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YEAR DEALS OF THE A look back at some of the big−money d agreements conclude in Hungary in 2014

DEALS OF THE YEAR DECEMBER 12, 2014 – JANUARY 15, 2015

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Prime Minister Viktor Orbán, left, listens to his cabinet chief János Lázár in Parliament. Some of the biggest deals this year involved these two men, as the government went on a buying spree. 16

NEWS

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South Stream disappears, Paks plan progresses

Growth rate slows in third quarter

Hungary’s plans for energy dominance took a hit on December 2, when Vladimir Putin announced that the South Stream pipeline was dead, but agreements with Russia regarding new nuclear reactors went ahead. 06-07

Investments, construction and manufacturing were seen to be cooling down, and analysts are expecting a chillier start to 2015, though they say GDP growth for this year will still be a robust 3.3% 03

Photo: MTI / Noémi Bruzák

The big deals

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DEALS OF THE

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YEAR

DEALS OF THE YEAR

A look back at some of the big−money agreements concluded in Hungary in 2014

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South Stream disappears, Paks plan progresses

Growth rate slows in third quarter

Hungary’s plans for energy dominance took a hit on December 2, when Vladimir Putin announced that the South Stream pipeline was dead, but agreements with Russia regarding new nuclear reactors went ahead. 06-07

Investments, construction and manufacturing were seen to be cooling down, and analysts are expecting a chillier start to 2015, though they say GDP growth for this year will still be a robust 3.3% 03

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EDITOR-IN-CHIEF: Tom Popper ASSOCIATE EDITOR: Robin Marshall EDITORIAL STAFF:

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THE EDITOR SAYS

This government owns too many businesses Our look back on the deals of the year is heavily dominated by government business. Unfortunately, 25 years after communism ended, the Hungarian government has decided to start taking over businesses again, and it is making the biggest purchases.

This is a disturbing trend because the economy can suffer if any government gets too heavily involved in commercial activity. But there are reasons why greater state ownership is particularly disturbing with this government.

The economic argument against state ownership is simple: If the government controls all the money, there is less room for businesses to spend or invest. Economist Milton Friedman spoke about the problem of “crowding out”. Most economists agree that profit−driven businesses are generally more efficient than government bureaucracies, which tend to operate for more political reasons. If the state owns too many of our businesses, we will lag behind more competitive economies.

But the economic concerns of state ownership may take a back seat to the particular problems of this government: a lack of transparency and a consequent lack of credibility.

If the government wants to become a business manager, then we taxpayers are the shareholders. We deserve full disclosure on how our companies are doing, including quarterly and annual reports with credible figures on income and profits, and an explanation of whether we shareholders are due any dividends. We have a right to know how the government is running the companies that we have paid for through income taxes, special taxes and the highest value added tax in the EU. Instead, when the Hungarian government purchases a firm, they simply claim that the purchase “is in the national interest” and then the competition authority is not allowed to

review the transaction. The government sealed a deal in early December to purchase Budapest Bank, the eighth largest bank in Hungary, and Economics Commissioner Mihály Varga says the purchase value “will be revealed later”.

When the government moves ahead on a nuclear deal with Russia, saddling Hungary and its children with a €10 billion debt and tethering our future to a nuclear plant for decades to come, there should be a more thorough sharing of the details. Not even members of Parliament are being let in on such “state secrets” as the environmental impact assessment at the Paks site for the new reactors.

The government’s attitude seems to be that we just have to trust them with state business, an approach that would be arrogant in any circumstances. But this is a government that is being accused of corruption by literally tens of thousands of demonstrators, who are taking to the street every other week. This is a government where János Lázár, the official in charge of the nuclear plant, MKB Bank and other state enterprises, cannot credibly explain how he can afford the flat he just bought in Buda, which he valued at HUF 30 million and some media say is worth HUF 60 mln. This is a government that makes absurd excuses to avoid investigating complaints of corrupt tax practices raised by an American corporation in 2011, a whistleblower working for the tax office in 2013 and now the American Embassy.

This is a government that could be said to have some “trust issues” with its people.

No government should be too heavily involved in business, but that is especially true for this government.

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Above, the popular ice rink in City Park, one of the largest and oldest in Europe, first opened in 1870, and was clearly busy when it was photographed here in 1930. At left, the rink as it is today, little changed from its original design; it remains a popular and busy location throughout the winter.

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Corruption a hot topic

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Paks pact progresses

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Hungary’s economy shows signs of slowdown

MACRO

After a year of healthy growth in the GDP, analysts say that Hungary looks set to put on the brakes.

Speaking X of figures The Budapest Business Journal presents some of the most important macro data of the past fortnight.

GABRIELLA LOVAS

Speaking at a press conference following his meeting with the prime ministers of the Visegrád Four countries and the Swiss head of state, in Bratislava, Slovakia, on December 9, Prime Minister Viktor Orbán said he would like to see construction of a north-south natural gas corridor now that plans for the South Stream pipeline have been halted. (See story, page 6.)

deleveraging of FX loans as well as increasing income inequality dragged down consumption; the consumption rate of households with a higher income is lower than that of low−income households. Another factor may be that labor−market uncertainty remained high despite government measures, such as the public work scheme, a significant increase in public sector employment and wage hikes in the public sector.

PRODUCTION KSH pointed out that the performance of manufacturing, construction and agriculture grew significantly. Within industry, manufacturing recorded an above average growth of 6.2% in Q3 year−on−year, driven by the performance of motor vehicles, trailers and semi−trailers as well as in the related supplier branches. Construction output rose by 11.6% and agriculture was up by 10.8% in Q3.

Services grew by 1.7% year−on− year. Within that wholesale and retail trade as well as accommodation and catering rose by 3%. Transportation and storage showed the highest increase among the eight subsectors of services, at 4.4%. The KSH said that the reason for the slight decrease in the output of financial and insurance activities is that growing business loans still could not compensate for the decline of retail loans. The number of insurance policies remained flat compared

to the corresponding period of the previous year. The performance of public administration, education and health rose by 0.2%.

EXPENDITURES KSH figures show that actual consumption rose by 1.3% compared to the corresponding period of the previous year. Within that, the actual final consumption of households and of the government was up by 1.1% and 3%, respectively. Within household expenditures, volumes grew in the case of food, transport, recreation and culture, restaurants and hotels, as well as housing, water, electricity, gas and other fuels, while alcoholic beverages and tobacco saw a decline.

The consumption of foreigners in Hungary increased significantly, while the consumption of Hungarian tourists abroad dropped. The volume of social transfers in kind from the government was up 2.1%.

Gross fixed capital formation increased by 13.2% driven by an increase in construction investments and investments in machinery and equipment. Investment output grew in the vast majority of industries. The KSH said that substantial growth was recorded in transportation and storage, manufacturing, public administration and defense and compulsory social security. Investments in real estate activities decreased. Gross capital formation rose by 19.1% compared to one year earlier.

The amount of Hungary’s trade surplus in October. Exports fell by 2.1% to €7.512 bln and imports increased by 2.3% to €7.139 bln.

72.5% The percentage of the full−year deficit target reached after 11 months. The central budget was HUF 938.2 bln in the red at the end of November.

2.6% The drop in industrial output in October, representing poorer performance than analysts had expected.

5.2% The y.o.y. growth in retail sales in Hungary in October, accelerating from 4.5% in the previous month, preliminary calendar year−adjusted data released by the Central Statistics Office (KSH) showed.

Source: KSH, MTI

NEW METHODOLOGY To meet European Union requirements, KSH adopted the ESA 2010 methodological standards this year to replace the older ESA 95. This was the first quarterly report in line with the new methodology. According to a Flash Report by OTP Research, the revised data is rather less favorable for the outlook. Gross fixed capital formation was most affected by the introduction of ESA 2010, OTP said, noting that many one−off or temporary factors accumulated in this year’s outstanding fixed capital formation figure.

On the expenditure side, investments boosted by the public sector and one− off factors played a more significant role than OTP analysts had earlier thought.

On the production side, agriculture grew more rapidly than their forecast.

However, they believe that “3.3% GDP growth in 2014 is in the bag”.

The report stressed that household consumption brought a negative surprise as it declined on a quarterly basis and the year−on−year growth rate decelerated from 2.6% to 1%. The

€373 mln Photo: MTI/ Szilárd Koszticsák

Hungary’s GDP increased by 3.2% in the third quarter of 2014 compared to the corresponding period in the previous year, according to a second reading by the Hungarian Statistics Office (KSH).

That made it the slowest quarterly increase of the year, compared to 3.9% in Q2 and 3.7% in Q1. Analysts agree that the fresh data indicates a slowdown in Hungary’s economy.

Seasonally and calendar−adjusted data shows that economic performance in Q3 was up by 3.1% compared to the corresponding quarter of the previous year, and by 0.5% compared to Q2.

Industry contributed 1.1 percentage points to GDP growth, construction 0.4, services 0.7, and agriculture 0.6.

The 3.2% growth is driven by the outstanding performance of agriculture; however, growth in most areas, including investments, construction and manufacturing, is slowing down, according to K&H chief analyst Dávid Németh. He stressed that Hungary’s net export position significantly deteriorated in Q3, as exports rose 7.9%, while imports expanded by 10.7%.

Németh expects 2−2.5% GDP growth in Q4 and an overall 3.3% increase for the whole year.

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Budapest Business Journal | December 12, 2014 – January 15, 2015

NEWS

IN BRIEF earning himself a Hungarian fan page on Facebook in the process. Republican Senator John McCain noted the unusual situation in Hungary during Senate hearings, saying that this is a “very important country where bad things are going on”. The U.S. Embassy has posted a presentation, in English and Hungarian, explaining the timeline for Bell’s appointment. The appointment was approved by a vote of 52 to 42. The Hungarian foreign ministry had already granted its approval of Bell’s appointment about a year ago.

Colleen Bell.

COLLEEN BELL NAMED U.S. AMBASSADOR TO HUNGARY The U.S. Senate on December 2 voted to approve television producer Colleen Bradley Bell’s appointment as U.S. Ambassador to Hungary. Now she must take her oath of office in Washington DC, and present her credentials to the Hungarian President before beginning service. The appointment had been on hold due to political wrangling in the U.S. Senate that lasted roughly a year, and in the interim, the U.S. has been represented in Hungary by Chargé d’Affaires André Goodfriend. Goodfriend, who is scheduled to continue working at the U.S. Embassy after Bell arrives, has been his country’s chief representative here during a time of escalating tensions between the United States and Hungary. He helped bring discussion of corruption to the forefront in the country,

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KOVÁCS: LAYOFFS CAUSED BY SHOP LAW NOT GOV’T CONCERN “It is not the government’s duty to make estimates on how many people would be fired due to approved legislation,” government spokesperson Zoltán Kovács said on December 9, referring to the law approved earlier that day that prohibits retail chains selling fast− moving consumer goods (FMCG), like food, from running a deficit for two straight years as of 2018. Those who support the new law say it prevents big chains from undercutting local shops for long periods of time. Those who oppose it say it prevents companies from operating the way the want to operate – or from making losses due to investments – and that it will lead to layoffs in big hypermarkets and stores run by chains like Spar and Auchan.

But Kovács said those who pass the laws are not responsible for counting potential layoffs.

“The players affected by the legislation should make these estimates,” Kovács added. He also said that the new legislation applies equally to all the players in the market, although Hungarian online daily 444.hu believes that the legislation is friendly to Hungarian grocery chain CBA, whose owner is known to give generous campaign funding to the ruling Fidesz party. The legislation only regulates major chains, which make at least HUF 50 bln in revenue for two consecutive years.

“Fair FMCG shops have nothing to fear, only

those who acquired gratuitous advantage in the market,” Kovács said. As of 2018, the legislation also prohibits, the operation of supermarkets larger than 400 sqm in areas of Budapest designated as UNESCO World Heritage Sites. The Hungarian capital has two World Heritage sites: the Banks of the Danube and the Buda Castle Quarter, with an area of 451 hectares, and Andrassy út and the metro, with an area of 58 hectares and a buffer zone of 240 hectares, data from UNESCO show. The legislation was passed with 116 voting in favor, 34 voting against and 25 abstentions, in a parliament where Hungary’s governing party Fidesz has a two thirds majority, with 116 MPs, allowing the party to pass laws, even if all other parties vote against a proposal.

BUDAPEST BANK ACQUISITION EXEMPTED FROM COMPETITION OFFICE SCRUTINY Because the government is planning to declare the acquisition of Budapest Bank as being “strategically important for the national economy”, it will become exempt from the oversight of Competition Office.

A preliminary contract on the purchase of Budapest Bank from GE was signed by the Hungarian government on December 4. The transaction is expected to be closed at the end of the first half of next year. Corvinus Nemzetközi Befektetési, which is a unit of the Hungarian Development Bank (MFB), is expected to buy the bank at a price to be determined based on the due diligence report.

MFB will lend the unit the full purchase price and guarantee the deal. MFB will also exercise ownership rights over Budapest Bank. Minister of the Prime Minister’s Office János Lázár is scheduled to submit a proposal on financing the purchase price by January 15. Budapest Bank had consolidated net assets of HUF 154.1 bln at the end of 2013.

It had total assets of HUF 905.4 bln, making it Hungary’s eighth−biggest bank. The bank closed the year with a consolidated net profit of HUF 13.1 bln.

MERKEL TO VISIT HUNGARIAN PRIME MINISTER German Chancellor Angela Merkel is planning on paying a visit to the Hungarian Prime Minister in February, according to German newspaper Die Welt. Orbán has made it clear that he opposes EU sanctions against Russia and given that the extension of sanctions requires a unanimous vote, Merkel has allegedly expressed interest in speaking with Orbán in person about this and other issues,

Die Welt added. Hungary’s new “Opening to the East” policy and its increased dependency on Moscow, which includes facilitating the construction of the South Stream gas pipeline and an intergovernmental agreement with Russia on the construction of two new blocks at Paks, has caused much concern in the West and led Hungarian opposition members to refer to Orbán as “Putin’s little brother”.

Merkel expressed her dissatisfaction with Hungary’s pro−Russian diplomacy earlier this year, and some say she influenced a slow down at Hungary’s Audi plant in August.

PRICE DROP OF GASOLINE TO HURT 2015 BUDGET Should gasoline and diesel prices remain low in Hungary, the state budget would be significantly undermined, according to Hungarian online portal origo.hu. The daily calculates that the 2015 budget would lose HUF 80−90 bln if the price of gas falls under $70 per Brent barrel. Origo pinpointed that approximately half of the price of gasoline and diesel is acquired by the Hungarian state in the form of different taxes, which was as high as HUF 210.5 per liter in September but is expected to drop to HUF 178 per liter.

Miklós Hegedűs, energy analyst for GKI, told the portal that gasoline and diesel prices are expected to decrease further in the coming three months, and will cause a loss of HUF 10−15 bln in the budget this year. ÁKK CHIEF TENDERS RESIGNATION István Töröcskei, the CEO of Hungary’s Government Debt Management Agency (ÁKK), tendered his resignation on December 8, a few days after the Hungarian central bank and financial market regulator withdrew the license of his bank (Széchenyi Commercial Bank) and ordered its winding up, a government official said. The National Bank of Hungary (MNB) withdrew the license from Széchenyi Commercial Bank and ordered the bank to wind up its operations, which it could no longer maintain, MNB reported on Friday.

As part of the procedure the bank’s investment banking license was also withdrawn. The state of Hungary learned only after it took a 49% minority stake in the bank in June 2013 that the capital position of Széchenyi Commercial Bank was weaker than earlier thought, the National Economy Ministry said in a statement on December 5, adding that the Hungarian government made efforts to make the majority owner fi x the situation in vain.

The Hungarian state currently holds 49% of the bank, which had total assets of just under HUF 52 bln at the end of last year.

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News 05

Budapest Business Journal | December 12, 2014 – January 15, 2015

Corruption dominates the news Thousands of demonstrators, Transparency International and a U.S. official all talk of corruption among government officials.

CHRISTIAN KESZTHELYI

Criticism of corruption in government was coming from several quarters as the month began, with thousands of protestors taking to the streets over the issue on December 5, Transparency International announcing that Hungary had scored worse in this year’s Corruption Perceptions Index on December 3, and U.S. and Hungarian officials continuing their simmering feud over the issue.

The demonstration saw several thousand protestors march from Kossuth tér, over the Chain Bridge to the Buda Castle, peacefully demanding an end to corruption and the resignation of Ildikó Vida, the head of Tax and Customs Authority NAV. Demonstrations of tens of thousands, and in one case 100,000, began on October 26, with opposition to a proposed internet tax, since abandoned by the government.

Demonstrators have made it clear that they have a multitude of problems with the country’s current leadership.

As for Transparency International increasing the level of perceived corruption in Hungary, Péter József Martin, CEO of TI in Hungary, said: “The mere fact that Hungarian tax chief Ildikó Vida, who was banned from the Unites States [for alleged corruption], is still in office signals that Hungarian public power is not accountable.”

The CEO added that the present results are based on data collected this summer, thus the concerns arising in connection with NAV are not included, and he thus expects figures to further worsen next year.

Hungary was given 54 points on TI’s ADVERTISEMENT

Gábor Vágó, former LMP MP, speaks at the December 5 demonstration.

Corruption Perceptions Index, and dropped from 20th to 21st place in the region, as corruption here was perceived to increase.

Worldwide, Hungary was ranked 47th out of 175 countries.

A press statement released by TI says that there is no government transparency in Hungary. It noted that Világgazdasági Forum recently published a survey of governmental transparency investigating 144 countries and Hungary ranked 119th.

