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FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011 SARAJEVO STOCK EXCHANGE In the last year, much attention was given to increase the level of corporate governance of companies listed on SASE. Zlatan Dedic General Manager The year 2010 for the Sarajevo Stock Exchange was characterized by the effects of the global financial and economic crises, which were heavely felt in the financial and real sector of BiH. An unfavorable political ambiente, low levels of Foreign Direct Investments coupled with an nonstimulative surrounding for doing business as well as an inadequate commitment to economic reforms could not have positive impacts on the development of the capital market. The privatization of State Owned Enterprises (SEO), including privatizations through the Exchange, was on a minimum level, while private companies and local communities did not have the courage to finance their growth through the capital market. All of this lead to an abstention of investors from the capital market, not only in BiH, but also in the region. An overall lethargy and minimum daily turnovers, which couldn't be alleviated by the newly issued bonds of the Federation of Bosnia Hercegovina, are the main characteristics of the previous period. This unfavourable trends in the Exchange-trading motivated the staff of the Exchange to higher engagement. Activities were taken aimed at increasing the sell-side, ie the offering of new instruments. In line with that, the project "Going public and public offerings" was launched, which targeted the best-known limited liability companies in the Federation of BiH. As a great number of these companies have reached a limit in their development in their current way of organization, they were seen as the prime candidates for going public. Furthermore, the announcements of major investments in the electro-energetic and infrastructure sector in the Federation of BiH led us to regular contacts with the managment of the SEO's from these branches, in an effort to show the possibility to finance some of the projects through the local capital market, ie. through the issuance of corporate bonds. Another project of SASE, called "Municipal bonds" was continued in 2010. Although in 2010 no municipality has actually issued bonds in order to finance their development, we are confident that the public discussion about this issue, which was launched by SASE, is getting more and more public awareness, and will eventually lead to the first issue of these securities. In the last year, much attention was given to increase the level of corporate governance of companies listed on SASE by means of the "Corporate Governance Scorecard", which was a joint project of SASE and the International Finance Corporation (IFC). Another focus was on the surveillance part and the preparation of measures in order to prevent manipulative behaviour on the market, as well as the increase of visibility and presence of our market on the international investment radar-screens. SASE presented itself on the 25th Aniversary of the Istanbul Stock Exchange; we presented one issuer from our market, JP "Elektroprivreda BiH" d.d. Sarajevo on an international Roadswow held in Vienna. At the same time, SASE and the Wiener Boerse are offering real trading data to the major data-vendors in the world. On the 5th Annual International Conference of the Sarajevo Stock Exchange, titled "Major projects and the capital market", we presented the major projects of the coming investment cycle in FBiH, as well as the possibilities to finance some of the major projects through the issuance of securities. Behind us is the year with the minimum turnover in SASE's history. Nevertheless the fact that in front of us is another difficult year, we hope da the crisis has reached its bottom, and that the year 2011. will bring positive trends to the major determinants of the Exchange business. HISTORY AND DEVELOPMENT The Sarajevo Stock Exchange (SASE) was founded in September of 2001 by eight brokerage houses and commenced trading on April 12 of 2002. SASE is a joint-stock company and a central marketplace for securities trading in the Federation of Bosnia and Herzegovina. Currently it has 13 trading-members, whose headquarters are spread around the Federation of Bosnia and Herzegovina, the majority being in the capital, Sarajevo. SASE calculates and publishes 3 indices. SASX-10 is the main index on the Sarajevo Stock Exchange. In 2009, the Free Market, where most of the issuers are listed, was divided into 3 subsegments, with different trading algorithms and different price limits The Prime Free Market is reserved for the 30 most liquid and transparent issuers, and is a step behind the Official market. FUTURE OUTLOOK After a rather sluggish year in 2010, there is reason for a more optimistic outlook for 2011. Reasons for optimistic expectations in 2011 include the announced privatization of State Owned Enterprises (minority and majority stakes) through the Stock Exchange, which would give the market much needed new trading material. Another promising aspect would be the financing of infrastructure and energy projects through public offerings of bonds on the Exchange, as well as the issuance of additional series of state bonds for "frozen foreign savings accounts". The issuance of the first municipal bonds is also only a step away, after the legal boundaries for this step have been removed. • Introduction of volatility interruptions: As a result of decreased liquidity on the market, there is a trend that small trades bring volatility to the share prices. A volatility interruption will be triggered in the event of a potential price being outside either of the two pre-defined price ranges around the reference price. The volatility interruption will contribute significantly to the prevention of price jumps and will help to increase price continuity. • Delisting of non-traded shares from the market: As a result of the mass-voucher privatization in BiH, many joint-stock companies are listed on the Sarajevo Stock Exchange. Many of them are traded very seldom or even never. The goal is to get companies from the market which are not interested in outside investors, and not interesting to the investment community. • Educational / promotional campaign aimed at the following stakeholders on the capital •Going public: The financial system in BiH is rather banko-centric, as most of the finance needs of the companies are taken to the commercial banks. Our goal is to show to thecompanies that the capital market is an alternative/supplement for their financing needs. •Education of the members of Parliament, the government and the administration: The capital market is still not "discovered" by the main actors of the political life in BiH. Our goal is to educate them, form lines of communication and make them more sensitive to the needs of the capital market as well as the function of a capital market in an market-economy. PAGE 110
FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT APRIL 2011 SARAJEVO STOCK EXCHANGE OFFICIAL 6 MONTH STATISTICS US$ millions # Shares millions Total Volume Average Daily Volume Total Volume Average Daily Volume Stocks Jul-10 2.49 0.11 0.56 0.03 Aug-10 4.12 0.19 1.01 0.05 Sep-10 4.49 0.20 1.00 0.05 Oct-10 3.18 0.16 0.95 0.05 Nov-10 2.72 0.14 0.69 0.03 Dec-10 4.15 0.18 0.68 0.03 TOTAL 21.16 0.16 4.89 0.04 Bonds Jul-10 1.30 0.06 2.55 0.12 Aug-10 1.12 0.05 3.35 0.15 Sep-10 1.12 0.05 3.36 0.15 Oct-10 1.39 0.07 4.00 0.20 Nov-10 1.68 0.08 5.79 0.29 Dec-10 3.38 0.15 9.84 0.43 TOTAL 9.98 0.23 28.89 0.67 Other Jul-10 0.00 0.00 0.00 0.00 Aug-10 0.00 0.00 0.00 0.00 Sep-10 0.00 0.00 0.00 0.00 Oct-10 0.00 0.00 0.00 0.00 Nov-10 0.00 0.00 0.00 0.00 Dec-10 0.00 0.00 0.00 0.00 TOTAL 0.00 0.00 0.00 0.00 Market Capitalization (US$ millions) Index MONTHLY STOCK VOLUME VS INDEX (US$ millions) Stocks Index MONTHLY MARKET CAPITALIZATION (US$ millions) Jul-10 4,814.08 876.63 Aug-10 4,793.23 892.04 Sep-10 4,758.48 894.31 Oct-10 5,053.40 914.63 Nov-10 4,782.47 887.59 Dec-10 4,941.87 944.07 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 Jul Aug Sep Oct Nov Dec 1,000 800 600 400 200 0 6,000 5,000 4,000 3,000 2,000 1,000 0 Jul Aug Sep Oct Nov Dec CONTACT INFORMATION Contact Name Mr. Dino Bojic E-mail dino.bojic@sase.ba Website www.sase.ba * Please refer to page 42 for the Bosnia and Herzegovina country report. PAGE 111
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