Books on Hungary
% of GDP
Update No: 090 - (27/10/04)
New cabinet sworn in
Ministers in the Cabinet of newly elected Prime Minister Ferenc Gyurcsany were
sworn in on October 4th. He proclaims that his main objectives are to push to
raise living standards and to apply "truly Social Democratic" values
Gyurcsany - elected in September on a 197-12 vote - has named seven new
ministers and kept 10 of those who served during the two years in office of
Gyurcsany's predecessor, Peter Medgyessy. Among those staying are Finance
Minister Tibor Draskovics, Defence Minister Ferenc Juhasz and Culture Minister
Kovacs, who will become the European Union's commissioner for energy affairs,
was stay on as foreign minister until the end of October. He was to be replaced
then by Ferenc Somogyi, a deputy ambassador to the United Nations in the 1980s
and recently a phone company executive.
The man symbolically credited with causing Medgyessy's demise will not be part
of the new Cabinet. Istvan Csillag, whose attempted dismissal by Medgyessy
backfired, resigned in September to "spare the new government of
Janos Koka - founder of a local telecommunications firm and, like Gyurcsany, one
of Hungary's richest businessmen - will step in for Csillag as minister of
economics and transportation. Others new to their posts are Justice Minister
Jozsef Petretei - a legal scholar from southern Hungary - and two ministers
without portfolio: Etele Barath, co-ordinating EU affairs, and Istvan Kolber,
overseeing regional development.
Eighteen months before the next parliamentary elections are due in April 2006
and trailing the centre-right opposition, Fidesz, by some 12-15 points in the
polls, Gyurcsany, 43, says his government will represent "true Social
The Socialist-led coalition, which also includes the Alliance of Free Democrats,
ousted Medgyessy in late August, frustrated by his lack of leadership and
direction for government policies.
A property and manufacturing tycoon who was a communist youth leader in the
1980s, Gyurcsany vowed his Cabinet would be much more decisive and establish a
markedly left-wing tone. "I envision a left wing which has the courage to
be outraged by social injustices and has the strength to do something about
them," Gyurcsany said in an interview in the daily newspaper Nepszabadsag.
"Our government stands by the principle there should be more responsibility
taken above and more opportunities below."
Among the first policies he announced were the introduction of capital gains
tax, higher taxes for banks and lower income taxes benefiting most those earning
near the average monthly wage of 142,300 forints (550).
Thirteen members of Gyurcsany's Cabinet are Socialists - including the only two
women - while four were designated by the Free Democrats.
Peter Kiss, whom Gyurcsany defeated to gain the Socialists' nomination, will
continue to direct the Prime Minister's Office. The only significant structural
change is the elimination of the Youth and Sports Ministry, which Gyurcsany led
before taking over as head of government.
Attila Abraham, who won Olympic gold, silver and bronze medals in kayak, will
handle sport matters as a state secretary at the Prime Minister's Office.
The thrice-married Gyurcsany, who left politics during Hungary's transition to
democracy in 1990 and returned in 2002 as a key adviser to Medgyessy, has four
Blair goes to Hungary
Gyurcsany is often compared to Tony Blair. They have a similar charisma and
commitment to 'modernisation,' which to the more traditional of their parties
seems to be an opportunistic theft of the policies of their conservative
opponents. Gyurcsany is leading the biggest transformation of his Socialist
party since its 1989 creation from the remains of the communist regime that
ruled Hungary for more than 40 years. Gyurcsany, one of Hungary's richest
businessmen, said that while the socialists no longer saw change as a struggle
between social classes, there should be "more responsibility taken above
and more opportunities below."
"While I accept Tony Blair's slogan that rights and responsibilities go
hand in hand, if those rights aren't paired with opportunities, then it's no
use," Gyurcsany said. "Many don't have opportunities, so that's why
they can't be abandoned."
