Economy 30 November 2023, 8:45am

Hungarian state would indeed buy Liszt Ferenc Airport with French help, EU document shows

Portfolio

A recent EU document has revealed that the French company Vinci Airports and Hungarian state-controlled Corvinus International Investment Ltd submitted a notification of a proposed concentration to the European Union on 20 November.

The proposed merger concerns the state-controlled Corvinus International Investment Ltd, the French company Vinci Airports and Airport Holding Consultancy Ltd, whereby

Corvinus and Vinci Airports will acquire joint control of the whole of Airport Holding.

The merger will take place by way of purchase of shares. The Commission subsequently concluded that the transaction may fall within the scope of the Merger Regulation, but no final decision has been taken in the case.

In mid-September, VSquare, a newsletter covering political and economic news from the Central and Eastern European region, reported that Hungary would team up with Vinci Airports to buy the Liszt Ferenc International Airport. Reportedly, the state had originally considered non-EU partners - China, Qatar - but had to drop this under Western pressure.

Vinci was reported to become a minority shareholder, but would enter with financing beyond the ownership stake, in exchange for which it would be made an operating partner with management rights.

About a month later, in mid-November, Bloomberg confirmed, citing people with knowledge of the matter, that Vinci SA was indeed planning to buy Budapest Airport Zrt. in partnership with the state.

Vinci would operate the airport and acquire a significant minority stake of up to 49%, the person said, warning that no agreement had yet been reached and negotiations could still fail.

In an unsuccessful attempt to sell Budapest Airport in 2021, the company was valued at around €4.4 billion ($4.7 billion) including debt. Also in 2021, Deutsche Bank's fair value estimate was €4.2-5.2 billion. In early September we estimated the current market value of the airport, and based on the major airport acquisitions of the last 10 years, we came to the conclusion that an EV/EBITDA multiplier of around 20 seems fair pricing.

Based on various calculations, the company is valued at €2-3.4 billion, much lower than the indicative offer of €4.4 billion two years ago or the €4.2-5.2 billion in Deutsche Bank's analysis. If we take pre-Covid EBITDA in 2019, we get an enterprise value of €2.7-4.6 billion, with the upper end of the range already close to the indicative price of €4.4 billion that was discussed two years ago and Deutsche Bank's fair value estimate at the time.

However, Budapest Airport stressed it was committed to Hungary and it wouldn't sell cheap. The sector's most recent major transaction was the acquisition of Sydney Airport in 2022, which was completed at a 22x EV/EBITDA ratio. And it wasn't the most expensive acquisition in recent history, with London Airport selling for 28 times EV/EBITDA in 2016, so there are examples of higher pricing. In light of this, a purchase price of €5.0-6.5 billion would not be such a massive surprise, either.

The Hungarian state was seeking to buy a 51% stake in the airport, with the remainder to be taken over by an operator. Vinci operates more than 70 airports worldwide, including Gatwick in London, Lisbon and Belgrade in Serbia, according to its website (see map and list below).

Financing quagmire

Last Sunday (26 Nov), there were reports in the local press that the state would have to pay the purchase price for 51% of Budapest Airport by Friday, 1 December, but the Ministry of Economic Development (GFM) denied the reports in a recent statement.

The ministry also confirmed at the time that the various major transactions of the past weeks were deliberately planned in order to cover the airport's purchase. The state budget is in a dire state, with the full-year deficit target overshot already by the end of October.

The Hungarian state has sold its 15% stake in the Erste Bank Hungary to the Austrian Erste Group Bank AG, the Vienna-based headquarters of the Erste Group, for HUF 87.55 billion (roughly EUR 230 million). Earlier, a state secretary at the Ministry of Economic Development confirmed to the business news portal Világgazdaság that the stake was sold to finance the airport buyback.

The other such transaction is the sale of 35% of Aegon (now Alfa) and Union Insurance. Industry estimates at the time put the value of Aegon Hungary at €550 million. However, according to Telex, it is not so easy to calculate the exact figures from there. Not only because the state acquired 45% and then reduced its stake to 10%, but also because it bought into another VIG insurer (Union) and exited in a similar way.

The weeks ago, the Government Debt Management Agency (ÁKK) sold an unprecedented amount of bonds compared to the offered amount, which indicates that money is badly needed for something, presumably for the airport buyback.

MVM Zrt. has announced on Monday (27 Nov) that it will pay a substantial dividend advance of HUF 309 billion to its sole shareholder by the end of this month, out of this year's profit, practically to the state budget. The unusual move could help significantly to reduce this year's bulging budget deficit and enable the government to buy Budapest Airport, as the sum to be received amounts to around 0.4% of GDP.