Austria struggles for attention

Global Finance, Jun 2003 by Johnson, Mark

A small exchange gets some good news.

At last, Erich Obersteiner has something to smile about. Late March, HypoVereinsbank announced it was to float up to 25% of the stock of BankAustria Creditanstalt (BACA) on the Vienna Stock Exchange, two-and-a-half years after it snapped up Austria's leading bank. "We are very happy," says Obersteiner, joint CEO of the stock exchange. "Losing Bank Austria was a big blow to us." It wasn't the only hit taken by the exchange in recent times. A small economy surrounded by larger neighbors, Austria has seen a number of its larger companies fall to foreign suitors. Munich-based HVB's swoop on BACA removed the exchange's third largest company by capitalization; just one year later in March 2002 national icon Austria Tabak fell to Gallaher of the U.K. after just four years as a listed company.

Other companies have fallen off the stock exchange for internal reasons. In February this year, building company Bauholding Strabag said it was going private, arguing that that allowed it to concentrate on expansion overseas.

Many Austrian managers clearly feel the attention a company receives from Austrian investors doesn't merit the growing burden of maintaining a listing.

Like Germany, the backbone of the Austrian economy is formed by a layer of prosperous small and medium sized firms. They are often family-owned and have traditionally depended upon their banks for capital.

Wedded to stolid investment fare such as savings accounts, Austria's citizenry have largely shunned shares. According to Richard Schenz, the Government Representative for Capital Markets, just 7% of Austrians hold stocks. "Austria is a very traditional country," says Schrenk.The ex-CEO of national oil giant OMV, Schrenk was appointed to do something about the anemic state of the country's capital markets. Austria's stock market capitalization stands at just 14% of GDP, compared to 110% for Western Europe as a whole. "We need more confidence, more volume," says Schrenk. "If your companies don't have access to cheap capital then you won't have growth."

Nor will they provide rich enough fare for the private pension provision that policymakers wish to see grow up alongside the country's generous state pension system. New laws now allow banks and financial service companies to sell capital-protected equity funds, complete with tax benefits. The catch: 40% of those funds must be invested in European Union countries whose stock markets account for less than 30% of GDR How many countries meet those criteria? You've guessed it-just one, Austria.

That kind of state-directed channelling of savings may smack of the command economy rather than the free market but Obersteiner says investors likely won't be disadvantaged. Vienna's key ATX index posted a gain of 0.8% in 2002, small maybe, but remarkable compared to other bourses. Germany's DAX shed more than 40% of its value over the same period.

Austria's companies have been first movers in the rush to take advantage of the opening up of central and Eastern European economies; Obersteiner says the region accounts for between 60% and 70% of the income for companies listed on Vienna.

Combine that with an economy which has avoided most of the chill winds blowing around them, and there are reasons to think that Austria's stock markets will continue to be a good bet, says Obersteiner.

He's also banking on a wave of new listings to perk up interest in the exchange. A new right wing government took power in March and has committed itself to restarting the privatization program. Among the companies set for partial or full sell-off are steel groups Voest-Alpine and Bohler-Uddeholm, as well as 47% of Austria Telkom.

Foreign predators may swoop-neighbor Swisscom is known to be interested in Austria Telkom-but the Vienna Stock Exchange is set to feel not quite such a lonely place.