Baltic Index rise conceals underlying turmoil

  • 2001-03-01
Rising share prices for Lithuania's Kalnapilis brewery and Estonia's Hansapank, joined by a falling euro exchange rate last week, prevented the Baltic Index from taking a tumble, considering the steep decline in Eesti Telekom shares. The Baltic Index comprising 15 Latvian, Lithuanian and Estonian blue-chips was up 0.1 percent to 135.59 last week.

Regardless of the insignificant growth in the index, news in the outgoing week sent strong warning signals to investors in all Baltic stock markets. Firstly, the stubbornly persistent softening trend of Estonian and Lithuanian telecom stocks have brought the Baltic List capitalization down to 2.65 billion euros ($2.40 billion), a nearly 2 percent fall over the week. Secondly, the planned merger between two Swedish banks, SEB and Swedbank, is very likely to result in the removal of the Baltic stock market leader, Estonia's Hansapank, from stock exchange trading. In practice, the move threatens to bring the trading acivity on the Estonian market to just as low a level as currently exists in Latvia and Lithuania.

Although to date there are many possible scenarios for development of the Baltic banking market after this merger, only two options are considered likely by analysts. The first option suggests the sale of Estonia's Uhispank to an outside investor, coinciding with the merging of the Swedish banks' Latvian and Lithuanian daughter companies: Latvijas Unibanka and Hansabanka; Vilniaus Bankas and Hansabankas. The other option, though less likely, suggests selling Hansapank together with its Latvian and Lithuanian subsidiaries.

Analysts at Suprema investment bank believe that either option will result in a public offer to minority shareholders of Hansabanka, likely to be followed by de-listing of the stock.

Other scenarios cannot be ruled out, however. For example, a strong European or U.S. bank, willing to buy the unprofitable Estonia's Uhispank as part of a package comprising in addition Latvijas Unibanka and Vilniaus Bankas, could be found. This story seems to be the most favorable if considered from the perspective of development of competition in the Baltic financial markets.

The transfer of Lithuania's TV-tube maker Ekranas to the official list of the Lithuanian stock exchange was positive news for the Baltic List. It may be that Ekranas will soon replace Kalnapilis on the Baltic List, as the Lithuanian brewery's shares will be de-listed as soon as the sale of the controlling stake in Kalnapilis is completed. The good news about Ekranas reaching the official list was somewhat tainted by the financial crisis in Turkey, though, as a substantial part of the Lithuanian company's output is exported to that country.

Large deals in Hansapank's shares, accounting for more than half of the total Baltic List turnover, pushed the week-on-week turnover growth higher. In the outgoing week the Baltic List turnover rose to 6.8 million euros, as compared with 5.6 million euros the previous week.

Estonian stocks made up 92.5 percent of the Baltic List volume, with Lithuanian stocks contributing 5.8 percent and Latvian stocks just 1.7 percent. Baltic List stocks led the Estonian stock market as they brought in over 90 percent of the total turnover on their home bourse. In Latvia this figure was 53 percent and in Lithuania only 17 percent.

Estonia: Swedbank, SEB merger to accelerate Baltic banking consolidation

The big news in the outgoing week affecting the stock market was the announced merger between Sweden's Swedbank and Skandinaviska Enskilda Banken, the respective owners of Hansapank and Uhispank. The overall market trend, however, was determined by the drop in Eesti Telekom. Over the week, the TALSE stock index fell 3.5 percent to 131.74. A total of 835 deals with a total turnover of 108.90 million kroons ($6.29 million) were closed during the week.

"The Swedish banks' decision to merge gave a positive upward thrust to shares in Hansapank and brought their price up from 135 kroons to 145 kroons apiece," Uhispank broker Mart Helmja said. Deals with shares in Hansapank showed the biggest turnover of the week, 63.70 million kroons, with the share price rising 3.6 percent, to 144 kroons, as the SEB-Swedbank merger deal brought to the market a lot of speculation about Hansapank's future. Suprema analysts believe that regardless of whether the big Swedish banks decide to sell Uhispank, or to keep the threesome of Uhispank, Latvijas Unibanka and Vilniaus Banka, both scenarios will lead to a buyout offer to small shareholders in Hansapank. According to Suprema, the question is only about the range of the price offer. If the new company created by the merger of SEB and Swedbank decides to sell Uhispank, it will mean a buyout offer in the range of 195-210 kroons to minority shareholders of Hansapank, Suprema said.

In the case of the large Swedish bank spinning off Hansapank, expect to see a buyout price of 220 kroons, Suprema forecasts. Bo Kragh, a leading Scandinavian banker and the current head of Svenska Handelsbanken's Estonian office, does not exclude the scenario of a sale of Hansapank. "Although some analysts have forecast that the likely bank to be sold will be Uhispank, it must be borne in mind that SEB has invested a lot of money in the past two years to integrate Uhispank into the SEB group," Kragh said.

Shares in Eesti Telekom in the past week suffered what is so far their biggest fall, the share dropping 11.6 percent to 72 kroons on total turnover of 18 million kroons. However, most Estonian market specialists are still upbeat concerning the prospects of Eesti Telekom, attributing the sharp fall to outside factors. "The steady downward movement of Telekom stock has been under the influence of other markets' sales," Helmja said. The broker said the steady drop was not a specific attack on Telekom shares, but is due rather to the general selling pressure currently seen in the world-wide telecommunications sector. "Also, Uhispank's financial results were released this week, but as the share is no longer listed, it did not immediately affect price movements," the broker added. The 2000 results of the Uhispank group was a 99 million kroon loss, against a 100.20 million kroon profit in 1999.

