Mol , the Hungarian oil refiner, hired six banks to sell 2 billion euros ($2.8 billion) of loans to upgrade facilities and fund acquisitions.
Mol, based in Budapest, hired Citigroup Inc., Royal Bank of Scotland Group Plc, BNP Paribas, Bank of Tokyo-Mitsubishi UFJ Ltd., ING Group NV and Bank Austria Creditanstalt AG to sell the three-year loans.
Chairman Zsolt Hernadi denied earlier reports that the purpose of the loan is to finance a share buyback program, designed to prevent what the company calls an ``unwelcome''
advance from Vienna-based competitor OMV.
OMV doubled its stake in Mol to 19 percent in June and called for merger talks, which the Hungarian refiner has rejected. Mol said last month it will build gas-burning power
plants adjacent to the Hungarian company's refineries with Czech CEZ AS, central Europe's largest power company. This month the company signed a deal with Ina Industrija, Croatia's state-owned oil company, to expand their joint exploration of a gas field stretching across the border of Croatia and Hungary. (Bloomberg news)
At the beginning of the week, giant Golman Sachs investment bank raised the price of MOL 11% to HUF 30,000 as they claim that the oil company will benefit in 2008 from higher oil prices and wider refiner margins. MOL has been trading within the range of HUF 25,000 to HUF 26,000 for the past weeks.
Central European stocks declined at the beginning of this week, paced by banking shares including Vienna based banks Erste Bank AG and Hungarian OTP Bank after Citigroup cut its earnings forecasts for nine European banks citing a drop in credit-market revenue that will bring “wide-scale changes.”
Julius Baer one of the largest Swiss banking firms, recently increased their stake in Hungary’s largest bank OTP to more than 10 percent. The announcement was made after the Hungarian financial watchdog (PSZAF) approved the Swiss to take over more than 10 percent of OTP, but less than 15 percent stake in the Budapest based bank.
Richter, the second-largest listed drug maker in Central Europe and Hungarian company, may be forced by the country's damaged competitiveness and chaos in its line of business to scale down its domestic operations and seek increased production in Russia, Romania and India, Bogsch the CEO of the company said. He claimed that the conditions in these countries are much more attractive and the capacity could be utilized in a better way. However, this means only the additional or expanding capacities would be shifted which is a known intention of the company. Bogsch predicts a 20% decline in domestic sales for 2007 as no corrective measures to the health policy are seen. The analysts from Cashline Securities, Budapest, believe this is just another communication tool to put pressure on the Hungarian government. Currently, only 18% of the total sales come from the domestic market and its profit contribution will be even less by 2008. We believe that even if the worst case scenario fulfils, Richter will be able to save the amount that they will potentially loose in the domestic market for 2008 through cost cutting. Our analysts expect some minor negative effect in the trading, which could be counterbalanced by a possible HUF weakening against the EUR as Richter is an exporter company and has at least 55 percent of its total sales denominated in euros.
Wednesday, 26 September 2007
Wednesday, 12 September 2007
Poor Comparisons
Last week, Hungary published its Gross Domestic Product numbers for the second quarter of the year. The numbers were weak at 1.2 percent versus the first reading of 1.4 percent. The lower data is due to a 3.4 percent fall in consumption (mainly related to the government austerity measures). The Gross Domestic Product (GDP) figures are significantly worse that the Hungarian neighbors. In fact, Poland has a GDP growth close to 6.7 percent, Czeck Republic around 6 percent while Slovakia has a staggering 9.4 percent.
The numbers for the Hungarian inflation came out on Tuesday September 11. The market expected that it would fall to 8.2 percent yr/yr, but it came a little higher to 8.3 percent versus July’s inflation of 8.4 percent yr/yr. Inflation is much higher than in the other countries in the region as Poland and Czeck Republic inflation is around 2.6, while Slovakia has as low as 1.5.
Hungary, with higher inflation and lower growth that its neighbors, will face difficult times ahead. Foreign investors have a difficult time investing in Hungary as its fragile macroeconomic situation makes it less attractive than its neighbors.
The data itself is clearly negative, but I do not expect serious selling pressure on just this data. On the other hand, if the global market mood turns negative, the weak GDP-data might indicate significant profit taking in the stock market (mainly OTP, Magyar Telekom).
MOL, the largest oil and gas Hungarian company, continues loosing ground and has significant selling pressure in its shares as it is very improbable that OMV can make a hostile bid for MOL.