TI added that the Hungarian government has killed all the institutions that could monitor the government’s activities.

The issues surrounding Vida have been simmering since October, when it was revealed that six Hungarians had been denied entry to the United States under an “anti−kleptocracy” law that bans people suspected of corruption. The U.S. chargé d’affaires in Hungary, André Goodfriend refused to name the people banned, but Vida has acknowledged that she is one, and since then the diplomatic sniping between America and Hungary has been intensifying.

On December 3, Goodfriend said in an interview that the States had made the

Protestors again took to the streets on December 5.

problem clear some time ago. “We know of people cheating inside Hungary’s Tax and Customs Authority,” and yet there was no police investigation despite the fact that the U.S. Embassy had warned the Hungarians several times, he was quoted as saying.

On December 8, Hungary’s Prime Minister Viktor Orbán said Vida must file a defamation lawsuit against Goodfriend, insisting that the issue could be clearly settled in the courts “without all the nonsense of lacking evidence”. The prime minister added, “Unless she initiates a lawsuit immediately, I will withdraw her from her position”. Orbán also called on the U.S. diplomat “not to hide behind his diplomatic immunity”, but rather to “stand up, be a man, and take responsibility for what he had claimed”.

On December 9, NAV announced that Vida means to “take the necessary measures” in connection with her being banned from the United States, though it did not say whether she is planning to sue Goodfriend for libel or apply for a visa to initiate proceedings. Vida reportedly said she could initiate a lawsuit to force Goodfriend to clear her name, and she was

essentially ordered to do so by the prime minister.

Referring to U.S. law, Goodfriend had earlier said that the only way to discuss Vida’s entry ban was if she applied for a visa. “If an individual disputes the United States’ decision to ban their entry, then they must resort to applying for a visa, and in this process, we can debate why we introduced the ban,” he said.

As a diplomat, Goodfriend cannot be sued according to the 1961 Treaty of Vienna. On December 9, Hungary’s Foreign Minister Péter Szijjártó suggested on public television that Goodfriend could lift his diplomatic immunity and produce evidence of corruption charges against Hungarian officials before a Hungarian court of law.

Szijjártó argued that if a Hungarian diplomat “openly raised serious charges against a government official of their host country”, he would “encourage them to give up their immunity and support their claim in front of the authorities of that country”. Goodfriend seemingly addressed the issue in a Twitter post saying the “US and Hungary have excellent legal cooperation, including a Mutual Legal Assistance Treaty.”

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Budapest Business Journal | December 12, 2014 – January 15, 2015

South Stream choked off by oil prices and the EU In the end, opposition from the EU and declining revenues for Russia made the South Stream project untenable, in the process forcing Hungary to rethink energy strategy.

MARIA FEDOROVA

While there is speculation that the deal could yet come back to life, and that its cancellation was political, in the end it may simply be that the dropping price of oil, and the rising price of the project, was what finally killed off the South Stream gas pipeline project.

On December 2, Russia’s president Vladimir Putin announced that his country would stop the construction of the pipeline, intended to transport natural gas to Europe.

Hungary was an enthusiastic partner in the project, planning to go ahead despite opposition from the European Union. The Hungarian Government had visions of using the pipeline across the country’s territory to help boost its position in the energy market. Now all bets are off.

South Stream was intended to be the 2,400 km pipeline with a capacity of 63 billion cubic meters that would run under the Black Sea from Russia to Bulgaria, then cross Serbia, Hungary and Slovenia, before ending up in Italy.

The controversial project raised a lot of concerns and caused tensions between Russia and Europe. It could be argued that the pipeline would increase energy security in European countries. Since the 2006 and 2009 price disputes with Ukraine, Russia has been searching for ways to reduce dependence on shipping gas through Ukraine. South Stream would bypasses Ukraine completely.

However, it would also have consolidated Russia’s dominant position as a gas supplier to Europe and give Russia more ADVERTISEMENT

leverage in energy politics. In 2013, Russia provided about 30% of the gas consumed in the European Union. In light of worsening relationships between Russia and the West, the pipeline was seen as one of the Putin’s efforts to increase Russia’s dominance on the European energy market.

The project was perceived to be too political, too expensive and drew serious criticism from the Europeans. The EC insisted that other gas suppliers should have access to South Stream, a demand with which Gazprom had refused to comply. Gazprom controls 50% of the entire project, which violates Europe’s Third Energy Package, which states that pipelines in the EU cannot belong to the natural gas extractors, so as not to distort competition. The Union has pressured its member states to halt construction on the project until all legal problems could be solved. In June 8 this year Bulgaria announced that it would stop South Stream construction until the project had been approved in Brussels.

PUTIN PUSHED FOR THE DEAL At the same time, Putin presented the $22 billion South Stream project as a worthy business deal, and Russia did everything in its power to continue the construction of the project. In June this year the company signed a deal with Austria’s OMV to construct a branch of the South Stream pipeline in Austria, despite opposition from European Commission. Hungary was planning to build its section of the pipeline next year. Gazprom has already spent almost €5 bln on the project and invested in the infrastructure development.

However, despite serious criticism of the projects, European partners seemed surprised

by Putin’s announcement. They were not notified of the cancellation of the project in advance, and learned about the decision on December 8 through news media, during a visit by Putin to Ankara, Turkey.

The Russian President depicted the collapse of the project as a loss for Europe and blamed Brussels for its inability to make agreements. As pressure from the European partners increased, it was Putin who personally decided to cancel the

Work on South Stream in Serbia, earlier this year.

project, noted Russia’s energy minister, Alexander Novak.

Russia’s move, however, is widely perceived as a diplomatic failure.

Although it could be argued that the cancellation of the South Stream project would negatively affect the poorer Eastern European countries, such as Bulgaria and Serbia, there are no serious negative consequences for the European countries.

Gas could be supplied to Europe in the same volumes through Ukraine and the North Stream pipeline. Kiev has already announced that it is ready to increase gas supplies to Europe.

Since the crisis in Ukraine, the EU has become firmer in resisting Russia’s aggressive policies. The conflict with the West has also resulted in Russia starting to look to invest its oil and gas in non− European markets, especially China.

In addition to the worsening relationship with the West, though, the sharp fall in oil prices and the further depreciation of Russia’s currency against the euro and dollar arguably made the multi billion

dollar pipeline investment impossible under the current circumstances.

The one party who seems to have won from the situation is Turkey, which has been looking for ways to use the deteriorating relationship between Russia and the West to gain energy supplies at cheaper prices. The country currently imports about 60% of its natural gas from Russia. At a news conference in Ankara, the Russian President announced that Turkey would receive a 6% discount on gas and an additional three billion cubic meters of gas a year. Russia will supply gas to Turkey through the Blue Stream pipeline. Infrastructure built in preparation for South Stream will be used for this pipeline, Gazprom’s head Alexey Miller said. The gas hub near the Greek border could also be used to supply Southern European countries with gas, Putin noted. It seems that disagreements on foreign policy between the two countries (on Syria, in particular) has not prevented closer economic cooperation between Turkey and Russia.

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News 07

Budapest Business Journal | December 12, 2014 – January 15, 2015

MP sounds alarm as Paks progresses As the government signs agreements with its Russian partners on new nuclear reactors, the co−president of Hungary’s Green Party questions the wisdom of the €10 billion plan.

BBJ STAFF

The plan to build two new reactors at the Paks plant in Hungary moved ahead this week, with the signing of agreements by the Hungarian state−owned company MVM Paks II Nuclear Power Plant Development Company and Russia’s Nizhny Novgorod Engineering Company Atomenergoproekt, the Prime Minister’s office announced on December 9.

“The agreements formalize the design, procurement and construction parameters for the new units, conditions related to their operation and maintenance support, and details regarding fuel supply and the handling and storage of spent nuclear fuel,” detailed an announcement from the Prime Minister’s office.

But one major critic of the project complains that the agreements, and their implications, are far from clear.

“Everything is untransparent with regard to the nuclear blocks here in Hungary,” says Bernadett Szél, an MP and co−president of Hungary’s Green Party (LMP). “We, like all Hungarian citizens, only know what the government lets and wants us to know. The vague terms disclosed by the administration so far are cause for serious concern. We therefore demand full transparency and complete disclosure of all the agreements signed today, and all Paks− related documentation.”

Szél says she has repeatedly asked the Fidesz leadership about the project, but her questions go unanswered. For instance, the 2014 budget includes HUF 28 billion to pay for expenses related to plans for the new nuclear reactor, but János Lázár, head of the Prime Minister’s office and the leader of the Paks project, does not give details about what this money is spent on, other than to say it pays for staff and an environmental impact assessment that has not been shared with the public.

Szél says that Lázár, and nuclear Commissioner Attila Aszódi, are making major decisions on the project that should be shared by Parliament. She worries that these choices could trigger the use of the €10 bln line of credit that Russia has offered, thereby landing Hungary deep in debt.

As Aszódi, describes the situation, plans for new reactors at Paks must go forward.

“The Paks nuclear power plant supplied 36.4% of the electricity consumption of the country,” Aszódi told the Budapest Business Journal.

He explained that the Paks units started operation between 1982 and 1987, and were upgraded in 2001 so that their “lifetime” could be extended. “The now operating four units – the actual Paks−1

Bernadett Szél.

plant – have to be shut down between 2032 and 2037,” he said.

“Hungarian energy policy suggests the maintenance of the share of nuclear energy in the domestic energy mix, so it is necessary to construct new units. The Paks−2 plant will have two Russian−designed VVER−1200 units with an overall capacity of 2,400 MW,” as compared to the 2,000 MW currently provided by the existing four reactors at Paks, Aszódi said. “The expected cost of the construction is about €12.5 bln, 80% of which can be covered by the Russian loan. Together with the licensing process, the construction period is expected to be approximately ten years, so the first unit of Paks−2 can start operation in 2025.”

ADVOCATES RENEWABLE ENERGY Given her concern for the environment, Szél said, she is a big advocate of renewable energy sources instead of nuclear sources.

Still, even she acknowledged that the country must rely on Paks for the moment, but she said that will never change, because neither Fidesz, nor the Socialist party who preceded them in power have thought beyond Paks.

“Research shows that we could get rid of nuclear energy in 40 years if we start now to develop renewable energy,” Szél said.

She added that the decisions being made on Paks so far have not been based on good science. “The Hungarian government does not have an expert prognosis for electrical consumption,” Szél complained.

Prime Minister Viktor Orbán has said that he would like to see Hungary become a net exporter of power, perhaps even selling energy to the country’s biggest trade partner, Germany.

But Szél questions the logic of that goal.

“I don’t think Germany needs our energy: They are one of the biggest exporters,” she says. For years, Germany has been giving very large subsidies to those who produce renewable energy, and as a result, they are now a net exporter of electrical power.

According to Szél, the deal with PAKS is not about fuel, but foreign policy.

“There is a clear policy orientation toward [Russian President Vladimir] Putin,” she said. “This is a very dangerous game, because our natural ally is Europe.”

Attila Aszódi.

America’s top official in Hungary apparently agrees with Szél: “Hungary’s energy independence was threatened by the plan to build a second gas pipeline from Russia, as well as by the aim to boost the role of nuclear energy,” U.S. chargé d’affaires André Goodfriend said on December 8 according to the Hungarian daily Népszava.

But Orbán has rejected such claims, saying, “We pursue not a pro−Russian but a pro−Hungarian policy.”

And the Russian ambassador to Hungary, Vladimir Sergeyev, added on December 9 that the Paks deal was based on energy, not politics. “Budapest did not make any concession to us,” he said.

“Hungarian−Russian relations should not be over politicized.”

For Szél, the long−term solution is to spend less on extending the lifetime of Paks and more on renewable energy and energy efficiency. “More nuclear energy is not in our national interest. What is in our national interest is insulation,” she said, adding that upgrading homes nationwide with better insulation would cut fuel bills by 50%. She also called for efforts to spend more on renewable energy development.

Aszódi remains skeptical of alternatives to nuclear power.

“First of all, I think that solar and wind are not alternatives but complementary,” he said.

“These renewable sources are more expensive and their availability is far from our needs. [‥.]

At this moment, I don’t see the exclusive use of renewables feasible for many decades.”

Szél dismisses that rational. “If they gave as much money to alternative energy as they give to advertising Paks, we could make serious progress,” she said, adding that if we don’t start to develop alternatives to nuclear power now, it will never happen.

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APP DEVELOPERS FLOCK TO HUNGARY’S BIGGEST APP-CONTEST

Appra magyar! the most prestigious developer contest of Hungary kicked off again after last year’s competition that saw over 150 smartphone applications submitted for entry. Developers may join the race before New Year’s Eve. The contest called Appra magyar! (loosely translates to: Gear app Hungarians!) was first announced

by IVSZ, the ICT Association of Hungary last year, in order to facilitate the proliferation of home-grown smartphone applications developed

by Hungarians.

The ICT Association of Hungary saw the need for such an event after seeing an uptick in smartphone penetration that is still ongoing in Hungary. Developers could submit any application, developed for any platform – iOS, Android, Windows Phone, though cross-platform apps are also welcome. The entries are evaluated by a jury consisting of 6 acclaimed professionals in the field.

The overall winner – the developer of the best cross-platform application – will be rewarded with a software package worth 1 million HUF, as well as the support of the ICT Association of Hungary to facilitate entry to international markets.

Apart from that, winners of different categories – Commerce, Business, Lifestyle, Entertainment – will be able to attend the most prestigious professional conferences in 2015.

Last year over 150 applications were submitted to the contest that generated lots of interest from different developer communities. The contest itself this year was awarded the bronze medal of this year’s Kreatív PR Prizma award. Last year the title of App of the Year went to iMenetrend, an interactive train-schedule search app, developed by Artanis Design.

Róbert Orosz, CEO of the small company said, he originally was not planning on becoming an app developer, he approached the field merely as a hobby.

After winning the first prize in last year’s contest, Orosz could join the Dublin development center of MasterCard to participate in a 3 month project.

Those interested can check out this year’s applicants and submit their own entries on the official website of the contest, available at www.appramagyar.hu

BBJ

2Business Holiday season a gift for the hotel business Countryside wellness hotels outperform their capital city peers during Christmas, as ever more people spend the festivities away from home.

ZSÓFIA VÉGH

December is the month for hoteliers.

Unlike years ago, when most stayed at home for Christmas or spent the holidays at relatives’, ever more people stay in hotels. Depending on type and location, though, performance varies.

Conference hotels catering to inbound business tourists see guest nights decline during Christmas, whether in the capital or county centers, but on New Year’s Eve, Budapest hotels run at 90−100% occupancy rate, István Kovács, general secretary of the Hungarian Association of Hotels and Restaurants (MSZÉSZ) told the Budapest Business Journal. Guests arrive mainly from the EU: from Italy, the UK and, more recently, from Poland.

Domestic tourism follows a different pattern: here wellness and countryside hotels are full during Christmas. In early December last year, Puchner Kastélyszálló had free guestrooms; now they are fully booked for the festivities, the hotel’s sales manager, Anikó Weich said. More than 70% of the rooms for New Year’s Eve are also

Puchner Kastélszálló: Fully booked this Christmas.

booked. Aqua Spa Conference and Wellness hotel at Cserkeszőlős ran a full house last year during both periods, Kovács noted.

Domestic demand has been the backbone of Hungarian tourism in the past two years.

In the first half of this year, Széchényi Pihenőkártya, a government subsidy to encourage tourism, boosted bookings and consumption as the end−of−May deadline to spend unused amounts on the card made people flock to book. This year, every fifth booking was paid with the SZÉP card, as opposed to every seventh in 2013, according to tourism officials.

Besides the SZÉP card, online booking sites have also played a role in the rise

COMPANY NEWS

DIEHL LAUNCHES HUF 3 BLN EXPANSION IN HUNGARY Germany’s Diehl laid the cornerstone of a HUF 3 bln production hall at its aircraft parts base in Nyírbátor in northeastern Hungary on November 28, Hungarian news agency MTI reported. Diehl vice president Wolfgang Weggen said the 5,550 sqm hall would be completed by the middle of next year, creating 280 jobs. Diehl will make parts for Airbus A350 and A380 aircraft in the hall. The plant currently makes cabin parts for Airbus 320s and A330s.

The general contractor for the project is Hungary’s KÉSZ Építő. Diehl inaugurated

the base in Nyírbátor in 2012. At present, 270 people work in the 3,330 sqm plant there. This year, it is expected to generate revenue of about €15 mln. But sales are set to climb to more than €30 mln when the expansion is completed, said Diehl Aircabin Hungary managing director Udo Bosler.

FELFÖLDI ÉDESSÉGGYÁRTÓ INAUGURATES HUF 199 MLN PRODUCTION HALL Hungarian sweets maker Felföldi Édességgyártó inaugurated a HUF 199 mln production hall at its base in Debrecen in eastern Hungary on November 28. A

of domestic demand. “Wellness hotel packages are the most sought−after among the offers of Bónusz Brigád; demand for them has increased significantly this fall,” said sales director Richárd Scmidt.

The firm has 250 partners in the wellness segment. The most popular destinations in December, based on Bónusz Brigád’s data, are the same as the rest of the year: Hévíz, Eger, Hajdúszoboszló, Gyula, Zalakaros, Harkány and Miskolctapolca.

“The outright winners of the season are 3−4−star hotels”, József Szigetvári, managing director of Szállás.hu, an online booking site, told the paper. The firm had a HUF 6 billion share of the HUF 60

bln online tourism market in 2013, and expects its revenues to increase to HUF 9 bln this year.

