Opus can also benefit from Budapest-Belgrade rail link

RM International Zrt., a holding of government-friendly billionaire Lőrinc Mészáros, will build the rail link between Budapest and Belgrade, Serbia in consortium with two Chinese firms, online news portal Index reported last Friday.Construction works of the HUF 750-900 bn project are planned to start at the end of this year or early 2020. Minister of Foreign Affairs and Trade Péter Szijjártó, who did not reveal the name of the tender winners when he announced the deal on Thursday, said the construction contract will be signed by 25 May, and it will enter into effect once every detail of a loan agreement between China’s Eximbank and the Hungarian government is hammered out, which should happen by mid-summer. Completion of the project is expected within five years after the contract goes into effect.

Opus subsidiary in a major role

According to Index, the consortium members are RM International, China Tiejiuju Engineering & Construction Kft. and China Railway Electrification Engineering Group Kft.

From the perspective of the Hungarian capital market, the participation of RM International is of key importance. Besides being an interest of Lőrincz Mészáros, who was once a gas-fitter in Prime Minister Viktor Orbán’s hometown Felcsút and has become the country’s wealthiest person in a matter of years, the company is 51% owned by Opus which is listed on the Budapest Stock Exchange (BSE).

Most businesses inside Opus belong to the industrial production segment. A key player there is construction company Mészáros Építőipari Holding Zrt. that holds full ownership of Mészáros és Mészáros Ltd. and R-KORD Ltd., as well.

These two companies jointly own (50-50%) RM International Zrt. that is closely linked to railroad development activities, and which has now won as member of a consortium the Budapest-Belgrade rail link tender.

Lot of open issues

It is clear that Opus may be linked to the Budapest-Belgrade railroad renewal project via RM International Zrt., but we can only speculate how much of the HUF 750 bn estimated project cost will influence the operation and results of Opus in the years to follow.

What we do know, however, is that because the project is to be executed by a three-member consortium, the HUF 750 bn will go three ways. This means that only a part of the project cost will appear as revenue at RM International and eventually at Opus. According to current plans, completion can be expected five years after construction works start, which means the operation of Opus will be affected by it over several years. More precisely, major revenues will not be booked at once in a single year, and so the impact will also be distributed over various years.

We have contacted Opus with several questions of our own, and once it gets back to us, we’ll share that information with you in an update.

Investors have sharp initial reaction

Investors have showed sharp initial reaction to the report. The rally that started last Friday retained its momentum also on Monday morning, but then it petered out. Yet, Opus rose 3.4% and Konzum went up 2.3% compared to their respective closing prices last Thursday.

If you wonder why Konzum’s share price was also affected, while only Opus is affected by the railroad renewal project, note that under a previous decision by the shareholders of the two companies, Konzum will be incorporated into Opus. At the end of the transaction, Konzum shareholders willing to remain shareholders of the new Opus will receive one new Opus share for two Konzum shares. This is the reason behind the rally not only in Opus but also in Konzum.

Cover photo by MTI/ Zoltán Máthé

• Tags:
• China,
• lőrinc mészáros,
• belgrade,
• railroad,
• market,
• equity,
• konzum,
• opus