Hungarians had a chance to judge the extent of their similarity for themselves
when Blair flew to Hungary on October 14th for a summit of 13 centre-left heads
of government - with Iraq firmly off the agenda. Last year, Hungary committed
300 troops to the coalition effort in Iraq. One Hungarian soldier has died
during the military operation. Public opinion is hardening against further
Hungarian involvement. Gyurcsany says that Hungary will decide whether to pull
out of Iraq or not after the US election.
The prime minister was attending a meeting of Peter Mandelson's Progressive
Governance thinktank, which was being held in Budapest.
In a joint article written for the launch of the conference, Mr Blair and Mr
Gyurcsany called for reform of the common agricultural policy, and for
maintaining better links with the US. The two leaders said that that the EU's
agricultural policy needed "fundamental reform". "It ill serves
our taxpayers, our farmers, our environment and partners in the developing
world," they said.
They also said the EU's constitution would strengthen its institutions while
keeping "the free will of nations, collectively expressed," as its
source of authority. "We need a union of nations, rather than a 'United
States of Europe,"' the two leaders wrote.
Mr Blair and Mr Gyurcsany said new EU countries such as Hungary - which joined
in May along with nine other nations - brought to the union their recent
experience of wide-ranging reforms. "We both believe that the experience
and determination they bring to the EU will boost the pace of modernization, to
the benefit of all of Europe," they said.
Regarding relations with the United States, they said that the new members'
attachment to the trans-Atlantic alliance was "particularly strong."
"EU enlargement will bind it even more firmly together, but deep down all
of Europe knows its importance," the prime ministers said. "It is
vital that Europe is America's partner, not its rival nor its servant."
The Third Way
Blair observed at the conference: "To put it bluntly, how can progressive
The annual meeting of the Left-wing leaders was initiated by Bill Clinton, Blair
and Gerhard Schroeder, the German Chancellor, in 1999 when they held a "wonkathon"
to forge a "Third Way" in politics.
The Third Way was the Left's answer to the "crisis of Keynsianism"
which afflicted the West in the 1970s, and the free-market
"neo-liberalism" of Thatcher and Reagan in the 1980s. It was designed
to forge a middle way between the "tax and spend" state control and
regulation of the old Left, and the subsequent "free-market
fundamentalism" that insisted that the market always knows best.
The Third Way shifted the role of the State from protecting people to enabling
them, from being a net to a ladder. In those heady days of the Clinton/Blair
honeymoon, it was going to solve the problems of the West, the former Communist
countries, and the developing world to boot.
Five years later, the meeting is happening under very different circumstances.
It attracted a dozen Centre-Left heads of government including Blair, Thabo
Mbeki of South Africa, Jose Luis Rodriguez Zapatero of Spain, Helen Clarke of
New Zealand, Ricardo Lagos of Chile and Paul Martin of Canada. The Right has no
equivalent meeting. But self-confidence has been replaced by an air of
existential angst. Although it may sound unlikely to the British, where the
Conservative Party is suffering a near-death experience, the international Left
is feeling beleaguered.
There has been a loss of political power and intellectual confidence. This year,
the talk was about why the Third Way did not work and what should replace it.
When the meetings were first convened, six of the G7 leading industrial nations
had Left-wing leaders compared with four today. Of the then 15 EU countries, 13
were Centre-Left, but since then the Right has won control in Portugal, Italy,
France, the Netherlands, Greece and Denmark.
In Germany, Schroder has slumped in the polls. The USA has a conservative
President, while the European Commission is taking a distinctive lurch to the
Right under Jose Manuel Barroso, its new President. In many countries, including
Germany, far-Right parties are making dramatic advances. Mandelson said:
"The stakes for progressive politics have never been higher."
Matt Browne, director of Policy Network, said: "The Centre Left across
Europe is struggling to define a political antidote to new kinds of populism
that are fed and manipulated by a politically, if not ideologically, resurgent
Gyurcsany said: "We need to have the courage to have Left-wing values:
social justice, solidarity and a society run in the interests of the many, not
the few. For the Left, the alternatives are clear: reform or failure."
