Hungarian government makes formal bid for Budapest Airport

Hungarian state to acquire majority stake

The airport's owners have decided to enter into further formal negotiations, a source who asked not to be named told Bloomberg.

The Hungarian state would gain 51% ownership, with the remaining 49% going to another airport operator,

a person familiar with the matter said, without naming the suitor.

The Ministry of Economic Development, which is leading the takeover negotiations on behalf of the government, declined to comment on the matter, Bloomberg reports. When contacted by Portfolio, the current majority owner of Budapest Airport, Germany's AviAlliance GmbH, also declined to comment.

AviAlliance holds 55.44%, Caisse de dépot et placement du Québec 21.23% and Malton/GIC 23.33% of Budapest Airport.

The timing of the purchase of the stake in Budapest Airport is curious, given the budget situation this year. The transaction will, however, have an impact on public finances through several strands. The accrual-based budget deficit reported to the EU remains unchanged, as although this item is reflected on the expenditure side, on the other side the Hungarian state is gaining wealth. However, the cash deficit, and through it the public debt, is affected by this large government purchase, as the transaction has to be financed, which, in the absence of offsetting measures, increases the financing needs and thus the cash deficit. ING Bank's senior analyst, Péter Virovácz, alsoopined recently that the recent Baa2 rating of Hungary by Moody's with a stable outlook gives a "false sense of security" due to mounting problems, one of which is the government's planned acquisition of the airport. The Government Debt Management Agency's (ÁKK) announcement on Monday afternoon may well have been related to this: the government has increased the financing needs of the central budget from the original HUF 3409 billion to HUF 4113 billion, and the ÁKK has adjusted its financing plan accordingly. It is also no coincidence that the Hungarian government issued a 10-year Eurobond on Tuesday, and it could well be that the current bond issue is linked to the financing of the recent purchase. Out of a bid book of more than €5.9 billion, €1.75 billion was accepted by the ÁKK, with the paper eventually selling at a premium of 235 basis points above the benchmark midswap.

A long story

News emerged in 2020 that a consortium of Hungarian investors was negotiating the purchase of Budapest Airport, including one of the richest Hungarian real estate investors, Dániel Jellinek, owner of the Indotek Group. In 2021, there were already rumours that the state would buy the airport, and this became official in May, when the ITM announced that preparations for the airport's reacquisition would begin: based on the government's decision, negotiations could start on the acquisition of a majority stake in the operating company, with László Palkovics, Minister for Innovation and Technology at the time, in charge of coordinating the process.

Initially, there were few signs that AviAlliance would sell Budapest Airport, even in the midst of the Covid-19 crisis.

AviAlliance repeatedly stressed that it is "a well-capitalised and long-term committed owner" of the airport and that despite the heavy losses at the time, caused by the pandemic, the company's operations and financing are stable and its liquidity is secure. At the same time, they expressed fears that the Hungarian government could put pressure on them to change their minds, for example by cutting off subsidies during the pandemic or blocking approval for facility upgrades.

In July 2021, Bloomberg reported that the Hungarian government had made an indicative offer to buy Budapest Airport.

According to sources close to the matter, the bid for the Budapest Airport was below market price when compared to similar recent transactions, such as the takeover bid for Sydney Airport.

In October 2021, an increased bid of €4.44 billion was reported and sources close to the matter said that although a final decision on the sale had not yet been taken, the owners were inclined to do so. And in November 2021, the majority owner AviAlliance announced that the due diligence process for the airport had commenced, after the Hungarian government accepted the conditions for formal negotiations to begin. But even then, it was stressed that the outcome of the negotiation process was uncertain.

In January this year, Minister of Economic Development Márton Nagy said in a background briefing that the Hungarian state could buy Budapest Airport with a co-investor, who would also operate the airport. The Minister also said that the acquisition could be completed by the end of 2023 and mentioned a Qatari investor as a possible partner.

In April this year, Márton Nagy spoke out again on the issue, telling InfoRadio that Budapest Airport is a strategic asset and should therefore be in Hungarian hands. The minister stressed that the government is committed to buying it back, no matter who the owner is, and that the deal can be closed before the end of the year.

Criticism from the government

The government has repeatedly criticised the operation of the airport: Palkovics, who as government commissioner was responsible for the acquisition of a majority stake in Budapest Airport, previously told Portfolio that Budapest Airport had not developed since its privatisation in 2005 (which Budapest Airport has repeatedly refuted in its statements, listing the developments and investments in detail). The Minister of Innovation and Technology has previously said that a fair bid for Budapest Airport is planned, but that if the owners refuse, they may resort to other methods to take control. The state needs the airport for strategic and business reasons, especially in the economic recovery following the coronavirus pandemic, in which tourism will play a central role, Palkovics told Figyelő in 2021.

Cover photo: Akos Stiller/Bloomberg via Getty Images