Latvia: Staburadze ownership ruling may force buyout offer

Unlike the Estonian and Lithuanian stock markets, the Latvian stock exchange indexes failed to follow negative trends prevailing on world markets. Even so, current trading turnover on the Latvian market is so low that even in comparison to neighboring markets, nobody seriously expected the illiquid Latvian shares to react in any special way to the global developments. Dow Jones Riga Stock Exchange capitalization index was up 0.6 percent to 141.11 over the week and the price index RICI edged up 0.4 percent to 164.51. The euro price index of four Latvian Baltic List stocks climbed 1.5 percent to 158.47 as the euro exchange rate weakened against the Latvian lat. The weekly turnover on the Riga Stock Exchange was just 125,000 lats ($201,000).

The increase in local stock market indexes was due to small gains posted by shares in the insurance company Balta and gas company Latvijas Gaze, as well as by the steep climb in shares of pastry factory Staburadze. The announcement of the merger between the two Swedish banks, SEB and Swedbank, had no effect whatsoever on the price of Latvijas Unibanka's shares still outstanding, holding steady at 2.05 lats.

At the same time, Balta's shares jumped 2.4 percent to 4.20 lats each. It is quite possible that the news indicating a regional redistribution of the spheres of influence in the Scandinavian-Baltic financial markets may attract greater interest in Balta, the leading Latvian insurance company, and one still without ties to a large Western partner.

Latvijas Gaze shares moved up 1.3 percent to 3.75 lats. The small gain can possibly be explained as a reaction to the statement about the largest shareholders in the gas company set to submit their proposals about acceptable terms of sale in respect to an 8 percent stake in Latvijas Gaze still held by the state.

Staburadze's shares rocketed 14.7 percent, to 0.70 lats. Latvijas Unibanka's analysts say it cannot be ruled out that the price was boosted by expectations on the outcome of an investigation concerning recent changes in ownership in the pastry factory. If the stock market commission conducting the examination determines that "associated" shareholders now hold over 50 percent of company shares, those large shareholders will be required to make a public buyout offer to remaining shareholders in Staburadze. Analysts at Latvijas Unibanka believe that the public offer for Staburadze's shares will be at a premium to the market's current listed price.

In addition, the sudden rise of Staburadze's shares may be due to Rietumu Banka strengthening its position on the Latvian market following the announcement on Feb. 23 about its acquisition of 100 percent of Saules Banka shares. Staburadze's largest shareholders are closely related to both Rietumu Banka and its potential strategic investor, a major Icelandic bank, Islandsbanki-FBA. Moreover, a substantial part of Staburadze's assets have been pledged to the above banks as security for loans extended to the pastry factory.

Lithuania: Turkish crisis bad news for Ekranas

A flood of news focused investors' attention last week on Official List Kalnapilis and Current List shares Ekranas and LISCO. The continuously tracked price index Litin-10 skidded 1.6 percent to 1,227.04, and the blue-chip Official List index Litin slid 1.8 percent to 456.98 amid a poor performance by Lietuvas Telekomas shares. The bourse's broad index Litin-G joined the party with a 1.6 percent drop, to 1061.56. However, a falling euro rate against the litas, and gains posted by Kalnapilis stock, pushed up the price euro index of five Lithuanian Baltic List stocks. The index was up 2.9 percent to 132.82. The bourse's weekly equity turnover reached 8.07 million litas ($2.02 million). According to brokers, trading volumes shrank, and prices of the most liquid stocks stayed range-bound, reflecting the prevailing mood of the market.

Current List stock LISCO climbed 4.5 percent to 3.45 litas in trade worth 800,700 litas. According to brokers, gains could be attributed to continued buying interest, driven by some positive news that emerged after last week's meeting between the Danish shipping company DFDS Tor Line, the potential buyer of LISCO, and the Lithuanian firm's minority shareholders.

TV-tube producer Ekranas emerged as the major newsmaker for the week, jumping 6.6 litas onFeb. 19, boosted by the release of the company's good profit figures for January and the announcement that the stock is to be included in the bourse's Official List, starting March 1. However, Ekranas fell back on Feb. 22, with brokers attributing the fall to the crisis in Turkey. "The decline in Ekranas' share price was due to the currency crisis in Turkey, where a large part of the company's production was sold," said Vytautas Plunksnis, analyst at the financial brokerage company Jusu Tarpininkas. Ekranas skidded 2.7 percent to 9 litas, posting 555,200 litas in turnover.

On Feb. 19, the local business newspaper Verslo Zinios reported that Christian Ramm-Schmidt, BBH president, was coming to Vilnius on Feb. 21 to announce that the owners of the Lithuanian brewery Kalnapilis had chosen to sell it. That day, in reaction to the report, Kalnapilis charged ahead by 14.4 percent, to 5.15 litas, in trade worth 200,000 litas. On Feb. 21, BBH officially announced it was selling Kalnapilis. To almost everyone's surprise, Kalnapilis' share price started falling. "One of the reason's behind the decline is that the current owner of the company, the BBH group, did not disclose the selling price of shares, while media speculations about the possible price aren't that important anymore," Plunksnis said.

Verslo Zinios calculated that the initial selling price of the brewery should be set at $40 million to 50 million. Despite a fall ahead of the weekend, Kalnapilis shot up 7.7 percent to 4.85 litas, posting 363,900 litas in turnover.

Blue-chip Lietuvos Telekomas, in line with the world-wide telecommunications industry slump, skidded 2.7 percent to 2.09 litas in trade worth 894,700 litas.

Cheese maker Rokiskio Suris climbed 1 percent to 20.20 litas amid a 175,200 litas turnover. Other Official List stocks saw no trade this week. On the Current List, gas utility Lietuvos Dujos edged up 0.6 percent to 1.65 litas amid a 167,700 litas turnover. Other Current List stocks posted weekly turnovers of less than 100,000 litas on the continuous exchange market.