• Українська
  • Русский
  • English
Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Leaders of Sluggish Stock Market

8 June, 1999 - 00:00

Drop in living standards retards stock market revival

By Leonid HULIANYTSKY, director, DAR Information and Analysis Center
President Leonid Kuchma noted at the session of the Consultative Council
on Foreign Investment that now "the economy of Ukraine is altogether different
than it was a year ago." It is difficult to agree. In any case, the nation's
stock market constantly operates against the backdrop of our economic problems.
The sluggish nature of investment flow has not allowed it to perform the
function of resource allocator and made it primarily a medium for speculation
in the shares of several dozen enterprises.

The attached table shows the twenty leaders, out of 77, which were called
investment-friendly in the expert questionnaires of stock market operators.

Like in the previous quarter, the list is dominated by electricity,
mining, metallurgy, and fuel. The food-producing sector has moved up. These
tendencies reflect the distribution of our economy's motive forces, with
industry accounting for 60.9% of the total balance income drawn by domestic
businesses in the first quarter. But this income was in fact achieved in
only three sectors: electrical energy, fuel, and food. Moreover, the State
Statistics Committee reports that only three out of ten basic industries
have recorded increased output. Among them we again see electricity and
food.

All seven privatized electricity companies have kept intact their standing
in this list. These enterprises are among those which cause real financial
flows. True, their increased income goes hand in hand with a 2.3% drop
in the production of electrical power as such.

Kyivenerho tops the list for the first time. In 1998, this company accounted
for the greatest number of off-exchange trade system transactions to buy
and sell its shares (almost UAH 6 million, with their market price being
UAH 1.41 at a nominal face value of UAH 0.25). The company's overall cost-effectiveness
level reached 18.5%, with that in the whole electrical complex being 10.8%.
Kyivenerho has been the leading profit-making power company over the past
few years. Now the government intends to sell 12.7% of its stock. However,
the decision of the general meeting held March 30 about the distribution
of money to be paid as dividends and contributions to other funds, is not
conducive, according to some professionals, to enhancing the company's
investment friendliness.

The Ukrtelekom state-run telecommunications firm was also eyed by potential
investors throughout the quarter. It accounts for about 2% of GDP and thus
interests strategic investors. Unfortunately, election campaign vagaries
do not contribute in the best way to making its price. As Serhiy Tyhypko
said recently, Ukrtelekom can only be privatized six months after Verkhovna
Rada passes the relevant law, and Parliament is in no hurry to do so.

Ukrnafta supplies about 85% of oil and 17.7% of natural gas extracted
in Ukraine. With a face value of UAH 0.25, share price has fluctuated around
the five hryvnia figure. Its income balance in 1998 grew by 27% over the
previous year and cost-effectiveness is over 80%. It was decided to utilize
12% of its net profit to pay dividends. It is expected that an American
depository receipt tender for the company stock will begin in early July.
Unfortunately, the company lacks the funds to prospect for new oil and
gas deposits and even to pay wages. In March, the Cabinet of Ministers
resolved to sell 10.95% of its state-owned authorized capital on the stock
exchange. It is planned to channel the funds raised primarily into the
state budget. The level of payments by oil consumers did not exceed 25%
in the first quater.

The Stirol concern has been in the group of leaders for seven quarters
in a row, in spite of dramatically reduced supplies to Russia in connection
with the August crisis. The concern has reoriented its export towards Eastern
and Western Europe, which increased the share of export deliveries in the
overall amount of products sold to 84.5% in 1998 (a 9% jump). At a very
conservative estimate, last year this enterprise accounted for 8-9% of
the world's output of ammonia and 5-6% of carbamide, with exports going
to 24 countries. Beyond doubt, expert opinion was also influenced by the
fact that the US Securities and Exchange Commission had received documents
enabling it to issue the first-level American Depository Receipts (this
positive decision became known as early as mid-April).

The list shows reduced rankings for metallurgical enterprises. The first
quarter displayed a slump, compared to the same period of last year, both
in ferrous and non-ferrous metallurgy (by 5% and 0.3%, respectively, against
4.1% and 15.2% increases in the first quarter of 1998 vs. the same period
of 1997). This was caused both by lower domestic demand and by an unfavorable
foreign market situation: world prices fell by 30-40%, although they are
expected to go up for some varieties of products in the coming season.

Lower rankings were also shown by mechanical engineering enterprises,
with none of them making the top twenty (last year's top twenty had four).

Unfortunately, conspicuously absent among the rating leaders are high-technology
enterprises. According to statistics, as many as 5.4% of industrial entities
were updating their production facilities and developing competitive items
in the first quarter.

Analysis of the available data shows that experts expect further problems
in ferrous and non-ferrous metallurgy, chemical, and export-oriented machine
building. At the same time, some improvement can be expected in food and
light industry, as well as in mechanical engineering oriented toward import
substitution. However, further decline in domestic demand caused by the
declining living standards will be a serious constraint here.

 

Rubric: