HUNGARY’S PRACTICAL BUSINESS BI-WEEKLY SINCE 1992 | WWW.BBJ.HU
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BUSINESS JOURNAL BUDAPEST
VOL. 27. NUMBER 23
DECEMBER 13, 2019 – JANUARY 16, 2020
SPECIAL REPORT
Deals of the Year
SPECIAL REPORT
Restructured Teleco Sector, Strong State Presence While international economic uncertainties persist as an obstacle for M&A activity, such worries seem to be diminishing both globally and in Hungary. Apart from real estate, which continued to dominate the M&A market in 2019, several other sectors showed vivid activity this year. 12
SPECIAL REPORT
Commercial Property Investment Continues to Thrive Deals have been concluded in the office, retail, industrial and hotel market sectors, with analysts forecasting that the total volume of transactions for the year could amount to around EUR 1.5 billion. 18
SOCIALITE
Navigating to a Connected Future
Sinéad O’Connor: An Incomparable Performer Ahead of Sinéad O’Connor’s one-night show in Budapest’s Akvárium Klub, just the second stop on her latest world tour, David Holzer spoke with the sometimes controversial Irish singer-songwriter in a wide-ranging interview – including her relationship with “that song”. 21
NEWS
Inflation Breaches MNB’s 3% Target Although industrial production was weaker in October than previous months, analysts remain optimistic about the fourth quarter performance. The same can be said of the inflation rate; although it exceeded the 3% mark in November, market players think it only temporary. 3
NE BUSI
SS
With mobile networks poised to transition to 5G technology, pundits expect transportation to really start to embrace smart and electric vehicles, rewiring how we think about travelling. David Wiernik, president of Hungary-based multinational NNG, talks about the future of smart vehicles roaming BUSINESS smart cities.11
LNG Business: Lacking a Strong Foothold (For Now)
Energy experts were in Budapest in the first week of December to discuss the liquefied natural gas market. Balázs Barabás went along to the conference for the Budapest Business Journal. 6
News
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THE EDITOR SAYS
EDITOR-IN-CHIEF: Robin Marshall EDITORIAL STAFF: Balázs Barabás, Zsófia Czifra,
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MAY YOUR SEASONAL GREETING OF CHOICE BRING YOU HAPPINESS I wished someone a Happy Christmas the other day, then realized I was being somewhat premature and instead offered up hopes for a pleasant Advent, since that is the season we are currently in. I was told I should not be so presumptuous. That bought me up short. It also irritated me deeply. Now, those who know me well will attest to me being something of a curmudgeon. I would prefer the epithet “old fashioned”, but I guess it is not up to us to choose the words others use to vocalize how they view us. And, in truth, I may well have a curmudgeonly streak, in any case. I was born and brought up in semi-rural Sussex, in the southeast of England, where the unofficial motto, in the local dialect, is “We wunt be druv,” (“we won’t be driven”). That approximates to something like “We have a mind of our own, thank you, and won’t be dictated to by others.” Stubborn, if you like. Since I am now well past 50, I doubt I am going to get any less self-willed, but bear with me. I have long disliked the North American greeting of “Happy Holidays!”; it seems too bland, too politically correct (although it long predates the PC world). It has become popular because it is supposedly both more secular and more inclusive, able to take in everything from Thanksgiving to Hanukkah, the winter solstice, Kwanzaa and New Year; yes, and even Christmas. The curmudgeon in me enjoyed discovering, courtesy of the History Channel website, that those resorting to “Happy Holidays!” as a religion-free greeting will need to look again. Holiday itself is a contraction of holy day, of course; that much I knew. But the phrase was apparently used by Christians as catch-all to take in the four Sundays
of Advent, the 12 days of Christmas and the Feast of the Epiphany on January 6. The realist in me recognizes that, for many, Christmas has long since ceased to be anything other than a holiday (in the modern, secular meaning of the word). But that just makes it even odder that some people worry there are folk out there who might be upset by a religious greeting, or the wrong religious greeting. It is not as if I, born and raised an Anglo-Catholic (don’t ask, it’s way too complicated to go into here) am about to walk into a mosque, or a synagogue, or, indeed the middle of the nearest park and shout out “A Merry Christmas to all, but damnation to all non-believers”. But why should I not wish those I meet the blessings of this time of year? If my Christmas greeting is well-meant, it ought to be capable of being received in the same way. My favorite Yuletide ghost story is the wonderful “A Christmas Carol”, in which author Charles Dickens enjoins us, like the (spoiler alert!) reformed Scrooge, to “honor Christmas in my heart, and try to keep it all the year.” The Christmas Dickens had in mind was surely a feeling, a way of behaving to one another, rather than the actual Mass of Christ. And so, let me wish you a Merry Christmas, and mean it with every good intention. Whether you keep Hanukkah, observe the winter solstice, mark Kwanzaa or do nothing at all, I hope you have a happy, relaxing time with family and friends. And let us all hope for a peaceful and prosperous New Year. Robin Marshall Editor-in-chief
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News///macroscope
Inflation Breaches Target, but Thought Only Temporary
Although industrial production was weaker in October than previous months, analysts remain optimistic about the fourth quarter performance. The same can be said of the inflation rate; although it exceeded the 3% mark in November, market players think it only temporary.
Inflation in Hungary, 1991-2019 (January-November) Change compared to same period last year, %
Source: KSH / MTVA Sajtóadatbank / MTI
ZSÓFIA CZIFRA
Hungary’s industrial production growth slowed in October after a strong acceleration of 9% in the previous month, data from the Hungarian Central Statistical Office (KSH) shows. Industrial production rose a working-day adjusted 6.4% yearon-year in October, after a 9% increase in September. In August, industrial production rose 2.7%. On a non-adjusted basis, industrial production climbed 6.1% annually in October, after an 11.1% rise in the preceding month. On a seasonally adjusted basis, industrial production fell 0.4% in October, after a 3.1% rise in the previous month. According to analysts, the October figures suggest that the industrial growth will still be dynamic in the fourth quarter of the year, and will support the overall economic growth of Hungary, in spite of the not so good news that arrived from Germany, where industrial output fell back
by
1.7%
in October from the previous month, and a massive 5.3% decline was registered on an annual basis. In Hungary, investments that were launched in the previous years resulted in extra capacity, and this was clearly seen in the October data, says Dávid Németh, head analyst with K&H Bank.
The next few month will reveal whether there will be a slowdown in Hungary or not, the analyst said. As for the full year, Németh expects a growth rate of around 6%.
No Setback
The fresh industrial data, together with the strong retail figures released recently suggest that there are no sign of a setback so far, says Péter Virovácz, head analyst at ING Bank. He is even more optimistic than Németh and says that industrial growth might be as high as 6.5% in 2019. However, a narrowing order stock might result in a slower pace next year: Virovácz expects an annual growth rate of 4.5% in 2020. The slowdown detected in October from the previous month was mainly caused by the high base in 2018, but the Hungarian industry still notably outperforms others in the European Union, especially that of Germany. The high rate of foreign direct investment also contributed to the still strong industrial figures, says Gergely Suppan of Takarékbank. He identifies, however, downward risks such as the slowdown of the Chinese and U.S. economies, and the recession in Europe, and also uncertainties about Brexit. He expects a growth rate of above 6% this year, which might
slow to
4.8%
in 2020. Consumer prices were 3.4% higher on average in November than a year earlier. Significant price rises were measured over
the past year for alcoholic beverages and tobacco as well as food. The November figure is higher than analysts’ expectations; however, it is thought likely to be only temporary. As for the next year, the National Bank of Hungary (MNB) still expects the inflation rate to be around 3%, which is the central bank’s medium-term target.
Acceleration
Inflation accelerated by 0.5% from the previous month, the KSH data reveals. The MNB explains the higher prices with low fuel prices at the end of last year; therefore, it is not a long-lasting effect, according to the bank. Food prices went up by 5.5% in November on a year-on-year basis. The price of alcoholic beverages and tobacco rose by 8.3% on average, within which tobacco prices were up by 12.1%. Consumers paid
3.4% more
for services; electricity, gas and other fuels became 0.7% more expensive. The MNB has been communicating for a while that a higher inflation rate is only temporary, and the consumer price index will return to the 3% level next year. The explanation for this is that, although the massive wage raises and increased consumer purchasing power generates inflation, the deteriorating external economic situation will push down the index. Also, the MNB believes that this latter effect is stronger than those elevating the inflation rate.
However, an increasing number of optimistic economic forecasts have been released lately, and more and more analysts think that economic slowdown will not be permanent. The reason for this is probably the fact that central banks have reacted fast, and got engaged in loose monetary conditions again, which increases liquidity and, therefore, an economic setback can be nipped in the bud. If the global economy is indeed in a better shape, it will minimize downward risks, which alone could increase the consumer price index in 2020. After the rate setting meeting of the MNB in December, we’ll find out whether the ratesetters perceive changes in the external factors and modify their forecast for next year accordingly.
Numbers to Watch in the Coming Weeks The Central Statistical Office (KSH) will publish fresh data on the October performance of Hungary’s construction sector on December 13. On December 23, KSH will release the second estimate of external trade of goods. Between the two dates, on December 17, the Monetary Council of the National Bank of Hungary will hold its last ratesetting meeting of 2019.
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EY Appoints Partner
Zsolt Kónya EY Hungary has announced the appointment of Zsolt Kónya as partner responsible for the firm’s financial accounting advisory services area. The appointment means the number of partners at EY Hungary is now 22. Kónya began his career at EY 15 years ago, becoming head of financial accounting advisory services. He is now responsible for assisting clients in the interpretation and application of increasingly complex accounting requirements, as well as preparing them for the utilization of new technologies such as using robotization during financial and accounting processes. “I am proud that, in the form of Zsolt, EY’s upper management is once again joined by a partner who has been working here for more than a decade,” said Botond Rencz, the advisory firm’s country managing partner for Hungary. “This is a guarantee that he will be able to support our clients on a high level in the future, with his industry-specific experience.” EY, now celebrating the 30th anniversary of establishing its presence in Hungary, says that it currently employs more than 650 people, and is planning to hire 100 new employees in the financial year that will end on June 30, 2020.
DVM Group Names Head of Design and Build Integrated building services provider DVM group has appointed Gyula Malata to head the company’s design and build department, responsible for project-level management and coordination of D&B-type works, as well as for liaising with clients. Malata is tasked with increasing the effectiveness of collaboration between the design, construction, commercial and sustainability departments, ensuring that information is delivered to all of his colleagues involved in D&B projects in sufficient depth and detail. Malata graduated as an architect in 1995 from Budapest University of Technology and Economics. Until 2004, he worked as a designer and then studio manager, leading a variety of Hungarian and multinational
projects with residential, retail and industrial logistics functions. From 2004 to 2012, he continued his professional career as a lead architect and managing director in his own architectural firm. During this period, he expanded his scope of works to international real estate development consulting, taking part in Chinese and European projects. From 2012 until recently, he was lead architectural project manager in Daimler AG’s plant construction in Kecskemét and its largescale real estate developments since then. “Design & build is a form of execution that goes hand in hand with the history of construction and continues to dominate many areas of the industry even today,” says Malata. “Recently, there has been a growing demand from builders and real estate investors to delegate the administrative and professional challenges, as well as the potential risks of implementation, in a pre-planned manner to a properly trained and experienced organization. To fully meet these customer needs, I would like
During her time at GVH, she represented the authority before the Hungarian Courts and the European Court of Justice in most of the administrative lawsuits against the GVH’s decisions, including high-profile cartel and unfair commercial practices cases. “We warmly welcome Mónika to our experienced and dynamic team in Budapest,” says Péter Vörös, partner and head of Kinstellar’s Hungarian competition and dispute resolution practices. “I am delighted to have such a reputable practitioner on-board. I am confident that Mónika’s knowledge and experience in both litigation and competition law will add new impetus to the further development of Kinstellar’s growing practices in Hungary.” Judit Gál to undergo a complete renewal, managed by the new director. Previously, Gál worked as communications director for supermarket chain Auchan Hungary for seven years, and before that, as a a consultant at international PR agencies with clients from the FMCG, IT, energy, and retail industries. Gál was awarded the title of “Spokesperson of the Year” for her professional achievements in 2015 by the Hungarian Association of Spokespersons.
Hungarian McDonald’s Partner Picks CFO Progress Étteremhálózat Kft., the developmental licensee partner of fast food chain McDonald’s, has appointed Tamás Glattfelder as its new CFO.
Kinstellar Hires Competition and Dispute Resolution Lawyer
Gyula Malata to use the experience I have gathered over the past 25 years in sync with DVM group’s highly qualified team. I am convinced that together we can provide our customers with a service that can further strengthen our leading position in the domestic market and open the way to international clients.”