Programs and Christmas fairs further enhance winter bookings. The Budapest Winter Invitation, a campaign run by Hungarian Tourism Zrt. and MSZÉSZ with more than 50 partner hotels, kicked off on November 1. Last year, the campaign, which runs until the beginning of April, apparently helped fuel a 32% growth compared to the same period in 2012. Hotels registered an extra 123,00 guest nights, generated mainly

by Russian, Italian and British guests, officials said.

European Union grant covered about half of the cost of the investment. Felföldi Édességgyártó has hired 60 additional people to work in the 1,700 sqm plant. This year, the company expects revenue to reach HUF 3 bln, said owner József Felföldi.

PANNON LÉZER MŰHELY COMPLETES HUF 250 MLN BASE Hungary−based sheet metal processor Pannon Lézer Műhely inaugurated a HUF 250 mln base in Tata in northwestern Hungary, managing director Endre Paulik told MTI on December 1. The investment was supported with a HUF 100 mln grant, he added. Pannon Lézer Műhely currently employs a staff of 47, and is in a business partnership with Siemens, Guntner, Knorr−Bremse, and General Electric. The company saw revenue of more than HUF 780 mln last year.

more than 50 countries worldwide. • György Waberer, chairman−CEO of Hungarian Waberer’s road haulage company International won the “Businessman of the Year” award. • Sándor Zettwitz, head of medical diagnostics equipment maker 77 Elektronika won the “Role Model” award.

• Balázs Rózsa, owner of Femtonics, a developer of laser scanning microscopes, won the “Bold Innovator” title. • Zoltán Gyorkó, co−founder of IT security software developer Balabit IT, won the “Promise of the Future” award. The EY Entrepreneur Of The Year Award honors those who build market−leading companies that “make communities, countries and the world a better place”. EY claims to “chronicle their innate ability to create new products and services, transform organizations, enrich lives and contribute to the vibrancy of national economies”.

EY: HUNGARIAN BUSINESSMEN RECEIVE AWARDS Four Hungarian businessmen were awarded the EY Entrepreneur of the Year Awards. The awards are held in more than 140 cities in

EU-FIRE TO BUILD €116 MLN GEOTHERMAL PLANT IN SOUTHEAST HUNGARY Hungary’s EU−FIRE is teaming up with Icelandic peer Mannvit to build a €116

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Budapest Business Journal | December 12, 2014 – January 15, 2015

mln geothermal power plant near Battonya in southeast Hungary, government and company officials announced on December 2. The project, carried out with the cooperation of the National Development Ministry and the National Economy Ministry, is supported with a €39.3 mln EU grant. The power plant, to be completed by the end of 2018, will generate an annual 12MW of electricity and 60MW of heat energy. EU−FIRE holds 95% of the project company for the plant, Mannvit 5%.

ALTEO TO BUY LOCAL RWE-ENBWOWNED PEER Hungarian energy services provider Alteo has signed an agreement to buy 100% of peer Sinegy from the local units of Germany’s RWE−EnBW for an undisclosed price, Alteo said on December 3, adding that it would finance the acquisition from the proceeds of bonds issued this year.

The transaction is subject to approval from Hungary’s competition and energy authorities and also dependent on the fulfillment of conditions specified in the sales contract. Alteo had revenue of HUF 6.2 bln last year, while Sinergy booked a slight loss on sales of HUF 4.2 bln.

ALDI OPENS 100TH STORE IN HUNGARY German−owned discount supermarket chain Aldi opened its 100th store in Hungary on December 4, according to news agency MTI. The store opened in the former Pioneer Shopping Center on the capital’s busy Kossuth Lajos utca. Aldi has invested HUF 140 bln in Hungary since 2006. It opened its first stores in the country in the spring of 2008 and had 42 shops by the end of that year. Today, Aldi stores in Hungary have a combined retail space of more than 100,000 sqm. Aldi Magyarország Élelmiszer had a HUF 4.9 bln loss on net sales revenue of HUF 80.2 bln last year, public records show. The unit employed more than 1,450 people at the end of the year.

LOVÁSZ FORGÁCSOLÓ COMPLETES HUF 818 MLN EXPANSION Lovász Forgácsoló has completed a HUF 818 mln expansion at its base in Gyula in southeastern Hungary, the metalworking company told MTI. The company built a 2,200 sqm production hall and installed six new CNC machines. Lovász Forgácsoló is adding customized tool−making to its activities as a result. The company won a HUF 409 mln grant for the project. It expects revenue in 2014 to climb 10% over last year’s HUF 1.2 bln. It employs 50 people, but headcount is set to rise to 57−58.

TAMÁS DUZSI NAMED ‘WINEMAKER OF THE YEAR’ The Hungarian Academy of Wine named the Szekszárd vintner Tamás Duzsi “Winemaker of the Year” for 2014 on December 5. The academy said that the highest award for Hungarian vintners is an acknowledgement “not of a single wine but of excellence achieved over many years”.

Duzsi’s rosé and red wines have previously won prizes at contests in France, Germany, Switzerland and Spain, as well as Hungary.

The cellars of Duzsi are reported to have generated after−tax profit of HUF 77 mln on net revenue of HUF 330 mln in 2013.

RANDSTAD HUNGARY COMPETES TO ACQUIRE SERVICE CENTER Randstad Hungary, the Hungarian subsidiary of the Dutch multinational human resource consulting firm, is planning to raise staff

numbers by 200 in 2015 if the unit is able to convince the parent company to bring part of a new service center to Budapest, managing director Sándor Baja said December 8.

Randstad Hungary’s biggest rivals in the internal competition to acquire 70% of the center are peers in Prague and Kuala Lumpur, the managing director said, adding that “the infrastructure and economic environment in the Czech Republic put the Prague unit into an advantageous position, however the Hungarian unit has more experience with service centers, and wages are lower”.

CONSTRUCTION OF APOLLO TYRES PLANT TO BEGIN IN SPRING Preparations for the Hungarian plant of India’s Apollo Tyres to be built in Gyöngyöshalász in northern Hungary are proceeding on schedule, Hungarian business daily Napi Gazdaság reported on December 9, citing the Hungarian Investment Promotion Agency. Company and government officials announced the construction of the HUF 146 bln plant, which was expected to create 975 jobs, on September 18. The project is supported with a cash investment subsidy of HUF 16 bln from the Hungarian government.

The cornerstone of the plant is scheduled to be laid in the spring of 2015, and the first tires could roll off the production line early in 2017.

ZAEV SEES REVENUE CLIMBING TO HUF 13 BLN Hungarian construction company ZAEV said on December 8 that it expects to book net revenue of HUF 13 bln this year, a 10% increase from 2013, according to MTI. The company also expects pre-tax profit to reach approximately HUF 300 mln this year. ZAEV currently employs a staff of 250, including contract laborers. The company will celebrate its 65th anniversary this year.

KNAUS TABBERT TO START PRODUCTION IN HUNGARY Germany-based motor-home, campervan and caravan manufacturer Knaus Tabbert is planning move production to its Nagyoroszi plant in northern Hungary, as it is closing its Obermeitingen plant in Germany, at the end of March next year, the company said on December 9. The Nagyoroszi plant has annual production of approximately 2,000 vehicles. The Hungarian unit, Knaus Tabbert Kft., inaugurated new production and logistics halls at a cost of €1 mln in October 2012. Before the development the unit had manufactured 970 camping buses annually.

BIGE HOLDING EXPANDS TRUCK FLEET Hungarian fertilizer producing group Bige Holding invested a total of HUF 4 bln in its truck fleet, which has been expanded with 116 DAF tractors and 126 Schwarzmuller trailers. The company is a market leader in fertilizer sales in Hungary. Bige Holding had consolidated after-tax profit of HUF 640 mln and net profit of HUF 48 mln on consolidated sales of HUF 13.7 bln in 2013. It is 100% owned

by Hungarian businessman László Tibor Bige.

VIDEOTON UNIT LEADS HUF 350 MLN R&D PROJECT Hilase, a unit of contract electronics Videoton Holding, is manufacturer developing a device for measuring air particle pollution as part of a HUF 350 mln project, the company announced December 10. Hilase is cooperating with the University of Szeged and Pannon University on the project to make the compact measuring device. The consortium won a HUF 242 mln grant for its work and is expected to wind up the project by the end of May 2015.

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SAP sets trends with new work space ‘What we are developing here is being used all around the world,’ the head of SAP Labs Hungary says of his software development center that grew with a new office.

BBJ STAFF

SAP Hungary’s new office is not just meant to be a creative workplace, but also the forerunner in spreading “design thinking” methodology in the country.

Design thinking is being taught in leading universities all around the world, and can be a tool for solving complex problems, but this is just one reason the company is using it in its daily work, noted Markus Hilken, director of SAP Labs Hungary and SAP Global Support Center Hungary.

“As we are expanding, it was necessary to open a new office for our colleagues. That’s why we created a so-called AppHaus office, very close to our headquarters in Graphisoft Park, Budapest,” said Hilken.

The main feature of this nearly 2,000 sqm facility is its mobility, hosting creative space for around 140 people. They can very easily move their own tables and chairs to create such a setup that perfectly suits the needs of the project they are currently working on, and can even write their ideas on the walls.

According to the director, this is another proof that SAP is following a startup mindset in the development. The company not only has small teams cooperating with each other, but it also encourages people to fail, which allows more freedom and free flow of thoughts and faster delivery of solutions.

The company’s new office has already hosted multiple meet-ups and events in this innovative environment since its opening two months ago, to show the public how design thinking is being used. This includes, for example sustainability and urban data workshops: more events are planned to be held in SAP AppHaus Budapest.

The international software maker has been developing solutions in Hungary for nine years. The local development center was established with 70 people, and now employs around 250. The main tasks include the development of logistical software, mobile solutions and installed base maintenance and localization.

“The Hungarian development center shows a growing added value to SAP’s international R&D network, since we have moved from developing components to solution delivery and also through innovations i.e. Industrie 4.0 and firstly implementing multiple development methods. What we are developing here, is being used all around the world,” Hilken added.

The director also heads a support center organization ensuring German-speaking customers can work with their SAP software without any problem. “Our Global Support Center is not a tele-center, but consists of experts with deep knowledge of certain SAP areas, for example business warehouse, finance, or supplier relationship management, who act proactively and are in touch with customers in order that they can continuously gain the most benefit from their existing SAP systems”.

This type of work requires highly-skilled employees with multiple foreign language knowledge. In order to fulfill the growing demands globally and locally for its solutions, the company is making large scale hiring locally. The majority of the new joiners are young talents, which also shows SAP is getting more popular with the next generation. In that light, it might not have been a surprise for Hilken that SAP Hungary received the “best employer” award from Aon Hewitt some weeks ago.

SAP holds a total of more than 5,500 validated patents worldwide and it’s solutions make businesses run better.

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Budapest Business Journal | December 12, 2014 – January 15, 2015

Promoting export efforts by Hungary’s IT sector Because the sector is made of SMEs, its export performance is weak, but experts want to change that.

ZSÓFIA VÉGH

With its 12% contribution to GDP every year, the Hungarian information sector, 80−90% of which is made up of SMEs, is placed fifth in the European Union. IT was the only sector in Hungary that was able to grow during the 2008 financial crisis and the economic slowdown that followed: In 2012, the IT sector grew by 4.5%, according to the National Statistics Office.

But what does Hungary export most of all? Cars.

Maintaining that the country is not realizing the full export potential of IT, the Hungarian ICT Association (IVSZ) held a conference on the issue in early December.

IVSZ claims that, if Hungary could double its current IT exports, the benefit for the economy would be the equivalent of opening two new Audi plants.

Part of the problem may be the typical size of IT firms. Speaking at the conference, Levente Fejérvári, deputy CEO of operations at the Hungarian Export− Import Bank (Eximbank) said it is harder for the SMEs that are typically involved in software startups to get enough funding to break into the export market. “Financing intellectual property is risky, it is not easy to match financing that suits them either,” the deputy CEO said.

In order to square that circle, Fejérvári said Eximbank will launch a new microcredit facility and a working capital loan, with the goal of helping IT firms add employees.

The bank also provides credit to cover an element of the resources companies put in

themselves to qualify for EU subsidies such as GOP and GINOP, the two most relevant for ICT firms. For companies that have already gained a foothold abroad, credit is available for building infrastructure as well.

In order to actually achieve a doubling of the current level of IT exports, IVSZ has drawn up a series of action areas for the government – the most urgent of which is a chronic labor shortage. IVSZ says the sector could produce an extra HUF 235 billion in revenues in 2018 if vacancies in the sector were filled. To make this possible, IVSZ recommends replacing the “elitist approach” in higher education with one that is in−line with market demand. The group also recommends easing immigration policy requirements for firms and the reintegration of unemployed and retired IT professionals in the market, as well as campaigns in elementary and high schools to popularize the field. These steps, IVSZ says, would fill the current 10,000 vacancies and prevent the country from losing an estimated HUF 150 bln annually.

Breaking grounds abroad takes much more than a good product. BalaBit, an enterprise security software vendor, is increasing its global foothold continually.

Headquartered in Luxembourg, the firm has teams in France, Germany, Russia, Hungary and the United States, and more than 160 employees. The Winner of the “Emerging Entrepreneur” special award at the 2014 Hungary EY Entrepreneur Of The Year program received $8 million venture capital this summer. The money will allow the firm to focus on opening two new markets in the UK and in the Nordic regions and further strengthen its position in the States.

“The first step to enter international markets, as a Hungarian company in B2B segment, we believe begins in Germany,” Zoltán Györkő, CEO and co−founder of BalaBit told the Budapest Business Journal.

Not only because Germany is one of the

Péter Vityi speaks at the IVSZ conference.

IVSZ conference attendees.

biggest IT markets in Europe, but its location and cultural similarity also make it a great first choice. Companies can learn how to adopt and redefine their sales and marketing strategies and become more mature organizations to open further new markets. The company first exhibited at CEBIT in 2003 and managed to sign its first reseller contract during the show. Prior research, cooperation with an established local sales agent and compliance

with local regulatory requirements are also necessary. So is global thinking. “From day one, BalaBit prepares all its documentation, user manuals, and marketing materials in English – we only translate them into local languages when it is really necessary. Even in IT, where most people use English naturally, having local colleagues is still key because no one else understands local political jokes,” Györkő said.

Instability in a stable environment PwC explains why Hungary provides a great tax environment for investors – almost.

ZSÓFIA VÉGH

With rather stable corporate taxation, Hungary could offer a truly enticing investment environment, according to the tax experts of PwC Hungary.

Unfortunately, taxes levied on certain sectors cause uncertainty among market players, clouding the picture.

This was the wisdom shared at a December 10 breakfast meeting on new taxes, held at PwC’s Budapest headquarters in the Eiffel Palace and co−sponsored by PwC, the Budapest Business Journal and the British Chamber of Commerce and Budapest.

The experts offered a guide to the

new tax regime, and what it means for ordinary businesses. Overall, they said, corporate taxpayers in Hungary will see no dramatic changes in their tax regime, unless they belong to one of the sectors with special taxes levied on them.

The tax changes effective as of next year were seen as a clear reflection of the economic priorities of the Hungarian government, experts said. Corporate taxation is stable and creates a very attractive environment to invest in, said Paul Grocott, tax services partner of PwC Hungary. As it is still very keen on high value−added investment, the government is unlikely to introduce additional taxes, he added, and it is not likely to retreat on the flat personal tax either. As for VAT, Grocott, said, it is already maxed out, and there is no chance to widen or increase it.

As a result, he said, as the government looks for additional income sources, there is a risk of it introducing further special sector levies, which are indirect taxes on the population.

Special sector levies have been introduced in the previous four years, and targeted, among others, banks, telecommunication firms and retail chains. Their temporary status has been questioned by experts, who note that a government will hardly eliminate a new source of revenues once it starts to tap it.

The new legislation includes several amendments to existing levies the implementation of which have proved problematic. One example is the advertisement tax, launched this year, whose wording was not specific and allowed for different interpretations. It did not deal with companies that had an odd tax year and were already operating when the tax was introduced. It became necessary to create a “transitional tax year” to enable these taxpayers to pay their advertisement tax on an odd tax year basis in the long run, said Gergely Juhász, tax and legal services manager at PwC. Another amendment concerns fund managers and dealers. Until the end of 2014, fund managers were subject to a special tax

of 0.028% on the basis of the 2009 net asset value of the funds they managed. From 2015 the funds themselves will effectively pay the tax and their tax charge will increase to 0.05%. The tax base will be the current (adjusted) net asset value.

The expert welcomed the changes to curb tax dodging, including the introduction of the declaration to be requested by advertisement purchasers from the service providers or the EKAER (Electronic System Supervising Public Road Transport). Juhász warned, though, that the amendments would pose challenges in long−term planning, and cause a high administrative burden for both taxpayers and tax authorities.

Regarding the legislation for transfer pricing documentation, an initiative by the OECD to improve transparency in the auditing system, the main concerns are confidentiality and dispute resolution, and a potential risk on unilateral actions taken by emerging countries in terms of requiring additional data, Anita Mekler, PwC Budapest director said.

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Budapest Business Journal | December 12, 2014 – January 15, 2015

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Reviewing our progress over the last 25 years CEU gathering weighs results of the transformation of ’89.

ANIKO FENYVESI

A quarter century after the collapse of the Soviet Union in 1989, what has changed and what is the state of freedom in Europe?

That was the question addressed by 22 students and PhD candidates from Central and Eastern European as well as Canada and India, who took part in a debate at the Central European University on December 9.

The discussion took on three facets; the past, present and future of Europe, namely how the concept of freedom has evolved in the past 25 years of democratic transformation in the region. An important factor in the discourse was the situation in Ukraine and the attractiveness of the European Union as a whole.