MTEL, the Telekom subsidiary of Deutsche Telekom, had some buying pressure as ING increased on Monday their target price to HUF 1,147 from 1,132 and also reiterated their buy recommendation. The analysts expect Magyar Telekom to announce soon a headcount reduction and to give a strategic outlook and financial guidance for the next years.Risks for Magyar Telekom (MTEL) include fixed-line deterioration and the macro economy in Hungary. This week, the market has remained quite volatile and with a death of domestic news, the Budapest stock exchange has followed the course of other foreign bourses, specially the Dow Jones from the USA. I expect the next weeks to remain shaky and characterized by nervous trading as investors are confused about the real impact of subprime mortgages in the US and the effect of that in international capital markets.
The numbers for the Hungarian inflation came out on Tuesday September 11. The market expected that it would fall to 8.2 percent yr/yr, but it came a little higher to 8.3 percent versus July’s inflation of 8.4 percent yr/yr. Inflation is much higher than in the other countries in the region as Poland and Czeck Republic inflation is around 2.6, while Slovakia has as low as 1.5.
Hungary, with higher inflation and lower growth that its neighbors, will face difficult times ahead. Foreign investors have a difficult time investing in Hungary as its fragile macroeconomic situation makes it less attractive than its neighbors.
The data itself is clearly negative, but I do not expect serious selling pressure on just this data. On the other hand, if the global market mood turns negative, the weak GDP-data might indicate significant profit taking in the stock market (mainly OTP, Magyar Telekom).
MOL, the largest oil and gas Hungarian company, continues loosing ground and has significant selling pressure in its shares as it is very improbable that OMV can make a hostile bid for MOL.
MTEL, the Telekom subsidiary of Deutsche Telekom, had some buying pressure as ING increased on Monday their target price to HUF 1,147 from 1,132 and also reiterated their buy recommendation. The analysts expect Magyar Telekom to announce soon a headcount reduction and to give a strategic outlook and financial guidance for the next years.Risks for Magyar Telekom (MTEL) include fixed-line deterioration and the macro economy in Hungary. This week, the market has remained quite volatile and with a death of domestic news, the Budapest stock exchange has followed the course of other foreign bourses, specially the Dow Jones from the USA. I expect the next weeks to remain shaky and characterized by nervous trading as investors are confused about the real impact of subprime mortgages in the US and the effect of that in international capital markets.
Wednesday, 5 September 2007
MOL, emerging currencies
Last week, MOL (Hungary’s largest oil and gas company) and CEZ (Czeck electricity Company) signed a letter of intent to create a strategic alliance and to set up a joint gas-fired power and heat generation business in countries where MOL has refinery operations using fired gas and refinery residuals. The announcement also said CEZ would purchase an equity stake in MOL up to 10 percent in the near future.
According to the local press, MOL's weight will decrease to 30.5% from 37.4% in the index of Morgan Stanley Capital International Inc. ("MSCI") which is a leading provider of equity (international and US), fixed income and hedge fund indices. MSCI has become the most widely used international equity benchmark by institutional investors. MOL's weight in the MSCI EMEA (Europe, the Middle East, and Africa) index is to lower to 1.22% from 1.66%, while Hungary's weight is to shrink to 4% from 4.4%. This is clearly negative to MOL, However, some of the large international investment funds already decreased MOL's weight in their portfolios so we have not seen massive selling pressure coming from large institutional funds.
The main reason for the decrease of the Hungarian oil company in the index is its free float, the number of shares that are freely available to the investing public, which has decreased substantially from more than 60% some months ago to around 40% nowadays. The decrease in free float is due mostly to two major players; MOL and Austrian oil company OMV. As we can recall from the past months, OMV, the Vienna-based oil and gas firm, announced that they had upped their stake in Hungarian MOL to 18.6 percent from 10 percent. The Austrian oil firm said they hold shares of MOL in order to entice closer alliances between the two companies amid energy sector consolidation. In addition, MOL initiated their buy-back program in order to avoid a hostile take-over from OMV. This consisted in buying their own shares in the market in order to reach a majority stake that would prevent any action from players like OMV.
Last Monday, Hungary's central bank kept its benchmark policy rate unchanged at 7.75%, choosing caution in the face of ongoing worries about trouble in global credit markets. Hungary's central bank revised its GDP growth forecast to 2% year on year in 2007 from 2.5% previously and hiked its inflation forecast to 4.5% year on year in 2007 from 3.6%. "The greater than expected slowdown in economic growth and the strong disinflationary effect of the fall in demand continue to represent downside risks," the central bank's monetary council said in a statement last Monday.
"The financial market turbulence stemming from the problems in the U.S. subprime mortgage market has contributed significantly to uncertainty in the global investment environment, leading to a rise in the required risk premium on forint assets," the statement said.