Regional law firm Kinstellar has announced that Hungarian lawyer Mónika Nacsa joined the company on October 1, as a member of the firm’s competition and dispute resolution practices in Budapest. Nacsa earned her law degree from the University in Szeged in 2010, where she also completed post-graduate studies in the field of civil procedure law. Apart from her native Hungarian, she speaks English and French fluently. After spending some time in private practice, she joined the Hungarian Competition Authority (GVH) in 2013.
Danubius Introduces Marketing and Comms Director
The management of Danubius Hotels Group has created the new position of marketing and communications director, appointing Judit Gál to the post. Gál is responsible for external and internal communication at Danubius Hotels Group, including reputation management, brand building, event marketing, exhibitions, use of media platforms, as well as supporting recruitment and retention, reporting directly to the sales and marketing director. Having experience both from agency and as an assigner, she is tasked with strengthening the Danubius brand, which the company says is
Mónika Nacsa She worked in the litigation department there from early 2014 before being promoted as head of department in 2017.
Tamás Glattfelder Glattfelder has some two decades of experience, having worked at companies such as the Irish subsidiary of Diageo and Dreher Breweries Kft. At Progress Étteremhálózat, he will play a key role in the further modernization and expansion of the Hungarian McDonald’s network, and the operation of the franchise system. Besides controlling the accounting and financial divisions of the company, Glattfelder is also tasked with planning and managing the company’s financial and franchise strategies, and providing senior advisory services on all levels of management. Glattfelder will also be responsible for keeping in touch with business partners, banks, and financial institutions. “We are very glad about Tamás’s arrival,” says Ágnes Horváth, CEO of Progress Étteremhálózat. “We are convinced that his strong strategic views, his need for constant development, as well as his first-hand experience in planning and realizing innovation, and his anthropocentric approach, make him able to support the McDonald’s brand’s domestic evolution, and the expansion and strengthening of our network, as a financial strategist and a worthy and motivating leader of our experts.”
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HuGBC Promotes Concept of Circular Economy The Hungarian Green Building Council (HuGBC) celebrated its 10th anniversary with its Green Future Conference 2019 on the theme of “Circularity in the Built Environment.” The concept incorporates issues of a low carbon footprint, low energy use and the use of non-toxic materials in construction. GARY J. MORRELL
This approach is increasingly being incorporated into, for example, the BREEAM accreditation system. The argument is that a sustainable building has to be constructed and managed on a circular basis that reduces its carbon footprint. In this way, the life span of a building is regarded as “circular” rather than “linear”. This forms part of the wider concept of a circular economy that strives to eliminate waste and enables the continuous use of resources. This is regarded as a close-loop system that minimizes the use of resource inputs and designs out the creation of waste and carbon-emissions.
Zsombor Barta at the Green Future Conference 2019. The circular concept is thus very different from the current model of a linear economy according to Dr. Bálint Horváth, associate professor at Kodolányi János University of Applied Sciences. He defines the steps of the traditional approach as production, distribution, consumption, disposal and waste. In this economic model,
90%
of construction
materials are not re-used. A circular economy is necessary to reach emission cuts targets by 2050 as agreed by EU governments. The stakeholders in creating the circular economy are seen as investors, buildingusers and authorities by the construction engineer Remko Zuidema, founder of the Dutch BRIQS Foundation, which promotes the concept of a circular economy and sustainable societal systems.
“A sustainable building has a circular rather than a linear life-span, this involves reduced energy-use and carbon footprint. The concept of a circular economy with regard the use of materials has been developed in the Netherlands, a country with no natural resources,” he said. The Kingdom of the Netherlands was a sponsor of the HuGBC event. The concept could be seen as market pressures and sustainability factors impacting on building developers at the same time.
Examples Needed
“There is a need for good examples of circular buildings to persuade
Healthy Interest in CEE From Investors In the first three quarters of 2019, the CEE region Long-term Prospects With regard to the longer-term prospects (Hungary plus Bulgaria, the Czech Republic, for the region, Benjamin PerezEllischewitz, head of capital markets at JLL Poland, Romania, and Slovakia) has recorded Hungary argues that the current cycle is more favorable than the previous one. an investment volume of around EUR 9 billion. “The banks are more discerning, there GARY J. MORRELL
“We expect the region to maintain a similar momentum to the previous three years and forecast a full year investment volume of EUR 12.5 bln-EUR 13.5 bln,” said Kevin Turpin, regional director of CEE research at Colliers. The consultancy recorded a market total of EUR 13.8 bln in 2018 and EUR 13 bln for 2017. Office will easily take the largest share as it is the preferred asset class for many investors, according to Turpin. Indeed, it has a 58% share of deal flows, followed by retail at 18%, industrial and logistics at 9% and hotel with 8%. Retail is 30% down on the same period of last year, while the hotel sector is up.