Former Minister of Foreign Affairs, CEU Professor and moderator Péter Balázs set the tone by addressing the key theme of freedom then and now. During the 1956 revolution, people were “drunk with freedom” but this event was followed by “a long period of compromises”, he explained. “There was at once a monopoly of power, no free market and absolute alignment with Soviet policy,” but also a “hidden pluralism in many forms.”

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Roundtable discussion held at CEU.

Now that we live in a supposed democracy, here in Hungary, and aid is coming from the central government – currently a 3.2% addition to the GDP of EU nations is derived from European Funds – the brain drain is also moving to the center, Balázs explained.

But it is not so much corruption that is the issue, rather the machinery used to shape the situation to the advantage of governing bodies, he added.

Balázs introduced the three “working groups” in the debate, which began by tackling issues of freedom. The following are the opinions of the participating students: • Twenty−five years ago freedom was about sovereignty and freedom from Russia, and the full exercise of civil and political rights. Nowadays many states are seeking

freedom from the European Union, and it is clear that the attractiveness of Europe is on the decline.

• Europe is seen as attractive not because of the potential for prosperity but because of the social security and freedom it offers. But how can we expect to be more attractive when we don’t even know what our leaders are doing behind closed doors. If we go back 25 years, EU accession was considered a key pillar of success, nowadays, the situation does not seem to have improved, and has in many cases worsened; pre−ascension values have evaporated into the ether in some countries and many participants felt that the EU bears little resemblance to a unified body.

New walls have replaced old ones but as the Deputy Director of the Polish Institute

Jarosław Bajaczyk emphasized, solidarity, trust and common values are the key to Europe’s success.

There was an overwhelming consensus that in order to overcome the division between countries and the democratic deficit on the whole, nations need to unite under one voice. Central Europe is also in a perfect position to bridge the gap between Western and Eastern Europe.

Currently, the Eastern Partnerships (EaP) are considered more or less a failure; an artificial group under a title assigned by the EU and defined from a very Eurocentric perspective.

Ukraine, which is one of the key members of EaP, was seen as a threat to EU member states for, among other reasons, its rich natural resources, which could potentially eliminate industries from Western Europe.

But it was suggested that the EU needs to step out onto the global stage and defend Ukraine. The Visegrád Group has addressed some of these concerns, but so far it has been little more than political rhetoric.

To feel a part of the greater mechanism, Ukrainians need to be given the option to join the EU. Currently all they have is the anti−Russian option. Ukrainians feel that Europe is not ready for regional leadership and they feel excluded as a result.

The Embassy of Poland and the Polish Institute in Budapest initiated the roundtable discussion, which is part of a series of events, to mark a number of anniversaries culminating in 2014.

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Budapest Business Journal | December 12, 2014 – January 15, 2015

BORDERPOL returns to its Budapest birthplace We speak to the head of an international group dealing with border management as his organization convenes here.

ROBIN MARSHALL

When the international border and migration management organization BORDERPOL picked Budapest for its third world congress this past week, it represented a homecoming of sorts for a grassroots group that was founded here back in 2002.

BORDERPOL was formed to fill a gap; it is, the organizers say, the only umbrella organization that takes in all the parties involved in and around the safe and secure operation of borders.

2012 saw the logical extension of that mission, with the first world congress, which the organization calls “the only multi−jurisdictional transnational platform where the border protection, management and security industry policy makers and practitioners convene annually”.

“The event is designed to reflect the interdisciplinary nature of border management,” explains Canadian national Thomas (Tom) Tass, the chairman and executive director of BORDERPOL. He is also one of the original founders, dating back to his time as head of mission of the International Center for Migration Policy Development (ICMPD), which was then headquartered in Budapest.

“I use the term ‘bordernomics’ to describe the various components that make up the border business, which includes social (immigration/refugee), economic (trade, tourism), and political (terrorism, security) elements. Add into that other stakeholders from science and technology who are selling their wares and it becomes a very interesting cauldron.”

The idea of an umbrella organization pulling together all the players of “bordernomics” had its genesis in two events, one localized, and the other global, according to Tass. The latter was 9/11, which changed the way we think about international terrorism and international travel, probably forever.

But it was the former, which predated 9/11, which set the cognitive balls in motion. “In 1998 the EU wanted some system put in place for monitoring trafficking in women, so we came up with a scheme that linked the four major airports in Eastern Europe – Warsaw, Prague, Budapest and Bratislava – and enabled them to talk to each other.

made that could not be forged.” The likely opposition will not be politicians per se, but the lobby groups for the passport makers. “You have no idea how much money companies make from passports: the Canadian banknote company, for example, makes passports for half a dozen countries,” Tass says. To his mind, a credit card−sized piece of plastic containing some biometric data makes far more sense than a “book with 34 or 28 pages” that keeps going up in price.

People think trafficking only goes on in the back of locked trucks, but these people are openly travelling on airplanes in many cases,” Tass says.

“That system began to show us some trends; suddenly we would realize there was a lot of Tajikis travelling out of CEE and not many of them seemed to be coming back. We had a small budget and went and bought the software and hardware we needed literally off the shelf from Media Markt. By 2000 it was working fine, but the EU shut it down pretty quickly after that; we had outpaced their ability

BORDERPOL is run on a shoestring: There is no brick and mortar global HQ; its newsletter is LinkedIn and Twitter; its board members, all experts in the field, earn the princely sum of CAD 10 a year.

And yet it is growing. to keep up with developments from a policy perspective.”

But the professionals had proved it was possible for national border organizations to come together, to talk to each other, share information and plot trends. And then 9/11 made a crystal clear case for why that was a really good idea, whether policy makers could keep pace or not.

SAFER TRAVEL For the record, Tass says he believes travel is safer now. It is also, of course, very different, and the flight path to today has run through its fair share of turbulence. “Since 9/11 we have undulated between extremes in my view.

Some of the things we have done have been pretty stupid. OK, there hasn’t really been another incident since then, but that is largely because you have to get on a plane practically naked.”

It is a typically blunt Tass statement, but as he says, BORDERPOL is an avowedly non−political, not for profit and non−aligned intergovernmental organization. “We get to stick our neck out a little bit more than our contemporary legacy IGOs, who are ever dependent on money from various member states for their existence.”

Travel may be safer, but many of the problems we faced in the early 2000s are

still there today. “It is different shades of the same thing,” says Tass. People trafficking has been going on since the early 1990s; it has never stopped, just morphed into different scenarios. The fact that numbers are still growing tells you we have not been doing a very good job for 30 years. How many times did a perpetrator end up before a magistrate?

Not often, because the crime syndicates have been very successful at setting up the THB business. Look at it this way: we are not talking about sweatshops in Southeast Asia anymore; we are talking about sweatshops in London.

The business model, if you like, has changed, that’s all.”

One of the intriguing ideas BORDERPOL is now working through is the continued practicality of the book− style passport. As a start it is hoping to revive an idea for a Caribbean−wide travel document that was originally conceived to aid getting about in the 2007 Cricket World Cup, but was never implemented. “It was an orphan as a concept, it had no mother or father to fight for it. We are going to try and bring it back to life,” Tass says. “A travel card is a good idea. We have to think like banks in the ID travel business. BORDERPOL was born in the internet age, but the passport is a 100−year−old idea. Is it still valid? There has never been a passport

SHOESTRING OPERATION BORDERPOL is run on a shoestring: There is no brick and mortar global HQ; its newsletter is LinkedIn and Twitter; its board members, all experts in the field, earn the princely sum of CAD 10 a year. And yet it is growing.

A group of retired prime ministers, presidents and statesmen will be put together to form an advisory board (at least one former prime minister of Japan has already indicated he wants to join, Tass says). The European office is hosted in Budapest, paid for by the Hungarian state. Another office is in Chennai, in India, with the administrative center in the UK. The newly appointed U.S. director has been asked to develop the secretariat’s Spanish language capabilities so it can spread into Latin America. A West Africa office is on the way.

It works, Tass says, because it allows organizations to come together on neutral ground. “Interpol and Europol don’t talk to each other. Well, they do, but they are basically rival organizations. We allow them the space to talk without worrying about anything else.” It sounds like a Cold War safe house, I joke. Tass laughs.

“That’s exactly it. At our events we have no axe to grind, no political statement to make. We facilitate. And it is not just at the plenary sessions, the real value added is at the margins, the periphery, because everybody is here.”

He likens it to Davos: “We get a lot of smart people together and let them talk through the issues, and out of that can come some very good ideas.”

The three−day congress will move next year to The Hague, but Tass has clearly enjoyed the chance to bring the organization back to its birthplace.

“We have outlasted the naysayers who said a grassroots driven international outfit like ours couldn’t and shouldn’t last. Our annual budget is comparatively mediocre when we sit down beside Europol, Interpol, FRONTEX or the WCO, which are all players in the border management business,” he says. “But none of them bring together the folks we do throughout the year to successfully promote mobility rights at safe and secure borders the world over.”

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2 Business

Budapest Business Journal | December 12, 2014 – January 15, 2015

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this special report is sponsored by DTZ

THE PROPERTY ADVISER www.dtz.com +36 1 269 6999

REAL ESTATE NEWS

DTZ: Growth in peripheral markets A BBJ interview with György Lindwurm about the current situation with real estate in Hungary and the region.

Do you see more investors considering the CEE region and why?

In Europe the strongest growth in activity has been led by the peripheral markets – Ireland, Italy and Spain. Of course growth is coming from historically low levels. Of the major markets, Germany posted the strongest growth with volumes up 29% to €7.7bn. Increase in volume was also recorded in the Nordics, led by activity in Norway and Finland. Overall, bond yields continued to fall across Europe in Q3, reducing required returns on property, while expected returns remain attractive. At the same time property market risk continued to fall, approaching pre-crisis lows. We expect that investors will continue to prefer the CEE region to realize higher returns, as increases in bond yields make Western European markets less attractive on a relative pricing basis.

A HOT MARKET

According to research by DTZ, Budapest is one of the “hot” markets in Europe, because of its strong yields. “We are aware that a number of international institutional investors are already scanning the Hungarian market for suitable products,” a DTZ expert says.

CEU TO REBUILD ITS DOWNTOWN CAMPUS Budapest’s Central European University (CEU) announced December 4 that it will begin construction on the redevelopment of its downtown campus from January 2015.

Award-winning, Dublin-based architectural firm O’Donnell & Tuomey have teamed up with Hungarian M-Teampannon for the project, which involves the refurbishment and construction of approximately 35,000 sqm at the downtown campus and consolidation of the University’s academic and administrative facilities currently located on either side of the Danube, a CEU press release said.

A contract was signed for Phase I and II of the project with MARKET-STRABAG, a consortium of companies with extensive experience developing educational buildings in urban environments, according to the release. The total budget for all three phases is reported to be approximately €34 million.

“The CEU community looks forward to beginning this project” said CEU President and Rector John Shattuck. “When the first phase of the project concludes in 2016, CEU will celebrate its 25th year in an enhanced home that we share with our Budapest neighbors.”

Municipally approved construction and the historical refurbishment of six adjoining

buildings to be equipped with modern and sustainable facilities, will be designed to accommodate the growth of the student body as well as high-profile lectures and other large public events, according to the release. Modern mechanical systems incorporating BREEAM principles will transform CEU into a green campus and reduce its consumption by approximately one third, it added.

CEU is a U.S. and Hungarian-accredited institution of graduate education specializing in the social sciences and humanities, public policy, and business. It has been present in Budapest for over two decades.

CONSTRUCTION GROUP PREDICTS 15% EXPANSION THIS YEAR Construction industry association EVOSZ expects the sector to grow 15pc this year, business daily Vilaggazdasag said on December 5.

EVOSZ expects the sector’s profit-torevenue ratio to remain little changed, at 3-4%, and order stock is set to rise 2530%, the report said.

In January-September, construction sector output increased 18.1pc from the same period a year earlier, the latest data from the Central Statistics Office (KSH) show.

How does Hungary compare to Poland and Czech as an investment destination?

As to investment volume, Poland seems to be gradually losing its position while the Czech Republic showed significant growth in 2014.

Despite the fact that investment volume in Hungary remained at a lower level compared to its peers, 2014 will be a record year with a 60-80% increase on last year’s performance, depending on the Q4 closings.

Prime yields have compressed in all the analysed CEE countries and sectors during 2014, reflecting strengthening investor demand and improving macro-economic fundamentals. Despite the fact that the pricing expectations of vendors and purchasers are tending to converge, a lot of quality products would need a reduction in the asking price or significant yield compression in order to transact. Prime yields in Hungary have reached 7.0-7.25% in the office and retail sector, the industrial market is facing yields of around 9%.

This translates into a yield premium of 100-150 bps over the Czech Republic and Poland.

How do the office, retail and industrial sectors compare as investment destinations?

The office and retail sectors had an almost equal share in terms of both the value and number of transactions in 2014, however only one large retail transaction gave 54% of the value in the retail sector. There are few large retail properties in Hungary suitable for investment, therefore, office properties are expected to dominate the pipeline, which is also supported by growing occupier demand in that sector. There is still a question mark as to whether there will be a significant number of industrial transactions in the short term, partly due to the limited number of product offered.

What is institutional investors’ attitude towards Hungary?

In terms of purchaser nationality, the Czech Republic is somewhat similar to Hungary with very few large German investors and the dominance of local buyers. Hungary has a number of locally active asset managers,

György Lindwurm Associate Director who tend to team up with international investors thus integrating local knowledge and the sharing of risks with the sourcing of capital. In addition, capital continues to flow into the major local property funds, thus creating liquidity that can target large lot sizes. The 100-150 bps yield premium on quality assets and the opportunity to realize an IRR close to 20% on good performing, management intensive secondary assets will continue to make Hungary an attractive destination, however, the number of available quality products needs to increase to drive up transaction volume. We are aware that a number of international institutional investors are already scanning the Hungarian market for suitable products.

How can a consultant add value to to the success of an investment transaction?

In the current changing market environment it is crucial to find the best suited investor to a particular property in the shortest time possible and in a controlled manner. Our consultants are in continuous contact with the local market but they also gather information from our offices worldwide. Our colleagues in Poland and the Czech Republic are regularly testing locally active investors on their attitude towards Hungary. We have already received a number of referrals and offered suitable products to investors that are new to the Hungarian market. We have all the key contacts to the respective investors which allows minimal response times from them and maximum reliability of the response.

It is also crucial to present or analyse the opportunity in a clear, unbiased and wellfounded way. This is usually supported by specific micro-market research to present a viable business case on either the vendor or purchaser side. Our research and analysis is not based on the opinion of a single consultant, but on the up-to-date market experience of our letting agents, property managers and valuers. In the case of an exclusive sales instruction, we provide preliminary due diligence to ensure that all documents and information is available and ordered in a clear systematic way, so that access to the information does not cause delays or other surprises later in the sale process.

GRUPPO T.F.M. KFT. 1068 Budapest, Király u. 102.

1ST DISTRICT

3RD DISTRICT

6TH DISTRICT

10TH DISTRICT

12TH DISTRICT

15TH DISTRICT

35 SQM – 2 ROOMS, VÁRKERT QUARRY

173 SQM – 4 ROOMS, KEVE STREET

95 SQM – 3 ROOMS, LÁZÁR STREET

250 SQM – 9 ROOMS, GITÁR STREET

89 SQM – 4 ROOMS, KISS J. ALTÁBORNAGY STR.

60 SQM – 3 ROOMS, RÁKOSPALOTA

Next to the beautiful Várkert Bazaar, this high floor apartment in good condition with separate rooms, open kitchen and private gas heating is situated in a period building with elevator.

This renovated, triplex apartment has 18 sqm terrace, 3 bathrooms, 151 sqm private garden and it is situated in a renovated villa house, in a very quiet, green area.

Right behind the Opera House you can find this apartment in a renovated period building.

It can be ideal for anybody seeking a renovation project in a perfect location.

This very spacious and bright villa house that needs renovation has 1373 sqm of lot, 2 entrances and it is located in a very quiet and green area. Good connection to public transport.

This sunny, spacious, street and garden facing apartment with balcony and private gas heating is situated in a well maintained building, close to the MOM Park shopping mall.

In a new building, this garden facing apartment benefits of separate rooms, fully fitted open kitchen, balcony and parking space.

Good connection to public transport.

14.900.000 HUF

68.900.000 HUF

31.900.000 HUF

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12TH DISTRICT

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15TH DISTRICT

53 SQM – 3 ROOMS, LOGODI STREET

238 SQM – 7 ROOMS, REMETEHEGYI STREET

78 SQM – 2 ROOMS, KIRÁLY STREET

990 SQM – 20 ROOMS, SÖRGYÁR STREET

55 SQM – 3 ROOMS, GALGÓCZY STREET

67 SQM – 2 ROOMS, KERTVÁROS

At the bottom of the Buda Castle, this completely renovated, street facing, high floor apartment has separate rooms and open kitchen and it is situated in a building with elevator.

This very well divided, duplex family house has 32 sqm terrace, 2 balconies, 2 bathrooms, open kitchen, garage and 1000 sqm of lot and it is located in a quiet and green area.

This completely renovated, bright, high floor apartment benefits of air conditioning system and fireplace and it is situated in a period building with elevator, a few steps from the City Park.

This two storey villa house that needs renovation has 8.392 sqm of lot, original oak staircase, nice garden and it was the summer residence of a famous Hungarian brewer family.

This completely renovated, very bright, garden facing apartment has balcony and private gas heating and it is located in a quiet, green area. Garage possibility for 3.000.000 HUF.

This sunny family house in good condition has 754 sqm of lot, nice garden pond, one outbuilding and it is located in a very green garden suburb area.