In the gilt baroque ballroom of the Corinthia Grand Hotel Royal, where
Austro-Hungarian royalty used to dance the night away, the Left-wing heads of
state were asked to pontificate on how to pursue progressive politics. Clark,
the Prime Minister of New Zealand, said: "The key to success for social
democrats is showing you can have a market economy without a market
Mbeki, the President of South Africa, said that the most important thing was
"to maintain the closest possible contact with the people. Allowing a
distance between the Left and the people creates the space for the growth of
But not one of the leaders mentioned the Third Way. In an essay for the
conference, "Where now for the Third Way?" Browne wrote: "The
Third Way was the vehicle that allowed the Left to regain its confidence, to
take on and defeat a resurgent Right. But this is no longer enough."
Delegates agreed that the Third Way simply did not provide answers to many of
the world's problems: globalisation, the rise of the flexible-knowledge economy,
rising crime, terrorism, modernisation of public services to give citizens both
choice and flexibility, and integration in increasingly diverse and
Most of those issues have traditional Right-wing remedies, but what is the Third
Way solution to global terrorism? The Left has yet to decide how to respond to
the world's changing priorities, and the result is that in many pressing areas
the Left is split.
The most obvious division is over Iraq. Blair, a close ally of President Bush,
and Senor Zapatero, who withdrew troops from Iraq after his surprise election
victory, appear to have little in common. Iraq probably slowed down the process
of the parties talking to each other.
Some on the Left regard the USA as the biggest threat to the world; others see
it as the strongest defender of liberal democracy. Some view globalisation as a
source of the world's ills, others see it as the solution. While Paul Martin,
the Canadian Prime Minister, was boasting of his record tax cuts, Goran Persson,
Sweden's Prime Minister, was claiming to have proved that high taxes worked.
Blair warned his counterparts: "There is a danger that progressive politics
defines its economic policy by anti-globalisation, and its international
politics by anti-Americanism." But one leading German politician said:
"Tony Blair is only a supposedly Left-wing leader - he is easily to the
right of [the French President] Chirac, who is supposedly a Right-wing
So what comes after the Third Way? Choice has always been the Right's rallying
cry. Left-wing British MPs, for example, are bitterly opposed to Blair's and the
Conservative Party's policy of giving NHS patients a choice of doctors and
hospitals. The new idea is that all people should not just have equal
opportunity - a passive concept - but be able to exercise equal choices in all
aspects of their lives.
The latest research shows that to give people equal choices in later life, you
have to start early. Mandelson emphasised his own recipe: "First-wave Third
Way policies were correct to place their emphasis on active welfare and policies
to promote life-long learning. Unfortunately, they did not prioritise investment
in the early years. Today, we need to promote the cognitive development of the
young." His solution is less a political philosophy than a family-friendly
policy: "In short, we must promote universal pre-school day-care."
Here Sweden, as in so many other issues, provided a model: the revelation that
Swedish children have the same chance of attending university whatever their
social background caused a ripple of excitement.
But delegates realised that Sweden achieved its equality only by introducing
universal education vouchers and giving parents money to send their children to
whatever school they want, leading to a huge increase in the number of private
schools. It is a policy that the British Left has worked hard to demonise as
"a free market in education".
So here is the agenda of the new, progressive equality-of-choice Left: in favour
of globalisation, free trade, lower taxes, private providers in the public
sector, and education vouchers; against state monopolies and newly concerned
about mass immigration.
Perhaps there is no need for the world's conservative leaders to hold
conferences to set a Right-wing agenda. The Left seems to be doing it for them.
New budget airline to fly to Budapest
Danish low-cost airline Sterling.dk will launch flights between Budapest and
Copenhagen next year, the company confirmed recently, Budapest Business Journal
According to Sterling's press release, the airline will launch regular flights
between the two capitals in February 2005. With a change in Copenhagen, the
cities of Billund (Denmark), Gothenburg, Oslo and Stockholm will also be
available between February and October.