Western European funds dominated, closely followed by domestic CEE funds; Asian capital, particularly from South Korea has also been increasingly active. “The appetite from investors for all asset classes in CEE remains positive, particularly as a vast amount of capital is seeking allocation and the market fundamentals in the region remain compelling,” Turpin explained. “A shortage of core and core plus product can be found in some markets and sectors, as many such properties are in the hands of long-term holders, portfolios and platforms. In addition, some owners may be hesitant to sell without the opportunity for redeploying their capital,” added Turpin.
is no oversupply as the office supply is 10% of stock and investors have a better knowledge of the market,” he commented
developers to construct in this way. With the development of a higher quality building, the owners are able to receive higher rents. Therefore, more developers are looking at the concept with the use of as many generic, rather than specific, elements as possible with the creation of a building passport,” he added. Zsombor Barta, president of the HuGBC, sees the recycling and re-use of materials in a building as one of the key elements of a circular economy. However, a further issue is how a building is used or utilized. “We have heard a lot about new economic models like the sharing economy and if you can integrate these new economic models into the facility operation and maintenance and functions of the building, then you can refer to it as a circular building,” he argued. “One of the economic models is that a building does not have a particular function but the function is also changeable and capable of being modified. For example, you do not have pre-defined offices for a specific tenant but these spaces can also be utilized for meeting rooms or for completely different types of functions, depending on the needs. Changes can therefore be made accordingly. “In my view, a fully circular building or real estate is not only due to the materials used and a low environmental impact, but also in terms of usage. The concept still has to be developed with regard to the use of space,” Barta added. He argues that the LEED and BREEAM sustainability systems have been integrated into the existing economic models; however, a circular economy model requires a completely rethought economic model
at the Portfolio Property Investment Forum 2019. However, big-ticket items are lacking in the Hungarian market, which has a low supply of investment stock in the retail and industrial markets. The lack of available stock is seen as a particular problem for the industrial and logistics sector according to Marin Polák, managing director and regional head of CEE at Prologis. Analysts also stressed that the regionwide labor shortage is acting as a brake on development in all sectors, and therefore oversupply is avoided.
Capital Flows into CEE Quarters 1-3, 2019 CEE Domestic25%
West Europe 28%
€8.9 billion Other 9% United Kingdom 7% MENA 2% South Africa 7%
USA 6% Asia16%
Source: Colliers International
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said. Belgium, France, Italy, Lithuania, the Netherlands, Portugal, Poland and Spain are also players on the LNG market, Sentyurin said. This may seem a lot, but currently the CEE region’s LNG imports are meagre, accounting
for
5%
Liquefied Gas Business: Lacking a Strong Foothold (For Now)
Energy experts were in Budapest in the first week of December to discuss the liquefied natural gas market. Balázs Barabás went along to the conference for the Budapest Business Journal. BALÁZS BARABÁS
2020s.
There is significant uncertainty, however, as to the scale and durability of demand for imported LNG. Over the long-term, the WEO explains, end-user prices generally seem set to rise. If not, LNG suppliers will be unable to recover their long-term investment costs or governments will have to continue to subsidize the cost of LNG imports.
Significant Role
In short, LNG is expected to play a significant role in the future of the gas market, but when and how exactly this will happen, forecasts are not very clear. However, the perspectives for Hungary are promising. In October, Minister of Foreign Affairs and Trade Péter Szijjártó expressed hopes that the Croatian LNG terminal construction will be completed by January 2021, which would allow Hungary to purchase gas from Qatar, thus further diversifying the gas acquisition sources. “Qatar has become the world’s number one exporter of liquid natural gas, exporting more than 100 billion cubic meters each year, and the country plans to increase its LNG exports to
145 billion
cubic meters in the upcoming years,” Szijjártó noted. The LNG Summit in Budapest aimed to bring more information about the technology and market opportunities. Barbara Dorić, CEO of LNG Croatia said that the liquefied natural gas terminal on the Island of Krk is a game changer for the security supply of the region. The project divides into two phases, the first of which is a floating LNG terminal with total capacity of 2.6 billion cubic meters per year (bcma). The total project investment costs are EUR 233.6 million. All necessary activities were accomplished by April 2019 and the
terminal should be fully operational from January 1, 2021, Dorić told delegates. She also referred to the interconnection with Hungary, which is currently under construction and will be fully operational by the end of this year and will have a capacity of 1.7 bcma to be exported through Hungary on a yearly basis.
