FINANCE: Neighbours Resist Hungarian Hunger

By IPS Correspondents Reprint | | Print |

Béla Ladányi

BUDAPEST, Jun 4 2003 (IPS) - Hungarian companies eager to acquire companies in southeast Europe and the Balkans face strong political opposition in some of their target markets.

Some of these companies have made swift advances. Hungary’s largest commercial lender, the OTP Bank beat Austrian rival Erste Bank in the privatization tender for DSK Bank, the second largest commercial bank in Bulgaria, with an offer of 311 million dollars.

OTP’s victory in Bulgaria two weeks back followed its failure to acquire Banca Commerciala Romana (BCR), the largest bank in Romania. Political reasons were cited for that failure.

OTP had submitted a joint offer with Germany’s HVB Group to buy the majority ownership of BCR. The Romanian government rejected the joint bid and later cancelled the entire privatization process. It claimed that the documentation submitted was not sufficient and was not in line with Romanian regulations.

Analysts and bank executives said, however, that selling Romania’s largest commercial bank to a Hungarian bank would have been an ace in the hands of the anti-Hungarian nationalist opposition in Romania, and could have lost the Romanian government votes in the next election.

OTP negotiated deals to acquire smaller commercial banks in Romania but finally announced it would enter the Romanian market only through a future greenfield investment.

Romania’s Highest Court of Appeals recently nullified the takeover of the spa complex in Sovata by the Hungarian hotel chain operator Danubius Hotels. The decision came after former tenants of the Sovata complex challenged the privatization contract.

Danubius chief executive Sándor Betegh said at a press conference last week that Danubius has invested about 9.4 million dollars in the spa complex over the past two years and will not give up on its investment.

Danubius has substantial ownership of British, Israeli and U.S. investors, but the hotel company is widely seen as representing aggressive Hungarian capital. Betegh said the company had been attacked in the local media. He said Danubius is not planning any new investments in Romania in the foreseeable future.

"Cross-border acquisitions always carry political risks, but those risks are somewhat higher for Hungarian firms keen to expand in certain southeast European countries," József Míró, analyst with the investment firm Cashline Securities told IPS.

Míró said these reasons include strong nationalism and a particular perception of Hungarian investors in countries like Romania and in nations of former Yugoslavia.

Investors from Western Europe have a better reputation in southeast Europe because they are believed to be more transparent, and have more financial strength than Hungarian investors, he said.

Hungarian investors are looking at southeast Europe and the Balkans because fierce competition in the domestic market means they have limited growth opportunities there, Míró said.

Other Hungarian companies that have made major acquisitions in southeast Europe and are planning more include oil and gas company MOL, telecommunications giant Matav, pharmaceutical firms Richter Gedeon & Egis, plastics firm Pannonplast, and aluminum producer MAL.

Hungarian firms have been the most active in export of investment capital within the CEE (Central and Eastern Europe) region over the past two years, according to an annual survey published last week by PricewaterhouseCoopers.

The report says the total number of public mergers and acquisitions grew 15 percent in the region last year. Hungarian companies completed seven deals, up from three in 2001.

OTP started an expansion drive in southeast Europe after it acquired Slovakia’s state-owned Investment and Development Bank (IRB) for 16 million dollars in 2001.

"OTP’s deal in Slovakia, like the acquisition of Slovakian oil firm Slovnaft by MOL, became possible after the departure of much-criticized Slovakian prime minister Vladimir Meciar," Míró said.

OTP’s next target is believed to be Novosadska Banka, a relatively small regional credit institution in the Vojvodina region of Serbia. MOL is in negotiations with the Croatian government for a minority stake in its oil and refining group INA.

Both OTP and MOL may face political risks in deals in the former Yugoslavia, Míró said. "But the increasing number of foreign acquisitions completed by Hungarian companies will sooner or later prove that these transactions are very much similar to those carried out by western European investors."