Sterling will be the fourth low-cost carrier to fly to Scandinavia from
Budapest. SAS subsidiary Snowflake flies to Stockholm, Norwegian Air connects
Ferihegy with Oslo, while Wizz Air recently launched its service to Stockholm
However, according to Ludmilla Lindecrantz, manager of Snowflake, the company is
in a transitional period right now.
The company is restructuring its local flights, confirmed Maria Kormendy-Ekes,
manager of the Hungarian office of SAS.
"Snowflake will cancel its two weekly flights from Budapest," said
Kormendy-Ekes. "Instead, SAS will launch a service with 6 classic SAS
flights every week to Stockholm, along with seven weekly flights to Copenhagen,
and a number of tickets for these flights will be available through
All the above comes as part of SAS' "Commercial Turnaround" scheme,
which establishes 3 classes instead of the business class/economy class model.
SAS' new Economy class targets price-sensitive travellers, offering basic
services, with meals and refreshments available for purchase on board. The
Economy Flex class offers increased flexibility in areas such as booking,
refunds and seat reservation, along with complimentary meals and beverages.
Business Class travellers are still treated with more comfortable flight
In practice, this means that for the flights in question, tickets will be
available at travel agents for the business class and for the economy class - as
well as for the "no-frills" price.
"Those who purchase tickets for economy class, with the Sunday rule and
advance purchase requirements, will be offered the same service as those booking
at Snowflake. This means that food and drinks can be purchased on board,"
Kormendy-Ekes expressed caution as to whether the Scandinavian market can
support all the low-cost carriers once Sterling enters the market.
"It remains to be seen," she said.
According to Natasa Kazmer, communications director of Wizz Air, there is ample
space for all low-cost carriers on the Hungary-to-Scandinavia market, as long as
they can weather the storm the industry in general is facing.
"The tendency of low-cost airlines competing on overlapping routes is
becoming more and more apparent," said Kazmer. However, she added that only
airlines with an effective cost structure will survive the imminent
consolidation of the industry.
"But the market itself bears good growth capacity," she added.
According to Kazmer, Wizz Air's Scandinavian routes have proven popular among
both Hungarians and Scandinavians.
"Besides, the number of connections to Scandinavia is still relatively low,
especially considering that most Scandinavians have a penchant for travelling,"
Banking sector posts solid profit performance in H1
Hungary's banking sector realised a combined pre-tax profit of HUF 167.6bn
(US$803m) in the first half of 2004, a strong 42.9 per cent increase on the same
period last year, according to figures recently released by financial watchdog
PSZAF, New Europe reported.
Although slower than last year, growth in the lending market accounted for much
of Hungarian banks' profit. Loan stock increased to HUF 8.8 trillion this half
compared to HUF 7.2 trillion in the same period last year, an increase of 23 per
The slowdown in growth in the lending market was caused by reduced demand from
domestic clients. This was especially noticeable in the mortgage loan market,
where a tightening of government subsidies in June 2003 and again in December
2003 has hit demand. Mortgage loan stock grew by 14.1 per cent or HUF 196.2
billion since the end of last year.
Responding to pressure on demand by restricted subsidies, banks have introduced
low-interest rate foreign currency denominated loans. Although still only
representing a fraction of forint-denominated loans, foreign currency loan stock
has grown vigorously.
Since the beginning of the year, stock has expanded 80 per cent to HUF 32bn.
However, despite the relatively low numbers, some have raised concerns over the
level of exchange rate and interest rate risk borne by customers, claiming that
in some cases this has not been made adequately clear to borrowers. The
proportion of foreign currency loans among corporate clients remains high at
about 40 per cent. This represents a growth of 13.3 per cent in the first half
of the year, five times higher than the growth of forint-denominated loans among
Significant demand for loans came from car financing which made up somewhat for
the slowdown in demand for housing loans. Regarding corporate loans, PSZAF noted
that domestic banks do not play a significant role in financing multi-national
companies. The banking sector's combined assets increased by 19.8 per cent, from
HUF 11.48 trillion in the first half of 2003 to HUF 13.8 trillion in
January-June this year.