23.800.000 HUF

74.900.000 HUF

34.900.000 HUF

120.000.000 HUF

26.900.000 HUF

19.900.000 HUF

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2ND DISTRICT

+36.1.430.1403

4TH DISTRICT

+36.70.322.3697

7TH DISTRICT

+36.70.268.5017

11TH DISTRICT

+36.1.789.2846

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+36.70.398.8754

16TH DISTRICT

53 SQM – 2 ROOMS, TÖRÖKVÉSZ STREET

90 SQM – 4 ROOMS, NAP STREET

125 SQM – 4 ROOMS, ISTVÁN STREET

42 SQM – 2 ROOMS, KELENFÖLDI STREET

62 SQM – 2 ROOMS, FÖVENY STREET

113 SQM – 4 ROOMS, RÁKOSSZENTMIHÁLY

This street and garden facing, very sunny apartment has balcony and private gas heating and it is situated in a small condominium with nice common garden, in a quiet and green area.

This family house in good condition has 100 sqm private garden, terrace, private gas heating and it is located in a quiet side street.

This very spacious, street facing apartment that needs renovation has balcony and private gas heating and it is situated in a renovated period building.

In a new building with elevator, this bright, street facing apartment benefits of a fully fitted open kitchen, balcony and parking space.

This completely renovated, well divided, street facing apartment benefits of separate rooms, fully fitted kitchen and private gas heating. Good connection to public transport.

This well divided family house in good condition has 1080 sqm of lot, separate rooms, 53 sqm terrace and garage and it is located in a quiet side street.

21.500.000 HUF

23.000.000 HUF

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23.500.000 HUF

17.900.000 HUF

31.900.000 HUF

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2ND DISTRICT

+36.1.782.7275

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+36.70.322.3697

7TH DISTRICT

+36.1.720.2433

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+36.70.337.2499

16TH DISTRICT

67 SQM – 3 ROOMS + HALL, KELETI KÁROLY STR.

122 SQM – 4 ROOMS, MÁDY LAJOS STREET

97 SQM – 3 ROOMS, KÁROLY CIRCUIT

79 SQM – 2 ROOMS + HALL, BERCSÉNYI STR.

126 SQM – 4 ROOMS, VÁCI STREET

150 SQM – 5 ROOMS, PETŐFIKERT

This completely renovated, very bright, street facing apartment has balcony and it is situated in a nice period building with elevator.

This very spacious, stately apartment with beautiful view over the St. István Square has two bathrooms, private gas heating, balcony and it is located in the heart of the district.

Historical Jewish area. This sunny apartment is situated on a high floor within a nice Art Deco building, adjacent to the Main Synagogue.

This completely renovated, very sunny, street facing apartment has 2 balconies, private gas heating and it is situated in a unique style building with elevator.

This very spacious and bright, street facing apartment has separate rooms and balcony and it is situated in a renovated period building with elevator, close to the Lehel Market Hall.

This two storey family house consists of 2 separate apartments with 1109 sqm of lot, 2 bathrooms, balcony, terrace and garage.

29.000.000 HUF

27.700.000 HUF

38.900.000 HUF

33.500.000 HUF

31.500.000 HUF

43.500.000 HUF

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2ND DISTRICT

+36.1.782.7275

5TH DISTRICT

+36.70.3156.087

8TH DISTRICT

+36.1.784.0707

130 SQM – 4 ROOMS + HALL, KECSKEMÉTI STR.

103 SQM – 3 ROOMS, SZENTKIRÁLYI STREET

107 SQM – 3 ROOMS + HALL, KÁROLI G. SQUARE

This completely renovated, very spacious, exclusive style, high floor apartment with fully fitted open kitchen, terrace and garage is situated in a condominium with nice common garden.

This very well divided, street facing apartment that needs renovation has private gas heating and balcony and it is located next to universities.

Adjacent to the National Museum, this well divided, street facing apartment with separate rooms and parking space in the courtyard is situated in a period building with elevator.

This spacious and bright apartment has balcony and private gas heating and it is located in a building with elevator, close to the Allee shopping mall.

54.900.000 HUF

64.900.000 HUF

23.700.000 HUF

39.900.000 HUF

2ND DISTRICT

+36.70.457.4943

5TH DISTRICT

+36.70.414.7126

9TH DISTRICT

+36.1.784.0707

11TH DISTRICT

138 SQM – 4 ROOMS, HIDÁSZ STREET

138 SQM – 4 ROOMS + HALL, GARIBALDI STR.

72 SQM – 3 ROOMS, KEREKERDŐ PARK

95 SQM – 3 ROOMS, BARÁZDA STREET

This very sunny mansard apartment has nice panorama from the balcony, separate rooms, two bathrooms and garage and it is located close to the Budagyöngye shopping mall.

Adjacent to the Parliament, this completely renovated, high floor apartment benefits of separate rooms and beautiful panorama over the Danube from the big balcony.

In a new built building with elevator, this very bright, high floor, duplex apartment has separate rooms, two bathrooms, open kitchen and terrace. Good connection to public transport.

This top floor apartment has 89 sqm terrace, separate rooms, 2 bathrooms, 2 wardrobe rooms, parking space and it is situated in a new building.

55.900.000 HUF

105.000.000 HUF

32.500.000 HUF

44.900.000 HUF

+36.1.376.6080

WWW.TECNOCASA.HU

+36.70.457.4943

+36.70.414.7126

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11TH DISTRICT

115 SQM – 3 ROOMS, TÖRÖKVÉSZ STREET

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TECNOCASA GROUP WISHES YOU A HAPPY HOLIDAY SEASON AND A PROSPEROUS NEW YEAR!

EACH AGENCY INDEPENDENTLY OWNED AND OPERATED. • THESE OFFERS ARE VALID, TILL THE APARTMENTS ARE SOLD. • THESE INFORMATION DO NOT CONSTITUTE A CONTRACTUAL ELEMENT.

BBJ

3Special Report Property deals get bigger

20

A year of luxury hotel sales

DEALS OF THE YEAR A look back at some of the big竏知oney agreements concluded in Hungary in 2014

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Budapest Business Journal | December 12, 2014 – January 15, 2015

Deals of the year We take a look back at some of the biggest business deals concluded in Hungary in 2014.

50%, a threshold earlier set as a goal by the government.

GABRIELLA LOVAS

Every year, the Budapest Business Journal looks back at some of the most significant deals of the past 12 months.

Since only a fraction of these are made public, and of the few that are, only a minority disclose a transaction value, the task is a real challenge.

Due to the lack of transparency and reliable data on the transactions market, the results are based not only on publicly available facts, but also on expert opinions gained during our numerous consultations with some of the industry’s most well−known and best−respected specialists (see list at bottom of this article), as well as on subjective judgments.

In compiling the list, we have separated market transactions involving private individuals and/or enterprises from deals in which the state was the buyer. Increasing government activity continued to dominate Hungary’s transaction landscape in 2014 in several sectors. In an attempt to reverse earlier privatizations to boost its role in industries considered strategically important, the government has nationalized further companies.

STATE DEALS FINANCIAL SECTOR The acquisition of Budapest Bank will raise the percentage of the banking sector in Hungarian hands to well over

MKB The biggest deal in the financial sector was Bayerische Landesbank’s sale of its Hungarian subsidiary MKB Bank, which closed in September. In return for the purchase price of €55 million, BayernLB waived €270 mln in claims due from MKB prior to the transfer.

As a result of the deal, BayernLB will be fulfilling all of the EU’s main requirements regarding disposals of investments well before the deadline, which was the end of 2015. The MKB sale was apparently a huge relief for the German side.

Budapest Bank In December, the Hungarian government signed a preliminary deal to buy Hungary’s eighth largest bank, Budapest Bank, from its 100%− owner General Electric by June 30. The buyer will be Corvinus Nemzetközi Befektetési and the Hungarian Development Bank (MFB Zrt.) will ensure funding for the acquisition.

TAKARÉKBANK In August, the state completed the sale of its majority shares in Takarékbank, an umbrella bank for Hungary’s savings cooperatives, to Magyar Takarék with national postal company Magyar Posta’s transfer of its TakarékBank shares. Magyar Takarék is a company registered in 2014 with shareholders including FHB Bank, 14 savings cooperatives, and a small state−owned firm EHPSZ, which is run

Hungarian banks now in state hands.

A train made by Bombardier Transportation MÁV, now a state firm.

by Tamás Vojnics, the government− appointed commissioner responsible for the bank’s takeover.

The Takarékbank saga started in November 2012, when the state−owned MFB bought a 38.46% stake in the bank from Deutsche Zentral Genossenschaftsbank AG (DZ Bank). Magyar Posta acquired a majority stake in the bank through a HUF 655 mln capital increase in August 2013. Combined with MFB’s 38.46% stake, Posta’s 20% gave the state a 58.46% stake in Takarékbank. This was sold to Magyar Takarék for more than HUF 9 billion in March 2014. FHB acquired a 25% direct stake in Magyar Takarék for HUF 252 mln in February 2014.

FHB Kereskedelmi Bank Magyar Posta bought a 49% stake in FHB’s commercial banking unit FHB Kereskedelmi Bank for HUF 28.5 bln in September 2014.

The bank remained a fully consolidated subsidiary of FHB Mortgage Bank after the transaction. Total assets of FHB Kereskedelmi Bank were HUF 540.8 bln as of September 30, 2014. After Magyar Posta and FHB Mortgage Bank signed a strategic agreement in 2013, they acquired utility billing management company Díjbeszedő Holding (DBH). FHB also bought a 50% indirect stake in Magyar

Posta Investment Zrt. to sell investment products and services in post offices.

GIRO ZRT. Hungary’s central bank MNB acquired a 86.21% stake in interbank clearing company Giro Zrt., and it aims to increase this to 100%. According to analysts, this could cost altogether HUF 9.5 bln. Giro was owned by 22 banks including MNB.

ENERGY Főgáz The Hungarian state bought the Budapest local council’s stake in gas distributor Főgáz for HUF 41.8 bln in October 2014. Főgáz is expected to become the base of a state−run, non−profit public utility holding company to be set up by March 2015. The state−owned Hungarian Electricity Works (MVM) acquired a stake of just less than 50% in the company from German utilities company RWE for HUF 41 bln in 2013.

TELECOMMUNICATION Antenna Hungária The National Development Ministry (NFM) together with National

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Budapest Business Journal | December 12, 2014 – January 15, 2015

train carriages in Hungary, had a net loss of HUF 260 mln on HUF 6.7 bln revenues last year. Net assets stood at HUF 3.2 bln.

PRIVATE DEALS Although last year’s unfavorable trends continued in 2014, the transaction market significantly picked up in H2.

The number of transactions increased and, in addition to private equity deals, the market saw more M&A deals with strategic investors. In addition, several big international firms have announced plans to scale back their presence in the CEE region, such as Lukoil, Sanoma and Citibank. As for fields of investments, the media sector and IT were very popular

SAYING GOODBYE TO THE REGION Citi In October, Citigroup announced plans to exit consumer banking in 11 markets including Hungary, as CEO Michael Corbat seeks to simplify the firm and boost returns. The bank said this is a strategic move to focus on the 24 markets that bring it the most revenue and added that it would continue business services here. The other country in the region that Citi is leaving is the Czech Republic.

Sanoma

Infocommunications Service Zrt. (NISZ) closed the transfer of Antenna Hungária (AH) in June 2014. The ministry announced in March that NISZ would buy AH from France’s TDF for HUF 56 bln. TDF’s decision is in line with its strategy of pulling out from Central and Eastern Europe.

AH was thus renationalized nine years after it was sold to Swisscom Broadcast AG, which delisted the company’s shares from the BSE. TDF purchased 100% of AH for HUF 80.7 bln in 2007.

AH’s main activities include national terrestrial television, and radio broadcast network services, Pay TV program distribution, hosting and maintenance services to telecommunication operators, and corporate telecommunications solutions. The ministry said that

the acquisition is “in line with the government’s strategy to place public utilities under public ownership as well as with the National Infocommunication Strategy.”

IT Welt 2000 In November 2014, the Hungarian state bought privately owned software company Welt 2000 Kft., which developed and owns the software that manages the EU tendering processes and distribution of funds. Welt 2000 was awarded a beneficial contract that made the organizations managing EU funding applications and money distribution through this platform highly dependent on the company. After several failed attempts by the state to buy the source code or the entire company, a

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deal was finally reached and Welt 2000 is now 100% state−owned.

TRANSPORTATION Bombardier Transportation MÁV Hungary The Hungarian Asset Management Company (MNV Zrt.) bought a 64.9% stake in Bombardier Transportation MÁV Hungary from Germany’s Bombardier Transportation GmbH. The purchase price was reportedly €6.9 mln. The government declared the transaction to be of “national strategic significance”, so it was not subject to the approval of the Competition Office.

The company is a joint venture of the German firm and the Hungarian railway company MÁV, which has a 25% stake. Bombardier, which makes

Central Group Media Holding Kft. acquired print and online publisher Sanoma Budapest Zrt. for HUF 17 bln. Sanoma said that the divestment is in line with its strategy to focus its operations and divest selected ownerships. In 2013, the net sales of Sanoma’s Hungarian media operations totaled some €60 mln. Central has already started selling Sanoma’s assets, including job site profession.hu for HUF 8 bln as well as Sanoma Digital Media Zrt. with two TV channels Story 4 and Story 5.

Lukoil service stations Russian oil company Lukoil sold its Hungarian, Slovakian and Czech service stations for a combined total of €200 mln.

Hungary’s Norm Benzinkút acquired 100% of the shares of Lukoil Magyarország and of Lukoil Slovakia in October. Lukoil sold 75 fuel stations in Hungary and 19 stations in Slovakia. Lukoil also agreed to sell its 44 Czech fuel stations to Slovnaft, the Slovak unit of Hungarian oil and gas company MOL. Norm was set up in March 2014 and it is 50%−50% owned by the Hungarian companies Benczúr and Imfa, both involved in the wholesale oil trade.

With the acquisition, MOL has 318 service stations in the Czech Republic, or more than 10% of the retail market. The Hungarian company

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also intended to buy the Lukoil stations in Hungary and Slovakia. In 2013, MOL bought the Czech, Slovak and Romanian units of Italy’s ENI, acquiring 208 filling stations.

RE-ORGANIZING ENTIRE SECTORS – MEDIA Ringier Axel Springer Media AG Following approval from the Hungarian antitrust and media authorities and the divestment of parts of their Hungarian portfolios, the transfer of the assets of Ringier AG and Axel Springer SE to Ringier Axel Springer Media AG is now being effected. The portfolio consists of the leading boulevard brand Blikk, successful women’s magazines and licensed titles such as Auto Bild, Glamour and Geo. At the end of August 2014, Ringier Axel Springer Media AG entered into an agreement to buy leading Hungarian job portal profession.hu.

After the completion of the transaction, which is subject to the approval of the Hungarian antitrust authority, the company’s digital revenue share in Hungary will be around 20%.

Axel Springer and Ringier withdrew a request for approval from the GVH to consolidate their holdings in Hungary in 2011 because the merger was opposed by the Media Council, whose decision is binding for the antitrust authority. Since then, the companies have taken steps to part with some assets in their Hungarian portfolios to comply with competition requirements.

It was Vienna Capital Partners that acquired the major part of the Hungarian operations of the companies.

The new publishing group Mediaworks has more than 700 employees and 63 media brands. The company expects to generate a turnover of HUF 15−16 bln.

The main elements of its portfolio are sports daily Nemzeti Sport, business daily Világgazdaság and Népszabadság, the market leading broadsheet paper, as well as eight regional dailies and several magazines. The media house also owns a cold−set printing plant and holds a majority position in Medialog Kft., a distribution company. Earlier this year, Axel Springer sold a number of regional newspapers, TV program

Prezi gets big capital investment boost. Below, Germany’s Funke Group sold its majority stake in HVG.

guides, and women’s magazines to Funke Mediengruppe.

Ringier Axel Springer Media AG was founded in 2010 when the two companies merged their activities in Central and Eastern Europe. The company operates in Poland, Serbia and Slovakia and employs about 2,300 employees.

HVG Germany’s Funke Group sold its majority stake in the Hungarian economic weekly HVG to minority owner Szerkesztőségi Vagyonkezelő, a company held by the magazine’s employees. The group decided to review its operations in the Central and Eastern European region after it spent nearly €1 bln on the purchase of the German regional papers from Axel Springer. Funke became HVG’s majority owner in 2003.

THE HOTTEST SECTORS: IT AND BIOTECH IND Group London−based financial software provider Misys acquired Hungary’s IND Group, a specialist in online and mobile banking and personal finance management systems in February 2014. The purchase price was not disclosed, but analysts put it at around HUF 18−23 bln. The company said that the acquisition would add consumer− oriented systems to Misys’ core banking capabilities. IND Group achieved more than HUF 5 bln revenues last year and has close to 40 banks among its clients in 15 countries in Europe and the Middle East.

Prezi Two American growth equity firms, Spectrum Equity and Accel Partners, have invested a combined $57 mln in presentation software company Prezi.

In 2011, Accel Partners and Sunstone Capital invested a joint $14.5 mln in

the company. The number of registered Prezi users has almost doubled, exceeding 50 million in the past year.

MEDinnovest Budapest−based venture capital fund manager Alliance Jura−Hongrie invested HUF 420 mln in Hungarian health industry group MEDinnovest.

The venture capital fund has acquired a minority stake in the group, which is majority owned by three Hungarian doctors. The investment is for four−six years and the expected return is 25%.

MEDinnovest was set up this year, but several of its units have been operating in pediatric care and research for several years.

