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Serbia Frontier Market: Weekly Review 24-28 November 2014

|Includes: Aero Grow International, Inc. (AERO)

Airport Nikola Tesla at record levels, Serbia seeks advisers for the sale of Komercijalna Banka

The most important news last week were the revelation of the state to seek financial advisor for the privatization of Komercijalna Banka (KMBN), and a new maximum price level of Airport Nikola Tesla (OTCQB:AERO) which continued with good business performance in October 2014. On the other hand, the macro data did not provide support to Belex growth, which still finished in a strong plus due to an unexpected increase of NIS shares.

Belex

Indices of the BSE post strong growth reversing the negative trend of three weeks, mainly due to the growth of NIS. BELEX15 rose 1.11% to 696.91, while BELEXline jumped 1.30% to 1387.28 points. Traffic also increased from 211 to 390 million (3.2 million euros). Foreigners accounted for more than a half (55.5%) of total trading, which is slightly above the 12-month average.

Corporate News and Events

Deposit Insurance Agency has published a call for the selection of advisors for the sale of Komercijalna Banka (KMBN), which is valid until December 26, 2014. The share offered for sale is 83% of the total capital, and it is the property of Serbia (42%), EBRD (24.4%), IFC (10.1%), DEG (4.6%), and Swedfund s (2.3%). KMBN is the second largest bank in the market measured by assets - a share of 12.9%.

NIS has paid a dividend of 80.2 dinars per share in the gross amount, and that move had a positive effect on the price of these securities, because some investors reinvested the money again into the companies stocks. The total amount of paid dividends was 1.6 billion dinars.

Shares of Airport Nikola Tesla (OTCQB:AERO) during the week surged to a record level of 920 dinars, due to the continuing strong business performance in October. Number of air operations jumped by 22.7% to 4,908, while the number of passenger's traffic was 406,757, an increase of over 38% yoy, while transport of goods rose 4.3% yoy.

Macroeconomics

Serbia real GDP decline in the third quarter was 3.6% yoy, which is slightly lower than the first estimates of 3.7% from October. Also, the revised estimate for 2Q 2014 from July showed a decrease of 1.3% instead of 1.1% on a yoy level. The government expects GDP decline of 1.00% in 2014. Industrial production in October 2014 fell by 11.2% annually, while compared to the average of 2013 increased by 2.7%, according to the RSO. In the first ten months, the decline was 6.3%. Sector of electricity, gas, steam and air conditioning decreased 28%, mining industry declined 17%, while manufacturing fell by 6.3%.

In the same month, the average net salary amounted to 44,938 dinars and was higher in real terms by 2.4% mom, and 1.2% yoy. The average gross wage amounted to 61,963 dinars, which was a real increase of 2 1% mom and 1.3% yoy.

For the first time in 2014, Serbia recorded a budget surplus in one month. The reason for this assumption is better collection of VAT and excise revenue growth in October. On the other hand, the public debt increased by 100 million euro and exceeded the level of 22.2 billion euros, or 67% of GDP.

Treasury Auctions

In the first three days last week, three auctions were held. On Monday, two-year amortized notes total value of 5 billion dinars was sold with 64.42% success, at the unchanged fixed margin of 1.35%. These notes carry a variable coupon equal to the sum of the key rate (8.00%) and fixed margin. Three-year bonds worth 10 billion dinars were sold with half success at the rate of 9.70%, down to the previous 10.00%. At the re-opening auction of 5-year bonds, realization of the offered 59.2 million euros was 60% while MMY was not changed - 5.00%. These securities maturing on 28 August 2019, and carry an annual coupon of 4.00%.