Strong revenue in the sector was attributable to high interest margins,
increased activity as well as the availability of low-rate foreign currency
loans. Operating costs in the sector were also down in the first half of 2003,
to 3.01 per cent of total assets compared to 3.38 per cent during the same
period last year. Both ROA and ROE were up year on year. The sector's ROA rose
from 2.24 per cent in the first half of 2003 to 2.51 per cent in the first half
of 2004, while ROE was 30.66 per cent, up from 24.48 per cent in the same period
Growth in combined assets is expected to slow in the second half of the year due
to reduced demand for mortgage loans, PSZAF said. Demand for corporate loans is
expected to increase as a result of improved macroeconomic conditions and lower
interest rates. Although growth in consumer loans is expected to slow, no
significant fall is predicted.
Overall, growth in profit in the banking sector is expected to shrink in the
second half of the year. Efficiency-improvement measures taken by the sector in
the past, including cost-cutting and price hikes, will be harder to achieve in
the future, PSZAF said. Hungary's savings associations increased total assets by
19.9 per cent in the first half of the year compared to the same period in 2003.
At the end of June 2004, total assets of savings associations were HUF 9.79
VCP to sell 67.9% of BorsodChem
Vienna Capital Partners (VCP), the majority owner of Hungarian chemicals
producer BorsodChem Rt, has announced that it will sell 47m shares in the
company by way of a private placement, with an option to sell an additional 4.7m
shares, Budapest Business Journal reported recently.
The sale will be carried out through VCP's subsidiaries, CE Oil & Gas and
VCP Industrie Beteiligungen.
In addition, it was announced that BorsodChem is seeking a listing on the Warsaw
Stock Exchange (WSE).
The offering by VCP represents 67.9% of the issued share capital. The sale will
be structured by way of a private placement of shares and Global Depositary
Receipts (GDRs) to international and Hungarian institutional investors. The
indicative price range is from Ft 1,775 to Ft 2,075 per share, and HSBC will
handle the international sale.
According to Tamas Pletser, an equity analyst at Erste Bank Investment Rt, the
timing of selling the stake is perfect. However, he added that the presence of
VCP as shareholder represents a risk to the share price.
"The company is in very good shape, chemical margins are favourable, it has
a good cash flow situation, and is vertically integrated. The only possible
negative, aside from management issues, is the high oil price, which puts a
squeeze on margins," Pletser said.
"The risk stems from the fact that nobody really knows what VCP's
intentions are with respect to BorsodChem," he continued. "We know
that it is not a strategic investor, but we do not really know what its plans
are. To be fair, it has done nothing to harm the position of minority
shareholders so far."
Pletser said that the free float - currently about 8% - could rise to 76% after
the private placement, and that the market estimates a share price of Ft 2,000.
Pletser noted that, while the sale could give BorsodChem's share price a boost
as the influence of VCP decreases, VCP will still effectively be in control of
"BorsodChem will give an 8.3% stake to management in the form of employee
shares, and VCP will have a 23.3% stake after the sale. It is believed that the
two owners will act in unison when voting, and together they will have over 30%
of the shares," he said. "The risk is that they may act in a way that
will harm the position of (smaller) minority shareholders."
Speaking at a roadshow in London recently to promote the sale, BorsodChem CEO
Laszlo F Kovacs said the company has substantial advantages over its West
European rivals in terms of expenses. He cited cheaper labour and the fact that
is a vertically integrated company that makes a large amount of its own raw
materials, such as aniline and vinyl chloride.
Kovacs added that BorsodChem will receive special tax breaks until 2011.
BorsodChem is the largest PVC manufacturer in Central and Eastern Europe, the
region's sole make of MDI, and a leading producer of TDI in the region. Since
2001, the company has stepped up its MDI and TDI production to lessen exposure
to changes in PVC prices.
Unaudited IFRS figures show BorsodChem had consolidated net income of Ft 10.25bn
(41m) in the first half, compared to losses of Ft 782m a year earlier.