ENERGY

E.ON district heating plants The energy sector saw a couple of private deals last year. Dalkia Energia announced in September 2014 that it had reached an agreement with E.ON Hungaria to buy two district heating plants in Debrecen and Nyíregyháza.

The transaction will raise the number of Dalkia’s retail district heating clients from 67,000 to almost 110,000. The number of institutional district−heating clients it serves will rise from several thousand to tens of thousands. E.ON said that in the future E.ON Hungária group intends to focus on developing and operating national energy infrastructure belonging to the company.

SINERGY Hungarian energy services provider Alteo signed an agreement to buy 100% of peer Sinergy from the local units of Germany’s RWE−EnBW for an undisclosed price. The company would finance the acquisition with the proceeds of bonds issued this year. The transaction is subject to the approval of Hungary’s competition and energy authorities as well as on fulfilling

conditions specified in the sales contract. Alteo had revenues of HUF 6.2 bln last year, while Sinergy booked a slight loss on sales of HUF 4.2 bln.

FINANCIAL SECTOR

Credigen Bank The central bank’s Financial Stability Council has approved the acquisition of Credigen Bank by Questor Securities and Investment Zrt. As Credigen has no loans or deposits, the new owner has acquired a banking license, basically. Credigen’s owner Sofinco, a Credit Agricole Consumer Finance S.A. unit, decided to leave Hungary in 2010. Budapest Bank bought most of the bank’s clients in 2012.

OTP considered buying the bank in 2013.

MANUFACTURING

Agrofert The Czech Agrofert Holding owned by Andrej Babis, the Czech Minister of Finance and President of the Yes (ANO) movement bought Hungarian sunflower oil manufacturer NT Kft. in April.

NT has 196 employees and its sales revenues reached €140 mln in 2013.

Agrofert also owns the Ceres bakery, the IKR Agricultural and the Devecser− based Agro Chemical agricultural companies in Hungary.

GREENFIELD INVESTMENT OF THE YEAR Denmark−based global toy manufacturer LEGO opened its modern factory built through a €354 mln greenfield investment in Nyíregyháza, in eastern Hungary in March 2014. The manufacturing area, built in less than 12 months, sprawls across 122,000 square meters. The project created 250 new jobs in a less−developed region of Hungary. Until 2008, the LEGO plant had been operated by Flextronics, which produced toys for the Danish company under a contract. In 2008, Lego acquired the plant from Flextronics.

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Hungary’s second successful JEREMIE exit, the only one this year, took place in 2014, when Massachusetts based Waters Corporation acquired MediMass’s Rapid Evaporative Ionization Mass Spectrometry (REIMS) technology. The REIMS technology represents all of the assets of MediMass and includes patent applications, software, databases and REIMS expertise. REIMS is the enabling technology for the “Intelligent Knife” or “iKnife”, a device in the conceptual stages of development that could in the future potentially be used for real−time diagnostics in surgery.

“The acquisition is proof of the ability of Hungarian science to develop world class innovations that may lead to improved patient care,” said Ákos Tallós of MediMass Ltd. MediMass was launched in 2008 and three years later Euroventures IV, a JEREMIE co−investment fund, along with other investors, committed several rounds of equity financing in the range of €1−1.5 mln in order to take the project to the prototype phase when a strategic partner can be found.

TRANSACTIONS ON BSE Norbi Update Lowcarb Nyrt.

The IPO of Norbi Update Lowcarb, a Hungarian company that runs a lifestyle and nutrition franchise system, successfully closed in October 2014.

Investors subscribed 831,764 shares at an initial price of HUF 990 apiece. The shares on offer accounted for 34−35% of registered capital. The owners aim to use 84% of the proceeds to carry out a private capital increase. The shares will be listed in the Standard category of the BSE. Schobert said earlier that the company wants to expand its franchise network in seven more countries. At present, the company has 115 shops in five countries.

Alteo Hungarian energy supplier and trader Alteo sold five−year zero−coupon bonds with a nominal value of HUF 925 mln in a private placement in July 2014. The corporate bonds have a yield of 7.5%.

Alteo said it would use the proceeds from the sale to fund acquisitions.

FAILED DEALS OF THE YEAR Increased volumes of deal activity means more opportunities to fail.

However, most of these deals remain unknown for the public, as it could hurt the reputation of the acquirer and the seller as well as that of their advisors.

Apparently rumor killed the sale of Raiffeisen Bank in January 2014.

Széchenyi Bank shareholder István Töröcskei said, “the whole thing was hastily leaked to the public and that is in part why things turned out the way they did”.

Most experts asked by the BBJ agree that the biggest failed deals have been in the banking sector. Several banks in Hungary have been up for sale for years, but who would buy one in such a business environment? The MNB recently predicted that only five big banks will remain in Hungary once the market consolidation is completed.

As the details of the other failed deals have not been leaked, the sale of Raiffeisen is the winner of this category.

Austria’s Raiffeisen Bank International decided not to sell its Hungarian unit following media reports and speculation that a deal was imminent; Széchenyi Bank was to acquire RBI’s entire Hungary−based operation for the token sum of €1. Raiffeisen reportedly decided against doing the deal on the grounds that selling at a reduced price would trigger losses the bank was not prepared to accept. Széchenyi Bank itself is now under liquidation.

THE BIGGEST DISAPPOINTMENT The promising fundamental story of Business Telecom seems likely to end in a failure due to liquidity and financing troubles. This is another blow to Hungary’s fragile corporate bond market after the E−Star drama.

In November, BTel’s shares were removed from the bourse’s main BUX and BUMIX index because of disclosure shortfalls. A few days later the MNB fined BTel HUF 3.5 mln for failing to comply with disclosure regulations. Shortly after, the BSE fined the company HUF 3 mln for the same offence and for not paying fees to the bourse. Magyar Telekom is also suing the company for HUF 944 mln in service fees and related taxes, and an investor has initiated a liquidation procedure against BTel.

Norbi Update closes successfully.

The BBJ would like to thank the following for their contributions to this article: Buda−Cash analyst Bálint Török; Deloitte managing partner Béla Seres; Equilor Corporate Finance manager Ágnes Svoób; Falkenburg Corporate Finance partner Gábor Kurutz; Jalsovszky Law Firm senior associate Ágnes Bejó; KCG partner Eszter Kamocsay−Berta and KPMG director Tamás Simonyi; PwC partner Miklós Fekete; and Videoton CEO Ottó Sinkó.

EXPERT OPINION

How JEREMIE funds can help Hungarian startups With about a year left for Hungarian JEREMIE funds to invest the capital they have raised, we take a look at the first years of the program from the perspective of the legal advisor of two early success stories.

Gábor Spitz Attorney at Law, Head of M&A SCHÖNHERR HETÉNYI ATTORNEYS AT LAW Introduced to Hungary in 2010, JEREMIE (Joint European Resources for Micro to Medium Enterprises), an initiative of the European Commission, aims to improve access to financing for SMEs via Structural Funds. With the availability of bank financing decreasing in the wake of the global financial crisis and Hungarian government measures targeting financial institutions, JEREMIE’s venture capital program raised widespread interest in the Hungarian business community. Through four rounds of financing tenders, 28 JEREMIE I-IV funds have raised approximately HUF 130 bln. The funds have invested approximately HUF 60 bln through August 2014.

As the rate of successful investment decisions is showing signs of slowing down after initial enthusiasm, and portfolio companies report less than stellar financial results, industry players are beginning to express concerns about the program. As Péter Oszkó, ex-chairman of PortfoLion (the management company of OTP Bank’s venture capital funds) noted in an interview with Forbes, the market appears flooded with capital and funds, but lacks the desired number and quality of targets.

We also tend to share Mr. Oszkó’s view that JEREMIE’s focus on growth stage investments is not fully aligned with the needs of the Hungarian market. While only four of the 28 funds are earmarked for seed investments, the majority of the innovative Hungarian projects and ideas appear not to be ready for growth stage investors yet. An increased focus on angel and seed investments would not only help more projects get off the ground, but an increased level of professional support in management and marketing would also better prepare the projects for the later rounds of investments and exits.

Yet not all is gloomy in the Hungarian startup world. In the past years we have been privileged to advise clients (as purchasers) on two of the first three Hungarian JEREMIE exits.

Both projects are remarkably similar in their key features. Both targets represent the biotech industry, Cryo Management Kft. (now Vitrolife Kft.) and Cryo-Innovation Kft. are among the world’s leading producers of time-lapse products for in vitro fertilisation.

MediMass Kft. (MediMass) conducts research and development work on the Rapid Evaporative Ionization Mass Spectrometry (REIMS) technology for the “iKnife”, a real-time diagnostics device in surgical applications.

After initial rounds involving mainly private persons as angel and seed investors, both companies raised equity financing from JEREMIE-backed funds (Cryo in 2010 from OTP Venture Capital Fund I, MediMass from EuroVentures IV in 2011). Both projects were eventually taken over by globally renowned strategic investors. The new investor of the Cryo entities, Vitrolife AB is the listed central entity of a global biotechnology/medical device group headquartered in Gothenburg, Sweden. Vitrolife initiated negotiations to acquire Cryo Management Kft in 2012.

The transaction was successfully closed in October 2012. The purchaser of the MediMass REIMS-related assets, Waters Technologies Corporation (Waters) is a U.S. listed entity active in separations science, laboratory information management, mass spectrometry and thermal analysis. Prior to the acquisition Waters was already involved in a three-year collaboration with MediMass and Imperial College London focused on advancing REIMS technology.

The MediMass acquisition was completed in July 2014.

Our projects have exceeded industry expectations in the sense that the venture capital investors made successful exits only two and three years (respectively) after their investments (post-crisis expectations now point to investment cycles of four to seven years). In other respects, however, these projects align rather well with broader, regional trends in venture capital and private equity investments. According to the Hungarian Venture Capital Association’s latest report on the sector (HVCA Venture Capital and Private Equity Update Hungary Q2 2014), roughly one third of all investments targeted life sciences opportunities (IT and consumer electronics leading the way with about 42% of all capital investments). These exits also conform with the regional trend where more than 60% of successful exit sales are made to strategic investors (compared to 27% in Europe, based on EVCA statistics).

With the strong financial background and global marketing resources of the strategic investors, these exits ensure that highly innovative technologies can be developed for practical applications in health science.

The new investors in turn hope that these new assets will considerably strengthen their technology positions in a competitive global market.

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JEREMIE EXIT OF THE YEAR

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EXPERT OPINION

Investment in the Western Balkans a look at the region Dasa Vukelic Senior Associate GIDE LOYRETTE NOUELD’ORNANO IRODA

Following several years of gloom and sluggish dealflow, we are seeing increased M&A activity and renewed, albeit cautious, optimism among dealmakers worldwide.

We look at whether some of this optimism and deal making has come to the Western Balkan region and what will likely drive investment activity in the coming months.

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lthough the region is a patchwork of different countries, cultures, legal systems and languages, there are common features, which have traditionally attracted investors into the region. Developing economies, relatively undiscovered markets, infrastructure development needs and in some countries, EU accession, are still the attracting features today. Those investors, who remain committed to the region and have granular knowledge of its features, see these markets as untapped investment opportunities.

Some of the difficulties, which the region is facing, such as low economic growth, small deal size and - for short term investors - lack of exit opportunities, have not deterred investment in the region. The region has fragmented markets in many sectors that could benefit from consolidation. SBB/Telemach, a leading pay-TV and broadband operator (sold to KKR for an amount believed to be in excess of €1 billion in 2014) and the Croatian multinational fast moving consumer goods group Atlantic Grupa are examples of regional champions created through buy-and-build/consolidation investment strategies.

Sourcing and doing deals in the region also requires a lot of work and time. The deal pipeline consists mostly of small- to medium-sized companies that need to grow. These companies could benefit from private equity investment mostly through placement of skilful, incentivized management and strong corporate governance structures. Investors with local presence and knowledge are most likely to capitalize on such opportunities.

The investor profile interested in the region ranges from global strategic investors looking to add more markets to their portfolio to local businesses consolidating in order to stand up to international competition and the more exotic investors from China and UAE, looking at agribusiness, aviation and construction sectors, among others. The region will likely attract further interest due to several recent and on-going developments.

In Slovenia, the privatisation process (to be completed in two rounds) endorsed by the Slovenian government in mid-2013 has made an otherwise hot-and-cold country, with a rather weak track record of executed privatisations, hotter. The transparent sale processes used

in the privatisations so far, have attracted attention also from large global private equity funds and have, according to some, been the key to price maximization. To date, three companies (Helios, Fotona and Ljubljana airport) have been privatized, with Telekom Slovenije and NKBM privatizations in process.

The second round of privatizations (third, if we count the initial round of privatizations in the 1990s) will, according to rumors, include the energy and transport sectors.

By contrast, the privatisation process in Serbia comprising over 500 smaller size companies, although attracting many letters of interest, has seemingly failed to draw in larger private equity and strategic investors. It remains to be seen what kind of privatization process will be put in place for more marketable companies like Telekom Serbija. The Serbian government has commented through the media that the process will be international and transparent. An impetus for additional M&A activity in Serbia may come from the planned restructuring of the giant public companies, which in the case of Galenika and Dunav osiguranje, will likely lead to their ultimate privatization.

Other than in the telecoms sector, Macedonia (FYR) has not been registering on the M&A tables lately but the government has implemented a number of economic reforms, aimed at attracting foreign investment. These reforms are among the most ambitious in the region. Macedonian government has introduced an attractive tax system (with corporate tax rate at 10%) and is aggressively promoting industrial technological development zones, where businesses and personnel can benefit from a 10-year corporate and personal income tax holiday and a subsidy of up to €0.5 million towards building costs. Macedonia has already attracted a number of multinationals and the trend is likely to continue.

Croatia has also recently undertaken some regulatory reforms in a bid to improve its investment environment. It has enacted legislation to help speed up development of investment projects valued over €20 million.

It has also overhauled its regulatory framework for exploration of the currently underexplored natural hydrocarbon reserves, opening up oil and gas exploration opportunities. For those looking to invest in Croatian companies, an interesting proposition to tap into local capacity and market knowledge may be to co-invest with the Croatian government funded economic cooperation funds. Croatia is one of the few countries in the region to have mobilized national capital into regional funds.

A year of improvement in property markets Hungary has recorded favorable economic indicators for 2014, resulting in increased investment activity and a few big real estate deals.

DAVID LAWRENCE

OFFICE Against a background of an economic downturn, high vacancy and weak demand, it is equity−rich developers and those able to source finance and meet prelease requirements from lenders that have been active in the Budapest office market in the post−economic crisis period. Delivery for the year has remained low: JLL expect the volume of office completions for 2014 to be only 68,000 sqm.

On a positive note, however, vacancy has fallen to 17%, and it is only well specified, quality projects in a good location that are going ahead. “Banks are very selective regarding the financing of speculative developments and therefore the barriers to market entry are higher,” commented Zoltán Radnóty, CEO of HB Reavis Hungary.

The prolific Slovak−based CEE developer delivered its first Budapest office project in the summer, the 21,000 sqm Váci Corner in Váci út.

HB Reavis expects the complex to be fully let by the second half of 2015 and the building was already 33% pre−let on completion. The complex was designed by Hungarian architect László Szász and has been awarded a BREEAM Excellent accreditation. A €21 million debt financing agreement was concluded with Raiffeisen Bank.

According to Colliers, 50% of Class “A” office buildings in Hungary will be green accredited by 2015.

Speculative built modern office stock in Budapest stood at 2.58 million sqm as of the end of the third quarter of the year according to JLL. For next year the delivery pipeline is limited to the 18,000 sqm second phase (Building C) of Váci Greens by the Belgium Atenor Group and the 6,000 sqm Erzsebet office center, 100% pre−let to Groupama.

“Having fully leased the first phase we are continuing with the development of the project,” said Zoltán Borbély, Project Director at Atenor Hungary.

The completed project will consist of five buildings with around 100,000 sqm of space.

The vacancy level of 17% is the lowest it has been for the past five years, however, many analysts argue that this is not a true reflection of real vacancy and recorded stock should be rationalized as there are a number of outdated first generation buildings from the 1990s that should be taken out of the equation. Furthermore, there is a wide variation in vacancy between the different sub−districts.

The latest significant delivery was the 11,000 sqm north wing of Futureal’s 23,500 sqm Vision Towers office center in the ever popular Váci út. A built−to− suit pre−lease deal for one wing of the project was agreed with KPMG, which has its Hungary headquarters there.

Another Budapest office delivery at the beginning of the year was the 12,000 sqm Eiffel Palace office unit by the Hungarian developer Horizon Development, located in the capital’s

Overall, the Western Balkan countries are showing determination to improve their investment environment and attract more capital, a trend which is likely to continue. Now may be a good time to take advantage of opportunities as it looks like the markets could become hotter and the competition stiffer.

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Zara Home opens first store on Fashion Street.

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stock in Budapest and its surroundings stood at 1.84 million sqm according to the Budapest Research Forum (BRF) which comprises CBRE, Colliers International, Cushman & Wakefield, DTZ, Eston International, JLL, and Robertson Hungary.

The most successful industrial developer has continued to be Prologis.

One of the largest deals of the year was the letting to the logistics service provider Syncreon of 22,000 sqm of space in Prologis Park Budapest−Gyál.

Syncreon is a new entrant to Hungary.

In another deal the logistics company Schenker has established its first 26,000 sqm Hungarian distribution center at Prologis Park Budapest−Sziget. A further delivery has been an 11,000 sqm warehouse for GE at East Gate Business Park by the Hungarian developer, Wing.