Many emerging-market assets, including currencies such as the Hungarian forint, tend to suffer in periods of global risk aversion, as investors slash exposure to risky assets to cover losses elsewhere. Hungary is particularly vulnerable to sudden shifts in global risk appetite, since foreigners hold 30% of local government debt as claimed by a MarketWatch article (from Dow Jones.)
"It is rather paradoxical that the Hungarian government failed for years to do something about the large imbalances in the economy, and that the markets more less ignored this because of the benign global financial climate, while the forint has recently come under pressure on the back of worsening global credit conditions and despite the Hungarian government tightening fiscal policy last year," wrote Lars Christensen, senior analyst at Denmark's Danske Bank, in a research note.
“As a result, monetary policy might now have to remain tighter because fiscal policy was not tightened when global financial conditions were more supportive” Christensen said.
In a soft landing, (when the economy is growing at a strong rate and the US Fed raises interest rates enough to slow the economy down without putting it into recession), investors say Eastern European currency assets should outperform. Emerging market currencies should outperform if the US enters into a moderate slowdown. However, portfolio strategies are on hold for now as the situation about recession or no recession is unclear, sitting on cash waiting to see the effects of the Federal Reserve's response to recent instability in credit markets.
According to the local press, MOL's weight will decrease to 30.5% from 37.4% in the index of Morgan Stanley Capital International Inc. ("MSCI") which is a leading provider of equity (international and US), fixed income and hedge fund indices. MSCI has become the most widely used international equity benchmark by institutional investors. MOL's weight in the MSCI EMEA (Europe, the Middle East, and Africa) index is to lower to 1.22% from 1.66%, while Hungary's weight is to shrink to 4% from 4.4%. This is clearly negative to MOL, However, some of the large international investment funds already decreased MOL's weight in their portfolios so we have not seen massive selling pressure coming from large institutional funds.
The main reason for the decrease of the Hungarian oil company in the index is its free float, the number of shares that are freely available to the investing public, which has decreased substantially from more than 60% some months ago to around 40% nowadays. The decrease in free float is due mostly to two major players; MOL and Austrian oil company OMV. As we can recall from the past months, OMV, the Vienna-based oil and gas firm, announced that they had upped their stake in Hungarian MOL to 18.6 percent from 10 percent. The Austrian oil firm said they hold shares of MOL in order to entice closer alliances between the two companies amid energy sector consolidation. In addition, MOL initiated their buy-back program in order to avoid a hostile take-over from OMV. This consisted in buying their own shares in the market in order to reach a majority stake that would prevent any action from players like OMV.
Last Monday, Hungary's central bank kept its benchmark policy rate unchanged at 7.75%, choosing caution in the face of ongoing worries about trouble in global credit markets. Hungary's central bank revised its GDP growth forecast to 2% year on year in 2007 from 2.5% previously and hiked its inflation forecast to 4.5% year on year in 2007 from 3.6%. "The greater than expected slowdown in economic growth and the strong disinflationary effect of the fall in demand continue to represent downside risks," the central bank's monetary council said in a statement last Monday.
"The financial market turbulence stemming from the problems in the U.S. subprime mortgage market has contributed significantly to uncertainty in the global investment environment, leading to a rise in the required risk premium on forint assets," the statement said.
Many emerging-market assets, including currencies such as the Hungarian forint, tend to suffer in periods of global risk aversion, as investors slash exposure to risky assets to cover losses elsewhere. Hungary is particularly vulnerable to sudden shifts in global risk appetite, since foreigners hold 30% of local government debt as claimed by a MarketWatch article (from Dow Jones.)
"It is rather paradoxical that the Hungarian government failed for years to do something about the large imbalances in the economy, and that the markets more less ignored this because of the benign global financial climate, while the forint has recently come under pressure on the back of worsening global credit conditions and despite the Hungarian government tightening fiscal policy last year," wrote Lars Christensen, senior analyst at Denmark's Danske Bank, in a research note.
“As a result, monetary policy might now have to remain tighter because fiscal policy was not tightened when global financial conditions were more supportive” Christensen said.
In a soft landing, (when the economy is growing at a strong rate and the US Fed raises interest rates enough to slow the economy down without putting it into recession), investors say Eastern European currency assets should outperform. Emerging market currencies should outperform if the US enters into a moderate slowdown. However, portfolio strategies are on hold for now as the situation about recession or no recession is unclear, sitting on cash waiting to see the effects of the Federal Reserve's response to recent instability in credit markets.
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