As part of its announcement, VCP also said that if the BorsodChem sale is
completed by November of this year, VCP subsidiary CEOG will purchase
BorsodChem's 15.4% direct holding in peer chemical company TVK Rt at a price of
Ft 5,503 per share.
In addition, BorsodChem is seeking a secondary listing of its stocks on the WSE.
Although no date has been given, the company hopes the listing will go through
in time for the share sale.
Commenting on the potential Polish listing, Pletser said that if the listing
fails to be completed within the time frame of the sale, the share price could
"While it's a good time to sell, the sale seems very rushed," he said.
"If it did happen by the end of October, then Polish investment funds can
buy into the company freely. They are restricted on the levels of investment in
non-WSE-listed companies. Conversely, if the listing does not go through
quickly, this could have a negative impact on stock price."
HUF 500m contracts for KEESZ
One of the biggest Hungarian construction industry companies, KESZ Kft, has
signed two major contracts in the region, worth nearly HUF 500m, New Europe
The automotive producer Peugeot has entrusted KESZ with the partial planning,
production and installation of the steel structure of its new painting site in
Trnava, located in Serbia and Montenegro. At the same time, KESZ got a contract
from the Metro chain for the construction of their first store in Serbia and
Montenegro. KESZ is estimating a total 2004 income of over HUF 40bn.
Moody's may upgrade Erste rating
Following the merger of Hungary's Postabank (rated A2/P-1/E+) into Erste Bank
Hungary Rt (previously unrated), Moody's Investors Service announced it has
withdrawn all ratings of Postabank and assigned them to Erste Bank Hungary Rt,
New Europe reported recently.
The E+ financial strength rating was placed on review for possible upgrade.
Moody's said that the A2/P-1 ratings - standing for long-term bank deposits and
short-term bank deposits, respectively - are based on expected support from the
majority owner of Erste Bank Hungary, Austria's Erste Bank der
oesterre-ichischen Sparkassen AG (A1/P-1/B-). The review of the E+ financial
strength rating will focus on the combined entity's improving financial
fundamentals and market position as well as the process of integrating the two
banks, Moody's said. The merger was completed on August 31st; the combined total
assets of the two entities approached HUF1 trillion at the end of the first half
of this year. Fellow rating agency Fitch Ratings soon after announced that it
assigned Erste Bank Hungary a Support rating of "1," and at the same
time affirmed Postabank's Support rating at "1" and simultaneously
withdrew it. Fitch said the Support rating assigned to Erste Bank Hungary
reflects what is viewed as an extremely high probability of support from its
Austrian parent in case of need.
FOOD & DRINK
Podravka's Hungarian plant closes
Croatian food and food ingredients manufacturer Podravka International Kft will
shut down its plant in Mohacs, south Hungary and move production back to
Croatia, the Mohacs municipality confirmed, New Europe reported recently.
Podravka's Hungarian subsidiary Podravka International Kft produced food
seasoning brand Vegeta in Mohacs for 10 years. The decision to close the plant
and to layoff its 56 workers is in line with a reorganisation and cost-saving
programme in scope of which the parent company closes down plants in the region.
Novell scores 3-year IT network deal
IT network provider Novell Hungary Kft has sealed a Ft 1bn (4.04m) contract
to provide the National Judicial Council Office (OITH) with a computer network
and IT-based administration system, Budapest Business Journal reported recently.
The contract - which will create the largest Novell system operating in Hungary
- was signed for a period of 3 years.
"This project will equip judges around the country with EU-conform and
secure innovative IT infrastructure," said Tamas Szittya, managing director
of Novell Hungary.
The system is to be installed at 158 OITH offices throughout the country,
connecting 7,350 users, and will be paid for from EU Phare funds, according to
Janos Horvath, head of the OITH's IT department.
"The OITH plans to create a secure and innovative IT infrastructure that
meets EU requirements, and a compatible portfolio.