“The industrial sector nowadays is in a state of change; not only are deferred occupier requirements coming alive again, but also there is an increasing pool of new enquiries. Although the vacancy rate is still high, only a handful of schemes can offer large contiguous modern warehouse space. This trend will prompt tenants to start relocation projects earlier and consider pre− lease or built−to−suit developments,” concluded DTZ.

Prologis Park Budapest, one of the largest deals of the year.

central 5th district. The project is basically a new building that has been constructed onto the original 1890s facades. Horizon achieved a 9,000 sqm pre−let for the LEED and BREAAM accredited building.

On the demand side, a notable transaction has been an 8,500 sqm prelease for Wing’s V17 office project in Váci út. The company has undertaken development of the 12,000 sqm office project, due to deliver in mid−2016.

Another international developer, Skanska Property, started construction of the first 6,600 sqm phase of Nordic Light, its seventh Budapest office project. The dual−phased, 26,200 sqm office development in the Váci út business district has been pre−certified with LEED green certification. Phase one is due to complete in the first quarter of 2016.

With a possible record annual take−up for 2014 (tenants committed to 100,000 sqm of space in the third quarter), vacancy could fall to 15% in 2015 ADVERTISEMENT

according to Gergely Padós, managing director of Cushman & Wakefield Hungary. This would put upward pressure on rents and lower incentives offered. JLL research indicates that annual gross take−up could be 450,000 sqm for 2014.

INDUSTRIAL The pre−2008 crisis warehouse and logistics development boom was boosted by speculative projects. The post−crisis years, however, have been driven by owner−occupied and built−to− suit development according to CBRE. Hungary has tended to loose out to Poland and the Czech Republic in recent years as the latter two countries take advantage of their natural geographic position in the “industrial heartland” of Europe in terms of supply and demand.

Vacancy in the logistics and industrial sector remains at a relatively high 18% compared to the CEE average of around 11%. However vacancy has fallen to its lowest level in six years and

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is expected to continue to fall in 2015.

Year−to−date gross occupier activity to the end of the third quarter increased by 106% to 258,000 sqm according to JLL. In response to market conditions, developers are pursuing cautious built−to−suit development strategies.

Although Prologis has speculative developments in Poland, the Czech Republic and Slovakia, development in Hungary is still limited to built−to− suit. “New speculative construction has been absent from the Budapest market for two years. This has helped somewhat in the rebalancing of the market and the decreasing vacancy rate, but has resulted in a scarcity of large floor plates, which, in turn, limits the immediate materialization of larger requirements. Occupiers are therefore turning to the built−to−suit environment in search of solutions, especially for long−term requirements,” commented Cushman & Wakefield.

At the end of the third quarter of the year, the size of modern industrial

RETAIL Although there have been positive signs with regard to a rise in retail spending and international retailers are looking to enter or expand in Hungary, there have been no significant new shopping developments that would refresh the retail market. On the demand side the lack of 500−1,000 sqm space in the best performing shopping centers has put upward pressure on rents. When, exactly, retail development will resume remains to be seen, with no official announcement of construction of potential pipeline development projects.

If the construction of centers starts in 2015, these will not deliver until 2017−2018. “The retail market is still challenging because of this lack of new development. Retailers want to locate to the best shopping centers and it is not easy to find the right 500−1,000 sqm units,” said Erika Pál, Head of Retail at JLL Hungary.

January−August retail growth showed a 5.2% year−

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Proposed development of Etele City Center by Futureal.

on−year growth. However Hungary still lags behind Poland and Czech in terms of monthly spending power.

According to JLL, monthly spending power per annum for Hungary is €412, compared to €609 and €489 for the Czech Republic and Poland, respectively.

The immediate pipeline includes the 44,000 sqm Etele City Center

by Futureal. The scheme is located next to the planned Budapest One business park adjacent to the terminus of the recently completed Metro 4 line, located on the western edge of Budapest. The other major Budapest pipeline project is the 37,000 sqm Mundo shopping center in the Zugló district of Pest by the Polish developer Echo Investment. The two projects have already received exemptions from the restrictions on retail center development introduced by the government.

Shopping mall owners have been looking to improve their centers through asset management, including refurbishments and upgrading the tenant mix. Developers in partnership with local authorities have also been improving and developing the infrastructure of major high streets in the center of Budapest.

Sweden’s H&M and the Spanish Inditex Group have expanded their units in Arena Plaza, owned by Lanebridge Investment Management.

H&M has extended its clothing and home furnishings outlet to two floors.

More than 30 of the 200 brands in the center are moving or reconfigurating their existing stock.

Refurbishments have also being undertaken in the central high streets, for example the renovation of Váci utca. This has connected the southern and northern parts of the street and an effort has made to improve the retail attractiveness of the southern part. In the central retail area, Zara Home has opened its first 900 sqm Hungarian store on Fashion Street; Immobilia has developed the street− front prime retail area.

Given the lack of new development, shopping center stock in Budapest remains stagnant at a little over 770,500 sqm in 25 assets according to JLL. Shopping center density stands at 443 sqm per 1,000 inhabitants. The current mall stock outside of the capital stands at 540,000 sqm in 33 centers.

RESIDENTIAL Although Budapest has missed out on the housing boom currently ongoing in Warsaw and Prague, recovery is now ongoing in the Hungarian residential market. According to OTP Ingatlan, an increasing number of people are looking to buy residential properties in Hungary, and the sales process is significantly shorter then two years ago.

Growing numbers are also showing an interest in renovations, and some of the best prices available are for 40−60 sqm flats with up to two rooms in the center of Budapest. Year−on−year residential turnover in Budapest to October was 33%higher according to the residential consultant, Tecnocasa.

Budapest currently has the second lowest average per sqm residential prices of EU capitals – only Bulgaria has lower prices. A continued recovery from the low of 2009 in the aftermath of the economic downturn and Eurozone crisis relies on continuing low interest rates and rising GDP. “We are seeing a 15−20% increase in turnover in the housing market,” commented Attila Déry, Senior Analyst at the residential consultants Otthon Centrum.

Otthon Centrum research indicates that investors are taking their savings from bank accounts and putting their funds into the residential market because of the very low interest rates, compared to the higher yields of around 7−8% that are attainable in letting residential properties.

With regard to the nationality of buyers, foreigners are tending to make purchases in Budapest, especially in the central 5th, 6th and 7th districts of Pest or in the 2nd and 12th districts of Buda, and along the northern borders of Hungary. There are a lot of Italian and

German buyers and, outside of the EU, American, Chinese and Russian buyers.

“If I had to make an educated guess, then I would say that around 10% of the buyers in the 5th district are foreigners.

In addition people from Austria and Slovakia are buying properties in nearby towns on the borders due to lower prices and perhaps because they have family connections there,” said Déry.

INVESTMENT A wide range of investors are now active or considering acquisitions in Hungary. This includes foreign funds that have not been active since the 2008 economic downturn, and a growing number of Hungarian investment funds.

Market analysts see investor appetite for Hungary increasing significantly in 2014 and into 2015.

Real estate investment volume for 2014 is likely to reach €650−700 mln, the highest level since 2007 according to CBRE. “CBRE is still expecting further increases in investments in Hungary,” said Gábor Borbély, Head of Research and Consulting at CBRE Hungary. “So far the market has been dominated by equity driven purchases, with the expansion of financing possibilities in the future, even greater transactions become conceivable, so that the volume may increase. In the real estate investment market there are no signs of anxiety about the future economic slowdown of the Eurozone.”

In a landmark deal, Skanska Property Hungary sold the 17,800 sqm Green House office center to the Hungarian open−ended property fund, Torony Real Estate Investment Fund managed by Diófa Fund Management, a member of the FHB Group. Erste Bank was the financial partner in the acquisition. The deal is generally regarded as a significant step in the recovery of the Hungarian property investment market in that an income− producing class “A” office center by a major international developer is the subject of an arm’s length investment transaction.

Another Hungarian fund, the Erste Open−end Real Estate Investment Fund has acquired the 11,000 sqm north wing of Futureal’s recently completed

Vision Towers office center. “Movement and action can be felt on the Hungarian investment market, so we are looking forward to opportunities in the near future and we are continuously searching for new properties,” commented Eszter Korpás, real estate fund manager at Erste Asset Management. “The purpose of this fund is to focus on stable and long−term investments.”

The office market continued to attract investment as in late summer the reconstructed classic Eiffel Palace office building mentioned above was purchased by the Hungarian National Bank (MNB) for a reported €45 mln.

Interest is also extending to the retail sector as ING Real Estate of the Netherlands has completed the sale of its remaining 50% stake in the 47,000 sqm Allee shopping center in Budapest to a Nationale−Nederlanden fund for a reported €95 mln. The German investor, Allianz Real Estate has already bought a 50% share in the leading Budapest retail center for €100 mln.

In the logistics sector, the Tulipan logistics park has been acquired by Blackstone for Logicor, its European logistics platform. This is seen as a significant development in that Hungary is now included in regional logistics portfolio acquisitions.

In the hotel sector, the Dubai−based Al Habtoor Group has purchased the Intercontinental Hotel in Budapest.

The group, which is active in hotel and hospitality development, bought the Le Meridien Hotel in Budapest in 2012.

Although international and local investors are now active in Hungary, the more conservative institutional German and Austrian investors have still not returned as uncertainty from both an economic and political perspective continues to deter these very cautious investors. Further, these investors require an active market that provides liquidity and an exit strategy.

JLL put prime yields at 7.25% for office, 7.25−7.5% for retail and 9.25− 9.5% for industrial. This provides a clear yield premium on Poland and the Czech Republic.

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Hotel deals of 2014: Luxury purchases Arab investors behind three of the biggest deals of the year appear ready to forgo quick money in exchange for a chance at big profits in the medium− to long−term.

ANDRÁS ZSÁMBOKI

While the luxury−hotel building boom was bigger a few years ago – when it seemed that no one could slap up four− and five−stars fast enough – there were three major sales of property for use as accommodation in 2014.

The deals share a lot in common: All three are fancy landmarked properties that do not promise huge return on investments in the short−term. And all were purchased by Arab investors, who apparently have enough up−front financing that they do not have to worry about short−term gains.

Perhaps the biggest deal this year had an undisclosed price: In June, billionaire Khalaf Ahmad Al Habtoor, one of the richest men in the world, and the owner of the luxury Le Méridien Hotel Budapest since 2012, bought the river− side five−star, Hotel Intercontinental.

Also this year, Zuhair Awad and Sameer Hamdan – owners of the high−end Buddha Bar Hotel and a wide range of other accommodation properties – were involved in the purchase of the historic, centrally located Párizsi udvar, for an estimated HUF 2.1 billion, with plans to turn the landmark building and courtyard into a hotel. In a third major deal this year, Sheikh Jassim Bin Hamad Bin Jassim Bin Jabr Al Thani, a member of the Qatari ruling family, paid an estimated HUF 6 bln for the Ballet Institute, a landmarked building that has been unused for years now, with plans to turn it into a hotel.

Both the Párizsi udvar and the Ballet Institute will require renovation, which is an expensive prospect because their landmark status means any restoration must be historically faithful. According to Ákos Balla, director of valuation and advisory services at Colliers International Hungary, these purchases will not see quick returns for the new owners, though they could be smart medium− term investments. Balla noted that the major Austrian and German institutional investors, who were very important in driving real estate investment before the crisis but now remain hesitant, would not make such a deal.

“Market−based institutional investors do not even consider expressing interest in Budapest opportunities,” Balla told the Budapest Business Journal. Those who finance investments by leverage must reckon with an interest rate of at least 5−6 %, as well as the operational costs of the fund manager, which can amount to 1−2%. “Under a 7−8% yield, institutional investors do not even bother to consider purchasing,” Balla said.

Párizsi udvar. At right: Zuhair Awad, left, and Sameer Hamdan.

In the experience of real estate experts, the bigger Arabic investors coming to Budapest are motivated by different considerations. “They employ family asset managers, so they do not have to report on return rates to any boards,” Balla of Colliers explained. Unlike institutional investors, these cash−rich buyers can afford to plan for ten years, calculating on long−term profits.

“Trophies like the Párizsi udvar or Gresham Palace (purchased by an Oman state fund in 2011) are worth ten times as much in Western Europe as in Budapest,” according to Balla. “In the mid−run, therefore, there is a serious chance that, if the Budapest real estate market once catches up with Western European prices, these pieces of real estate will be able to yield 300−400% profits.”

MELLOW MOOD DOES IT CHEAPER But more than just property investments, these hotels are businesses, and they are capable of producing a profit for their owners. In 1996, Sameer Hamdan and Zuhair Awad founded Mellow Mood Group and began growing in the hospitality business here. They developed a model of giving competitive service at competitive prices. Early properties were low−cost, like the very well−run Mellow Mood Hostel in District V, which drew rave reviews from Time Out Budapest: “Top banana in terms of both convenience and comfort.”

On the other end of the luxury scale, Mellow Mood Group also opened the Buddha Bar Hotel in 2011 in Budapest’s landmark Klotild Palace, a five−star with a strong sense of style that won it several design awards.

Mellow Mood’s team seems to understand style, and many of their properties are boutique hotels – small but upscale establishments, where the décor, atmosphere and attitude are very important.

“In one field, Mellow Mood is certainly unbeatable: this is the operation of so−called boutique hotels,” said Attila Hegedűs, president of the Alliance of Touristic Managers.

Along with requiring good management, small, boutique hotels – that are not backed by big brand names – depend on a good evaluation in the

internet−based direct booking systems.

“Mellow Mood has developed a special expertise in online booking systems.

This is essential because today top− category customers choose hotels less by brand names; what they look at is the rating of hotels at Booking.com,” Hegedűs said.

Indeed, Mellow Mood boasts on its website: “Our company is the owner of ADVERTISEMENT

many domain names, providing multiple channels through which potential guests may reach our properties. We also pay attention to the optimization of our homepages on various search engines.”

Its latest business, the Párizsi udvar, will see the two businessmen managing a property for Ayesh−MajdiHelmi Rida, a Dubai resident with extensive connections to Hungary. Judging on the past performance of Mellow Mood, we can expect a stunning renovation, with competitively priced rooms.

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4 Socialite Hungarian wine gets more global in 2014 Hungarian grapes had it rough in the vineyards, but enjoyed a fine year on the world stage.

ROBERT SMYTH

2014 looks set to be remembered as an annus horribilis in terms of the poor vintage delivered by the desperately poor weather conditions that blighted the vineyards with disease and seriously diluted and diminished the crop.

Nevertheless, it was a good year overall for Hungarian wine, with it popping up and getting coverage across the globe.

There is a tangible feeling that, some 25 years after the political changes Hungarian wine is starting to break through onto the wider world stage. This is no coincidence as Hungary is now making the kind of wines worthy of wider attention. Rather than merely copy−paste international styles, Hungarian vintners have become better at expressing themselves vis−à−vis the uniqueness of their terroir. This has come about partly by winemakers getting to learn more about the indigenous grape varieties they’ve inherited from their forefathers, while in tandem learning how to get more out of specific international varietals.

Hungarian winemakers are, for the most part, understanding that the fruit shouldn’t be dominated with new oak and that, while the higher the alcohol and the more extracted the better (for reds), it is not a winning formula in the wider scheme of things.

Some 23 wineries and winemakers among the cream of the Hungarian winemaking fraternity rocked into London on December 3 for the Circle of Wine Writers (CWW) Christmas Party at Westminster Cathedral

Hungarian vintners were present at the Circle of Wine Writers’ London event.

Hall. The Hungarian Ambassador to London Péter Szabadhegy hosted the event.

My Fellow CWW member Vivienne Franks, who has Hungarian ancestry herself and is also a prominent wine educator in the UK, told me that the Hungarian winemakers served an “excellent range of wines, particularly the whites and especially the Furmints.” Legendary wine writer Hugh Johnson compared the buzz created by dry Furmint on the night as comparable to that created when Sauvignon Blanc from New Zealand was served to many of the same people in the mid−1980s, which helped launched it on its meteoric rise – one indeed that still refuses to dim. He even said that there are three great wines in Europe: French, German and Hungarian.

As Johnson has an interest in the Royal Tokaji wine company, it is no surprise he would say that, but of all the wine regions in the world, it says something that he chose to get involved with Tokaj.

Dry Furmint is certainly the horse on which Hungarian premium export hopes are based, which is remarkable in itself given the fact that the first serious dry bottling of the grape only came in the year 2000. This was in the form of Úrágya Furmint 2000, courtesy of Tokaj maestro István Szepsy, during his time at the Királyudvar winery.

The move to fermenting Furmint to dry to make serious terroir−driven wine was essentially triggered by the lack of a market for sweet wine to help the investors recoup their substantial investments. However,

what has been created, after many trials and tribulations it must be said, is something unique and exciting; a grape capable of articulating the character of the individual vineyard site and the nuances of the vintage, having something in common with great varieties like Riesling, Chenin Blanc and Chardonnay. It can taste great made reductively in the tank, while it also has the body to stand up to fermenting and ageing in oak. It takes on quite different characters according to the soil and microclimate it comes from: it’s usually fruitier and softer from the more loess−based soils around the town of Tokaj, while it’s edgier, stony, more robust and racier in the predominantly volcanic cocktail of soils around Mád.

While not the most aromatic of grapes, it

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Budapest Business Journal | December 12, 2014 – January 15, 2015

does often exude distinctive notes of quince among a flavor spectrum that also includes pears, lemon, lime and green apple, that are fleshed out nicely on a structured palate held together by a fine acid backbone.

