Czech Equity Daily: 08/02/10; Orco, CEZ, Politics, Macro

Index PX: 1,094 points (down 3.6% d/d); volume: 4,075 bn CZK (216 mil USD)

Market comment
The PSE erased another 3.6% on Friday, although the PX Index moved around zero after open. Buy orders were soon replaced with general panic that spread globally on almost all markets. From the beginning of January, markets were susceptible to correction after the almost all-year growth, with arising fears related to the financing of huge deficits of some countries. American unemployment figures, released on Friday, were mixed, and US markets managed to close in the black. In Prague, stocks that so far had not recorded many losses suffered the most. Komercni banka lost 5.43% (CZK 3,500) and CEZ fell without much resistance to CZK 860 (-4.23%). Erste Bank (CZK 674) and NWR (CZK 173) dropped by around 2%. Unipetrol closed at CZK 136.2 and CME, which stayed around CZK 510 most of the session, closed at CZK 500. The volumes more than doubled compared to average, reaching CZK 4bn.

Orco: Neutral (Analyst: Patrick Vyroubal)
Orco will submit a new rescue plan before the Paris commercial court, reported to E15 daily. So far, Orco has managed to reach agreement with all of the 33 funding banks to postpone the debt repayment and the plan submitted before the court will also include a proposed solution regarding bonds payable from 2010 to 2014. The company wants to put off the maturity date of bonds and proposes the following timetable of repayment: The first year, 1% of principal to be paid, second to sixth year 5%, seventh year 10%, eighth 20%, ninth 25% and tenth 10%. In addition, Orco wants to implement a restructuring plan. In total, Orco will repay EUR 533m, including interest. The bonds represent EUR 450m in the balance (28% of total debt). A new business plan consists of four key areas: sale of assets, concentration of activities in Prague, Berlin, Warsaw and Budapest, construction of new projects only on existing land and focus on the core business (development of and investments into property).
The period of court protection against creditors ends on 25 March. So far, negotiations with creditors have been unsuccessful. The restructuring of bank loans is not surprising as banks do not fund all of a project but only its larger part, which creates a buffer in case of a certain decline in value. We still think that the restructuring will be successful but a potential capital increase or debt conversion might bring a high dilution effect to existing shareholders.

CEZ: Neutral (Analyst: Petr Novak)
CEZ announced on Friday that it had decided to set off the Chvaletice power plant (800 MW) as an independent company. The process could be completed by an assets swap or a sale. The decision was motivated by a fact that the power plant produces a lot of emissions while CEZ´s strategy is to favour less emission-demanding technologies (atom, natural gas, renewable sources). Moreover, its life-span will end in coming years and the extension would require investments. In our long-term valuation we do not calculate with this power plant. We consider the news neutral for today´s trading.

Parliamentary elections – date(Analyst: Petr Sklenar)
President Klaus officially set 28-9 May as the date for the parliamentary elections. PM Jan Fischer has already added his signature to the document calling the elections. The date is undisputable this time as the elections are regular in contrast to autumn 2009, when extraordinary elections were to take place but were declared unconstitutional by the Constitutional Court.

Trade balance – December 2009
eAFT: CZK -2.5bn; eMarket: CZK 3.5bn; previous (November): CZK 14.5bn

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