MINERALS & METALS
Dunaferr privatisation reaches completion
The Donbass Industrial Association has gained a 79.48% stake in Dunaferr Rt,
following the recent completion of a privatisation process that was launched
last September, Dunaferr announced in a press release, Budapest Business Journal
The buyer is a consortium of Ukrainian steel firm Donbass Inc, Russian
metallurgy firm, Altchevsky Metallurgy Inc, Swiss firm, Duferco International
Trading Co, and Liechtenstein-registered project company, Kundax AG.
The other members of the consortium selected Kundax to buy 1,540,882 shares with
face value of Ft 5,091 each.
The consortium spent almost Ft 100bn (roughly 400m) on the deal, including a
Ft 17.3bn capital increase and a consolidation of the loan portfolio. The
contract was signed by Miklos Kamaras, general manager of the State
Privatisation and Holding Rt (APV), Sergei Taruta, President of the Donbass
Industrial Association, and Peter Honig, president and general manager of
Quoted in the press release, Kamaras said that Dunaferr has found a strategic
partner in Donbass, which will take responsibility for the company in the long
run. Donbass undertook that it will not decrease the number of employees at
Dunaferr in the next 5 years.
Also in the press release, Taruta said this complex privatisation process will
result in a more efficient Dunaferr. Taruta added that shareholders, employees,
the town and the region will benefit from Donbass' takeover.
"Now, Dunaferr has the chance to make a profit from the steel industry's
[boom] as a member of a leading producing and trading group in the
industry," he said.
Donbass Industrial Association is a leading metallurgy group in Ukraine and
other countries of the Commonwealth of Independent States (CIS). According to
Dunaferr's press release, the total revenue of the group, excluding affiliates,
was $1.74bn in 2003, which means an 85% increase over 2002. The gross profit of
the group hiked to $78.9m in 2003, over the $39m of 2002.
The net profit of companies in the Donbass Industrial Association was $26m in
2003. Last year, Dunaferr reached Ft 364bn in total revenue, while its gross
profit was Ft 193m as opposed to the projected Ft 2.6bn loss. In the first eight
months of this year, Dunaferr has reached a consolidated revenue of Ft 230bn in
Dunaferr (formerly Dunai Vasmu) was founded in 1950 and currently employs 8,400
people. The company produces 1,330 kilotons of iron, 1,642 kilotons of converter
steel and 1,404 kilotons of hot rolled, ready-made products. The most
significant buyers of Dunaferr's products are German and Italian firms. In all,
70% of Dunaferr's exports are realised in EU countries.
Richter sale completed successfully
The successful sale of the state's 25% stake in Hungary's largest pharmaceutical
producer Richter - in the form of issuing bonds convertible to Richter shares
after 5 years - "will provide substantial help for Richter to implement its
strategy," finance minister, Tibor Draskovics said, New Europe reported
A day before privatisation agency APV issued convertible bonds with face value
of 100,000 in the total value of 640m to institutional investors,
representing its entire 25% stake in Richter, with each share valued at a 54%
premium over the market price. Following the completion of the issue, the first
of its kind in Hungary, the bonds will be listed on the Luxembourg Stock
Exchange. The high premium achieved during the issue - which reflects the
expected increase in the share price over the next 5 years - "signals that
investors are confident in Richter and the Hungarian economy," Draskovics
APV CEO, Miklos Kamaras, said the premium is considered "outstanding"
in international comparison. Elaborating on the details of the transaction,
Draskovics said proceeds will be used to reduce government borrowing or repay
debt ahead of maturity. Kamaras added that as a result of the successful
transaction, APV has raised its 2004 gross revenue target from HUF 370bn to HUF
415-420bn. Under the construction, investors may convert their bonds to Richter
shares upon maturity on September 28th, 2009 if the share price increases by
more than 54% in the 5-year period. If the share price increases by less than
54%, APV will have to buy back the bonds upon maturity and pay a yield of 3.0%
on the Euro-denominated bonds, on top of a 1.0% annual coupon.
