Bloomberg News

Hungary State Companies Win Mobile Bid as Orban Widens Sway

January 31, 2012

(Updates with Magyar Telekom share price in 13th paragraph.)

Jan. 31 (Bloomberg) -- Hungary awarded the nation’s fourth mobile frequency to a group of state-owned companies, extending the government’s influence on the nation’s key industries.

Postal service Magyar Posta Zrt., power company Magyar Villamos Muvek Zrt. and development bank Magyar Fejlesztesi Bank Zrt. offered 10 billion forint ($45 million) for 5 megahertz of the 900 MHz frequency, the media and telecommunications authority said in Budapest today. Deutsche Telekom AG’s Magyar Telekom Nyrt. and the local units of Telenor ASA and Vodafone Group Plc, Hungary’s three current mobile operators, won extra frequency capacities.

Prime Minister Viktor Orban’s government has snapped up stakes in companies the government has deemed strategic as European countries from Greece to Poland sell holdings to plug budget holes. Orban, who is seeking International Monetary Fund and European Union aid, effectively nationalized private pension funds and levied special taxes on companies including banks and telecommunication providers to shore up the budget.

“The government’s appetite for controlling strategic assets has surprised many investors who still struggle to see any economic rationale behind it,” said Peter Attard Montalto, a London-based economist at Nomura International Plc. “I continue to see it as an extension of Orban’s economic nationalism ideology.”

Taking Stakes

The government on May 24 announced the purchase of OAO Surgutneftegas’s 21.2 percent stake in Mol Nyrt., Hungary’s largest refiner, for $2.65 billion in what then-Development Minister Tamas Fellegi called a “first step” to boost the state’s role in strategic industries.

The government increased its stake in vehicle-parts supplier Raba Nyrt. to 73.84 percent on Dec. 14 from 16.15 percent.

Hungary, the most indebted eastern member of the EU, is trying to revive financial aid talks with the IMF and EU, which broke down last year after the government passed a central bank law that the 27-member bloc said may curb monetary policy independence.

EU finance ministers pushed Hungary on Jan. 24 to do more to rein in its budget deficit, holding out the threat of a suspension of subsidies if the government fails to meet targets.

Magyar Villamos Muvek took over the government telecommunications network last year as part of its plan to enter the market. The power producer, which is also expanding into the natural gas market, purchased a 49.5 percent stake in Bakonyi Elektromos Muvek Termelo Zrt., giving it full ownership of the power plant.

Spurring Competition

“Maximizing frequency income wasn’t the only goal,” the authority said in the statement. “Spurring competition, incentivizing the entrance of a new service provider, social utility and achieving high income together” were the goals.

Besides the so-called ‘A’ block on the 900 MHz frequency, the state consortium also purchased two other blocks, ‘D’ and ‘E’ on the 1,800 MHz and 2,100 MHz frequencies, the media authority said. Vodafone, Magyar Telekom and Telenor won 5.8 MHz on the EGSM band.

Vodafone offered to pay 15.7 billion forint, Magyar Telekom offered 10.9 billion forint and Telenor offered 7.3 billion forint for the extra capacity, the media authority said. The watchdog, also known as NMHH, was offered a net 43.9 billion forint from the entire tender.

Magyar Telekom shares declined 7 forint, or 1.3 percent, to 533 forint by 12:30 p.m. in Budapest, falling for a fourth day. The benchmark BUX stock index gained 1.1 percent to 19,280.41, led by OTP Bank Nyrt.

Government Strategy

“Today’s decision is in line with a government strategy aimed at bolstering the state’s role in strategic industries,” Attila Gyurcsik, an analyst at Budapest-based Concorde Securities, said in a phone interview before the decision. The state-owned mobile group could try to “profiteer at the expense of the other companies at the risk that future infrastructure developments will be delayed or scrapped.”

Hungary’s mobile market has three operators, with Magyar Telekom, Hungary’s former phone monopoly and the largest player by market share. NMHH called a two-round international auction last year to sell the rights to use the fourth mobile frequency for 15 years.

The authority was selling a primary frequency block at a starting price of 4 billion forint and other blocks at 700 million forint and 560 million forint, respectively.

Hungary’s timing on extending the state’s presence in strategic industries is taking place as the sovereign debt crisis in the euro area is spurring asset sales in other European countries. The Greek government last year said it wants to raise 50 billion euros by 2015 via state-asset sales and real-estate development.

Polish, Romanian Sales

Poland sold stakes in 126 companies last year, raising 13.1 billion zloty ($4.07 billion). The Treasury Ministry sold minority stakes via the stock exchange in companies including Jastrzebska Spolka Weglowa SA, the EU’s largest coking coal producer, Tauron Polska Energia SA, Poland’s second-largest power utility, and PZU SA, its biggest insurer. It also sold a 12 percent stake in lender Bank Gospodarki Zywnosciowej SA.

Romania is pushing ahead with plans to sell stakes in state-owned companies this year, even after market turmoil led to the failed sale of a 9.8 percent stake in the biggest oil company, OMV Petrom SA, in July.

The government wants to sell a 15 percent stake in gas producer Romgaz SA and minority stakes in utilities Hidroelectrica SA and Nuclearelectrica SA, as well as in power- grid operator Transelectrica SA and in natural-gas grid operator Transgaz SA.

Hungary, which had divested most of its state-owned companies in the 22 years since the end of communism, signed a contract with E.ON AG in March 2010, by which Germany’s biggest utility agreed to give Hungary a purchase priority on its local natural gas wholesale unit.

Orban’s office at the time said the action would prevent E.ON Foldgaz Trade Zrt. from falling into “undesired hands.”

--With assistance from Maciej Martewicz in Warsaw and Andra Timu in Bucharest. Editor: Douglas Lytle

To contact the reporter on this story: Edith Balazs in Budapest at ebalazs1@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net


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