Bloomberg News

Hungary Buys EON Units as Orban Vies to Deliver on Price Cut Vow

March 28, 2013

Hungary bought back German utility EON SE’s domestic natural-gas businesses as Prime Minister Viktor Orban seeks to strengthen the state’s hold on strategic assets and deliver on a pledge to slash back utility prices.

The government paid about 870 million euros ($1.1 billion) for EON’s gas storage units and gas distribution business, including liabilities, state-owned energy company MVM Zrt. and EON said in statements today. The deal is the largest state transaction since Hungary repurchased OAO Surgutneftegas’s 21.2 percent stake in refiner Mol Nyrt. (MOL) for $2.65 billion in 2010.

Orban is reversing earlier privatizations as he seeks to boost his Cabinet’s role in industries considered strategically important. The government is imposing mandatory household utility price cuts as Orban gears up for elections next year.

“The sale of our gas companies in Hungary further sharpens the focus of our business in Europe,” EON Chief Financial Officer Marcus Schenck said in the statement.

The final price depends on the value of gas inventories on the closing day of the transaction, which is expected in the second half of 2013, pending approval from authorities.

Under the deal, all EON’s gas assets will be transferred to MVM, including gas inventories, according to the statement. MVM intends to finance the transaction from existing funds and new external financing, it said. The German company bought the Hungarian business from Mol in 2004 for 2.1 billion euros.

Raba, Takarekbank

Since coming to power in 2010, Orban gained control of car parts maker Raba Nyrt. and savings bank Takarekbank Zrt., and purchased a stake in Budapest waterworks from Suez Environnement SA (SEV) and RWE Aqua GmbH.

EON is currently executing a disposal program with more than 13 billion euros of the targeted 15 billion euros having already been divested, Chief Executive Officer Johannes Teyssen said on Nov. 13.

The company plans to raise more than 2 billion euros in the next two years selling regional units and a stake in nuclear- fuel processing business Urenco to help cut debt and provide capital for expansion in emerging markets including Brazil and Turkey.

The government last week signed a declaration of intent to acquire a majority stake in the nation’s strategic natural-gas storage facility from Mol for an undisclosed price.

The EON transaction will also put the government in charge of discussing Hungary’s long-term gas purchase contract with Russia’s OAO Gazprom. Around 80 percent of Hungary’s annual gas consumption is covered by imports, largely from Russia.

Storage Capacity

EON had a storage capacity of 4.2 billion cubic meters in Hungary, which it now sold to the state, the release said.

Hungary, the most-indebted eastern member of the European Union, cut welfare spending, nationalized private pension fund assets and levied extraordinary industry taxes to narrow its budget deficit below an EU limit of 3 percent of economic output. The measures helped push the economy into its second recession in four years.

The forint has weakened 2.7 percent this month, the most among more than 20 emerging-market currencies tracked by Bloomberg, as Standards & Poor’s cut Hungary’s credit rating outlook to negative, citing concern the government’s “interventionist” policies may hurt growth and credibility.

The currency weakened 0.3 percent to at 304.61 per euro by 4 p.m. in Budapest.

The government and Germany’s RWE AG (RWE) may enter talks on Hungary buying RWE’s majority stake in electricity group Elmu- Emasz, news website Hirado.hu said today. EON may also be interested in selling its Hungarian electricity facilities to the state, according to the report.

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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