However, Kamaras revealed that come 2009, the state may opt to hold on to its
Richter shares and pay their cash equivalent at prevailing market prices to
bondholders if it so chooses. This will allow the government in power at that
time to enact its own strategy regarding the 25% Richter stake, which may
involve keeping it or selling it to a strategic investor - although the latter
option has been consistently rejected by Richter, which sees its lack of a
dominant strategic shareholder as the key to its successful performance.
The APV CEO also noted that the construction will be practically self-financing,
as the state's interest and yield obligations on the bonds will be more than
covered by dividends received from Richter (APV will retain its ownership and
voting rights in the company until 2009). As part of the transaction, Richter
confirmed that it will continue with its long-standing policy of paying out 25%
of its earnings as dividend.
Representing co-organiser Concorde Securities, Gyorgy Jaksity said that a total
of 119 investors subscribed bonds.
The largest amount subscribed was 20m, with nearly a dozen investors
subscribing such an amount. Jaksity also noted that secondary trading of the
bonds has already started on the Luxembourg bourse, with deals struck
conditioned on the settlement of the transaction. The market price of the bond
has already risen slightly, Jaksity noted.
GTS-Datanet offers new services
Alternative telecom provider GTS-Datanet announced on September 14th that it is
entering the market of carrier pre-selection for local fixed-line telecom calls,
adding to its already existing services offering long-distance and international
calls, New Europe reported.
GTS-Datanet launched the new packages as of September 15th, the date when
concession operators were obliged to open up their markets for local calls as
well. In general, two types of carrier selection are available: pre-selection,
where the customer defines in advance the provider to carry his calls, or
call-by-call selection, when the customer selects a carrier for each call by
entering a four-digit pre-dial code.
Budget travellers boost tourism figures
More foreign tourists visited Hungary in the first 7 months of the year than in
the same period of 2003, while domestic tourism fell, a report recently
published by the Central Statistics Office (KSH) showed. Meanwhile, hotels
registered better income figures, the report said, the Budapest Business Journal
The number of foreigners visiting Hungary increased by 9% year-on-year, while
the number of guest nights they spent in the country rose by 3%, the report
stated. It also said that the overall growth was almost exclusively in Budapest,
while the number of foreign tourists slumped in almost every other region.
Observers said low-cost airlines played a key role in the improving figures.
"At present, low-cost carriers only fly to Budapest. No wonder that's where
the growth presents itself," said Gabriella Molnar, president of the
Association of Hungarian Travel Agents and Tour Operators (MUISz).
Molnar stressed that there is no direct correlation between improving tourism
figures and improving sales for travel agencies.
"Low-cost airlines usually do business directly with their clients, without
involving agencies, who therefore cannot benefit from the increased interest. In
fact, the total income of agencies dropped (in the period)," Molnar said.
The first 3 no-frills airlines appeared in Hungary last year, while in 2004
another 4 have followed. The eighth low-cost carrier is expected to be the Irish
Aer Lingus Group Plc, which, is to launch its service between Budapest and
Dublin in November.
The KSH report also stated that, within Budapest, the growth was most apparent
in the case of 4 and 5-star hotels.
"At first, there might seem an anomaly in the concept of growth generated
by low-cost airlines presenting itself in high-class hotels," commented
Marius Gomola, hotel and leisure project development partner at Horwath
Consulting Kft. "But in fact, many of the clients of no-frills airlines are
business people, whose companies are happy to save 50%-75% on a plane ticket.
Contrary to predictions before May 1st, EU accession has brought a remarkable
expansion in the segment of business clients."
New M7 and M70 sections open
A 9km section of the M7 motorway from Becsehely to Letenye on the Croatian
border was opened to traffic recently. The M70, a further 19km of lower-level
highway between Letenye and Tornyszentmiklos on the Slovenian border to the
north, was inaugurated at the same time. Various phases of the M7 have been
under construction since the early 1960s. The conceived 2X2 lane motorway
running from Budapest to the Croatian border is expected to be fully operational
by 2007, New Europe reported.
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