For all this lofty talk about Furmint, we should spare more than a thought for Hárslevelű, Furmint’s junior partner in making Tokaji Aszú. While all the early effort with dry in Tokaj went into Furmint, there are some fabulous dry Hárslevelű bottlings coming through from the likes of Gizella, Kikelet and Nobilis, which can rival and even surpass its senior partner with its more generous opulence, along with capturing nuances between terroirs.

Over the pond, the “Furmint USA” initiative got going this year, in which the grape is getting exposure to another key market through tastings and savvy marketing with a dozen Tokaj wineries involved. Furmint USA points out that 80% of the world’s Furmint can be found in Tokaj. While the grape is now being planted elsewhere around Hungary like wildfire, it also has a long and proud tradition in Somló.

Staying in the United States, the maverick Magyar−German Somló winemaker István (Stefan) Spiegelberg and the Royal Tokaji wine company made the “American Wines & Spirits Magazine’s Top 100 list”. This is a collection of producers from around the globe whose wines performed best among some 14,500 in the magazine’s blind tastings in 2014, which also included huge names in the world of wine like Stags’ Leap Winery, Gaia and Louis Jadot.

The rise of dry Furmint has coincided with the decline of a rather more traditional dry wine from Tokaj. Dry Szamarodni, made from botrytized and non−botrytized Aszú grapes picked together, fermented to dry and left to age for a long time to capture intense notes of walnuts, tobacco, dried apricots and even blue cheese, has now almost entirely fallen off the radar.

Sweet Szamarodni is, however, quite buoyant. Nevertheless, a glass of dry Szamorodni can be an amazing aperitif on a cold winter’s day. There aren’t many wineries making decent ones and ageing it good and proper, but Frenchman Samuel Tinon in the village of Olaszliszka (in Borsod−Abaúj−Zemplén county) is a deft exponent of the dry Szamorodni art.

He describes it as the only wine created under a layer of yeast to comprise three different microorganisms: botrytis (i.e. noble rot), claspodorium cellare (i.e. the fungus that coats Tokaj cellar walls), and

Sampling vintages at CWW.

the film of yeast that protects the wines in the barrel. He likes to age it for a full six years, something few winemakers are patient enough to do, under this unique set of conditions. Another Tokaj winery committed to the cause is Sajgó in Tolcsva.

While it is so good that it shouldn’t just be kept for Christmas, as it is a top contender for the best sweet wine in the world, Tokaji Aszú itself is a must for the festive season.

I normally prefer the slightly less sweet five puttonyos style, but the even more luscious six puttonyos category is sumptuous stuff to savor in the season to be jolly. After a bit of a subdued start, Disznókő’s 2002 unctuous six puttonyos came into great form this year, exuding vibrant fresh and dried fruit, a plethora of spices and great length. Other excellent six puttonyos bottlings include anything from Dobogó since 2005, Balassa’s Villő 2009 and Zoltán Demeter’s 2007.

FULL-BODIED FESTIVE REDS Big reds and subsequently blue teeth were out in force at the Bordó Blend tasting in the Sofitel hotel on November 28 and showed that the Bordeaux red wine grapes, especially Cabernet Franc, do have a part to play in the future of Hungarian wine.

The Sauska Cuvée 7 master course was a vertical tasting of this leading Villány

winery’s two Cuvée 7s, Villány and Siklós, coming from the two distinctive parts of the southern Hungarian red wine region. The Siklós, hailing from the slightly cooler, more open terrain and soil richer in limestone, is typically tighter, with more refined structure and an über complex earthy−meets−fruit character, while the Villány is fruitier and more intense, even Mediterranean in character, coming as it does from the hotter part of the region. Sauska’s Cuvées are more intense the lower the number, with 5 being released in certain vintages.

However, it’s the less concentrated 11 from the 2011 vintage that really impressed this year in terms of quality, balance and price.

A master course on Villányi Franc showed just why the region is backing the usually lesser Cabernet, which takes on remarkable complexity with ageing. But Villány most certainly does not have a monopoly on this grape. One of the most exciting bottlings I’ve found comes from the minimum intervention school of winemaking that is Szekszárd’s Posta winery.

The winemakers of Szekszárd have now firmly emerged out of the shadow of their Villány cousins, thanks to pursuing their own direction. It is interesting that two of the region’s heavyweights, Takler and Heimann, put some Kékfrankos into their respective flagship Bordeaux−based blends Regnum and Barbár. The Heimanns even

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put some Tannat in theirs. The addition of Kékfrankos gives the big blends a local twist and so improved has Szekszárd’s Kékfrankos become, you’d want it there in your top wine anyway. Heimann’s Alte Reben (Old Vine) Kékfrankos 2012 was actually one of my wines of the year, possessing excellent and firm structure, Morello cherry, green herbs, lovely acidity and impressive fine−grained tannins.

However, another Szekszárd producer, Szeleshát, which owns a wonderful contiguous vineyard with nicely ventilated winds blowing in from the Mecsek Hills, went totally French with Merlot (30%), Cabernet Franc (30%), Cabernet Sauvignon (30%), and Syrah (10%) and came out trumps with its top value Szeleshát Cuvée 2011. With a quarter of it aged in new oak barrique, it’s got a nice mix of richness, red and black fruit, lots of plum with chocolate, green herbs and licorice.

Kékfrankos is also a great grape for rosé, which is what the Hungarian Wine Academy’s Winemaker of the Year 2014, Tamás Dúzsi, has become famous for. He’s almost a victim of his own success, so well received are his expressive and elegant rosés, which come in more than half a dozen varietal bottlings. His reds are more rustic but often hit the spot.

Having dissed the 2014 vintage, I should point out that the first releases of so−called new wines made from early ripening grapes that ripened before the weather did its very worst are, for the most part, pretty consistent and up to scratch.

SZILVESZTER SPARKLERS Hungarian traditional method sparkling wines made great leaps in 2014, with Furmint playing a key role. Not only have Tokaj producers brought out some accomplished sparklers, but also Somló’s Kreinbacher imported the technology, yeast and expertise directly from Champagne to outstanding effect.

Kreinbacher’s Future Classic range of traditional method sparkling wines were made with the help of consultant Christian Forget, who is the cellar master of ultra premium champagne house Paul Bara. While so many sparkling wines seek to impersonate Champagne, few get anywhere close but these wines at least conjure up the Champagne experience with Furmint providing that edgy acidity you expect from Champagne, for a very reasonable price starting at Ft 3,200 and ending at Ft 4,300.

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4 Socialite

Budapest Business Journal | December 12, 2014 – January 15, 2015

Another form of management “I work as a leader for a multinational company that has been present for more than 2,000 years,” Franciscan Monk Csaba Böjte, who is also the Founder of the Dévai Szent Ferenc Foundation, said on November 26.

He was addressing the business workshop called “Meet the Expert”. The workshop was followed by the opening of the exhibition portraying the works of painter Zsuzsanna Udvarhelyi and sculptor Előd Orbán.

CHRISTIAN KESZTHELYI

Through examples taken from scripture, Böjte gave useful leadership advice to leaders of multinationals. “If you want to lead a successful entrepreneurship, you should learn to trust people” the monk argued.

He emphasized the importance of settling problems by sitting down

Csaba Böjte founder of Dévai Szent Ference Foundation.

and engaging in conversations to find a joint solution, and to avoid hurting the business. “Everything that lives, strives to grow and prosper, but failure is inevitably part of the game,” Böjte said, suggesting we should embrace failures and seek to learn from them. “Failure is part of our lives and you must accept that. I went to the Hungarian Mercedes factory

once, and I saw many concepts and blueprints there, however not all are made and roll on our roads. This is how life works,” the monk explained. “One must accept that we are set to make mistakes, we are set to encounter failures. You can fire someone who does something that hurts your company, but keep in mind that you might fire your luck at the same time. Mistakes can be mended. In our life

anything can turn into a negative or a positive, it just depends on your attitude and efforts,” the monk said.

He also argued that leadership should not be handed down from above: “Dare to lead your team in a fashion that you take responsibility for them, and show them the way, instead of preaching to them from above.”

Painter Zsuzsanna Udvarhelyi and sculptor Előd Orbán

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Exhibition in Commerzbank’s gallery ZSUZSANNA UDVARHELYI – PAINTER According to Professor György Boytha, Udvarhelyi’s paintings boast of power, feelings and dynamism, portraying the indescribable beauty. “It is not the characters that are important in her pictures, but the story and feelings they are projecting”, the professor argues.

“She is a real expressionist who is portraying reality through the variation of different styles, greatly influenced by how she sees the world” Boyta adds.

The oriental angle and the ornamentals of secession frame and enrich the paintings at the same time. Femininity is at the core of the paintings and is expressed through the sublimation of beauty, with the portrayed female characters swaying into mild symbolism. All her feminine characters are synthetized into one woman, probing the limits of symbolism.

“The errand of the painter is not portraying the visible, but imaging what we cannot see, but feel to embrace and exist around us” Udvarhelyi revealed her ars poetica.

ELŐD ORBÁN – SCULPTOR Orbán’s statue dubbed “caprichos” certainly is a criticism of the social frames, rules and customs in a figurative sense, as the title borrowed from Goya suggests in advance. The statue shows limits of our perception, which only extend as far as our consciousness. This awareness is kept within the bounds of the stone in this particular case. The clothes only appear as symbols and their closeness sets a question mark in relation with the social identity of human situations and conditions.

“For my statue called ‘intimacy’ I started out from the grey patina layer of the marble and, leaving it untouched, I composed it into the piece. Thus being locked up in a block does not appear as a negative content; on the contrary, it broadens the intellectual content” the sculptor describes the sculpting process.

Intimacy is inevitably present in the statue since the model of the statue was the sculptor’s sweetheart. The content thus is the borderline itself, the borderline between shape and space. My new works are determined by this concept.

Orbán’s statue entitled “release” is baed on the concept of death full of light (meditative death), but at the same time, this death can also be symbolic, representing the release of ourself in a negative sense – our ego. “We enter the World with empty hands, and that is how we leave it behind” says Orbán explaining the nudeness of the statue.

The two exhibitions can be seen in Commerzbank’s gallery, which has been operating since 2009 at Széchenyi rakpart 8, in Budapest’s district 5.

Painter Zsuzsanna Udvarhelyi; her work below right.

The work of sculptor Előd Orbán.

Works of featued artists on display in Commerzbank’s gallery.

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Budapest Business Journal | December 12, 2014 – January 15, 2015

Last-minute shopping tips Still more holiday gifts to buy? Here are our suggestions for where to look BBJ STAFF

Budapest, Rumbach Sebestyén u. 10, 1075, or see the website here: www. printa.hu.

at the Ajándék Terminál (see below) or online here: www.sarolt.eu WAMP MARKET Local clothing designers, artists and craftspeople show their distinctive wares at least two Sunday’s a month at the WAMP market. One of their featured designers this month is Fanni Sarkadi, whose “Ooh my deer” label includes clothing like those shown here. This month WAMP has two more sale days on upcoming Sundays: December 14 and December 21. The market runs from 10 AM to 6 PM on these days, and there is a HUF 500 entry fee. Find them at the Millenaris, Building B, Budapest, Kis Rókus utca 16−20, 1024. (www.wamp.hu/en)

PEST-INSPIRED JEWELRY Budapest is an architectural marvel; a city full of decorative touches on its eclectic mix of building styles, including Secessionist and Neo−

ART AND BOOK BY MARCUS GOLDSON He may not be a native, but no one portrays Budapest quite like artist Marcus Goldson. He has also illustrated a book for children and adults, “The Magic Tram”, a truly Budapest−centric

Fanni Sarkandi featured at WAMP.

“I noticed that, if turned 180 degrees upside down, the arched pediments, or the upper ledges of window frames make a necklace,” Végh explained. To mimic the ornaments, she used antique furniture decoration like metal drawer knobs or copper curbing. The designer also played with the textures of different types of leathers to recreate the look of the facades. You can find her collection

AJÁNDÉK TERMINÁL Ajándék Terminál is a cross between an exhibition and a trade fair, tapping the advantages of both. By displaying the produce of Hungarian designers in prominent places visited by locals and foreigners, the organization accomplishes its mission of promoting Hungarian design. Having added new locations, it will likely also create more sales. WestEnd City Center caters to the needs of buyers in quest of affordable gifts; the Design Terminal and its pavilion on Erzsébet Square will probably attract the connoisseurs,

Book by artist Marcus Goldson.

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Classical facades. These elements caught the attention of jewelry designer Sarolta Végh, whose latest collection, “Budapest Ornaments”, contain pieces inspired by the unique ornamentation of the capital’s signature buildings.

Ajándék Terminál showcases the work of Hugarian designers.

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Budapest Business Journal | December 12, 2014 – January 15, 2015

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Budapest Festival and Tourism Center is organizing the Budapest Christmas Fair for the 15th time; it opened on November 28, in Vörösmarty tér, right by the Millennium Underground Railway (M1) station. The capital’s Christmas Fair has grown into one of the most prestigious in Europe, having taken first place among the “Six Best Christmas Fairs in Europe” collected by Sunday Times, and also being included in the “top lists” of the Times and the Daily Telegraph.

“The most beautiful part of Christmas is the anticipation during Advent. It is the period when every second spent with our

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loved ones is a gift, and it is the period when we prepare our hearts and souls for the holidays,” says festival director Teodóra Bán. “At the Budapest Christmas Fair we want to live through the magic that is reflected in each and every child’s eye during Christmas,” she adds.

More than 100 stands offering handcrafted goods, cheese, sausages and mulled wine are set to satisfy the needs of visitors by creating a true Christmas atmosphere. The stage located in one of the corners of the fair will host jazz, street music, folk music, minstrels, dance houses, world music and puppet performances from 4 PM every weekday and from 11 AM every weekend.

A playhouse is also waiting for the children with seasonal games and a vintage merry-go-around depicting fairy tale scenes, which is a wonderful relic decorated with stories by Hans Andersen and the Brothers Grimm.

Nine registered charity organizations will appear at the Christmas fair providing plenty of opportunities to contribute to fundraising events. No matter how small the donation or gift, your help can benefit many lives.

Visitors arriving at the Budapest Christmas Fair will be able to purchase tickets for the upcoming Spring Festival of 2015 and for other cultural venues and events. Buy a Budapest Card, which offers free services for tourists, at the fair and you will receive a free mug of mulled wine.

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HIVATALOS MÁRKAKERESKEDÉS Lexus Buda 1112 Budapest, Budaörsi út 185—195.

Telefon: (06 1) 248 2482 www.lexusbuda.hu

A képen látható gépkocsi illusztráció. A Lexus NX300h kombinált üzemanyag-fogyasztása (l/100km): 5,0—5,3; kombinált CO 2-kibocsátása (g/km): 116—123.

Az új NX300h

W W W. L E X U S . H U facebook.com/lexushungary

WWW.BBJ.HU

4 Socialite

Budapest Business Journal | December 12, 2014 – January 15, 2015

Restaurants FINE

31

This is an extract from Fine Restaurants, the Budapest Business Journal’s Restaurant Guide 2014 (www.facebook.com/fine. restaurants). To order your copy of the publication, which costs HUF 2,990, send an email including contact details to Andrea Bognár, bognar.a@amedia.hu

MÁK Bistro MÁK bistro’s culinary concept is based on international trends of the past decade and the French concept of ‘bistro gastronomique’, which has impacted the quality of bistro cuisine the world over.

MÁK bistro’s goal is to offer state−of− the−art gastronomy to foodies from all walks of life, both young and old, in a relaxed, unpretentious atmosphere.

The distinctive features of our menu originate from the rich culinary traditions of Hungary as well as the tastes and textures of Asian cuisine. We use only the finest, seasonal ingredients to create dishes that are innovative and highly creative, though not too fussy, but irresistible to even the most discerning palates.

Address of restaurant: 1051 Budapest, Vigyázó Ferenc utca 4. · Telephone number: +36 (30) 723−9383 · Telephone number for reservations: +36 (1) 889−8100, +36 (30) 7231−9383 · E−mail address: info@makbistro.hu · Website address: www.makbistro.hu · Name of manager: János Deli · Name of chef: János Mizsei · Opening hours: Tuesday−Saturday: 2:00–15:00, 18:00–24:00 · Number of seating places: 45−50 · Year of establisment: 2010 ADVERTISEMENT

DR. ROSE PRIVATE HOSPITAL

DR. ROSE ORTHOPEDIC CENTER

DR. ROSE OBSTETRICS

DR. ROSE BUDAPEST PLASTIC INSTITUTE

DR. ROSE CORPORATE HEALTH CARE

DR.ROSE | CORPORATE HEALTH CARE

Annual Card Packages Annual rd Pa ackages HealthCaascreenings Health scrreenings Occupational health care Occupatio onal health care Group health insurance Group hea alth in nsurance

1051 BUDAPEST SZÉCHENYI TÉR 7/8 TEL +36 1 377 6737 WWW.DRROSE.HU

We await corporate customers in a pleasant, modern environment at our Corporate Health Care department.

6D NƤDQ NBBTO@SHNM@K GD@KSG B@QD HM KHMD VHSG SGD CDL@MCR NE SGD ƥQL NTQ RDQUHBDR HMBKTCD @MMT@K B@QC packages, health screenings and group health insurance.

€6.2 MILLION

SAVED FOR OUR TENANTS

€49 MILLION REVENUE SECURED FOR OUR LANDLORDS

€3.4 BILLION

100,000 OF INVESTMENTS TRANSACTED

120,000 OF PROPERTY LEASED

OF PROPERTIES VALUED

...and how can we help YOU next year?

COMMERCIAL REAL ESTATE SERVICES

www.cbre.hu

All data above are based on transactions in 2014 in Hungary.