight auctions were launched. Correspondingly, the price on the anonymous market strengthened considerably, some 39% over the last week of January as a result of growing investor appetite. On-line trading was introduced a month later with no major impact on bond price development.
The market was boosted at the end of March when the FNM announced that Slovak gas utility SPP would pay off part of its commitment to the National Property Fund in FNM bonds, following its purchase of a 45.9% stake in gas storage firm Nafta Gbely. The bond 'payment' amounts to 512 million crowns out of a total purchase price for Nafta Gbely of 1,112 million crowns. The bonds were to be accepted at a value of 12,992 crowns, which meant that any price below this level would be advantageous for the gas company. Gasfin, the brokerage house subsidiary to SPP, is to enter the market in the summer months and has committed itself to collecting the required volume of bonds only from the anonymous market.
Investors and brokers were thus motivated to take advantage of Gasfin's not being on the market, and trading became more lively, with the market price for the bond increasing by 18% over the first three weeks of trading in April, stabilising at a level of 9,300 crowns. The market corrected more significantly for the last time at the beginning of May, with no larger stakes of several thousand units available on the direct market, resulting in the market moving up quickly to previous levels.
Market developments in June, just before the summer months, featured increasing interest from investors in the most lucrative Slovak fixed income securities. The FNM announced it had attempted to obtain a loan at an interest rate not exceeding 8%, guaranteed by its 15% stake in Slovak Telecom, which would enable them to buy back their own bonds at a par value of five billion crowns. Gasfin was to enter the market soon, and was to become the strongest bidder on the anonymous market.
The government issued T-bonds on July 13 after a three month break with an average yield of 7.96% and a five year maturity. For 3Q 2000 there are only three T-bond auctions planned to take place, and a total of 13 T-bill auctions are scheduled. The lack of safe fixed income investment opportunities in Slovakia has thus further whetted investor appetite for the FNM bonds.
The price of the FNM bond on the anonymous market climbed to the magic 10,000 crown level for the first time on June 26. At the current market price, oscillating around 10,700 crowns, the bonds still offer a very interesting yield of 20% (calculated on the basis of a redemption price of 14,400 crowns, not taking into account cumulative coupon taxation), which is two and a half times higher than the yield on T-bonds, and at a credit risk comparable to the that of Slovak state bonds.
As The Slovak Spectator went to print the June 26 auction of 364-day T-bills again confirmed the decreasing downward trend in the average interest yield with dealers attributing the 7.2% interest yield to the huge liquidity surplus of commercial banks in the banking sector. Total bids in the auction amounted to 4.003 billion crowns. The auction of T-bills was the fifth such auction from the Finance Ministry so far this year.
Pavel Habšuda is an analyst at Bratislava brokerage house Slávia Capital. Comments and questions can be sent to him at phabsuda@slavia.sk