Strong Potential
Central and Eastern Europe has a strong potential for LNG in the power and transport sectors, as Croatia is not the only country with a terminal under construction, Yury Sentyurin, secretary general of the Gas Exporting Countries Forum in Qatar
Gas Production by Region and Scenario, 2018-2040 6000
5000
4000
Sustainable Development
late
“The LNG industry therefore faces a struggle to gain a strong foothold in developing markets where affordability is a key consideration,” the study concludes.
Stated Policies
The International Energy Agency, established in 1974 to ensure the security of oil supplies, has evolved since then into a space for a global dialogue on energy, providing authoritative statistics and analysis and examining the full spectrum of energy issues. One of the main studies released by the IEA, consulted by energy experts around the world, is the annual World Energy Outlook (WEO). The gas sector has a separate chapter in the WEO, which states that natural gas had a “remarkable” year in 2018, with a 4.6% increase in consumption, accounting for nearly half of the increase in global energy demand. The WEO notes that “liquefied natural gas is the key to more broad-based growth in future; 2019 is already a record year for investment in new LNG supply, even as prices in key importing regions have fallen to record lows.” The WEO looks ahead using two projections, the Stated Policies and the Sustainable Development scenario. In the Stated Policies Scenario, LNG overtakes pipeline gas as the main way of trading gas between regions by the
Péter Sztáray, Minister of State for Security Policy. Photo by kormany.hu.
of Europe’s imports and only 1% of global LNG imports, Sentyurin noted. But this is part of a wider trend; although, on a global level, LNG trade has grown strongly since 2017, this expansion is expected to weaken in the short-term, as less LNG projects are commissioned, he added. Speaking about the role of LNG as a supply channel, Péter Sztáray, Minister of State for Security Policy said “Hungary’s ambition level must be aligned with the available possibilities.” The reality is that the Russian gas is and will be an important part of the European and regional energy security, because its price is competitive. As for alternative sources, the region’s energy security could be most dramatically changed by the “Neptune Deep” project, which could supply gas from the Black Sea to Central European markets. The second most significant influence will be the LNG terminal in Croatia, which could connect medium-sized Central European companies to the global LNG market, Sztáray noted. He added that there is still a long way to go, but bilateral discussions are very promising. Russia may be an important player, but the United States is also making steps to expand its share of the gas market. Dan Milstein, director of the European Regional Office for the U.S. Department of Energy noted that the U.S. natural gas production has risen by more than 50% since 2000 and will have more than doubled by 2050. This is due mainly to the extraction of shale gas. American gas production has already exceeded internal consumption and the surplus will continue to grow over the next few decades, despite demand also growing, both from the industrial and the residential and commercial sectors. LNG exports are rapidly rising and the U.S. administration has adopted fasttrack approval procedures for small scale exports, Milstein said.
3000
2000
1000
0
2018 North America
2030
2040
Central and South America
2018 Europe
Africa
2030 Middle East
Eurasia
2040 Asia Pacific Source: IEA
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PRESENTED CONTENT
Festivals and Christmas in Budapest: An Interview With Teodóra Bán The Budapest Business Journal talks to Teodóra Bán, managing director of the Budapest Festival and Tourism Center and Szabadtér Nonprofit Kft., who is entrusted with the management of the Budapest festivals and the Christmas Fair. GERGELY HERPAI
BBJ: Could you describe your role? Teodóra Bán: My work is basically about organizing and running big yearround festivals in Budapest, anything useful to promote Hungarian culture and the country’s image. The beauty and wonderful architectural heritage of Budapest is very important to us and we produce, in fact, great content for the city: world-class cultural programs and tourist attractions. BBJ: Would you say you have been successful in this endeavor?
TB: My vision was to “win” this global artistic competition by creating a cultural playground of great international importance, which foreigners would like to come to. And now the companies I manage can provide outstanding services to cultural and tourism events. BBJ: The positive image of the capital must be an important element of all this. TB: Yes, along with tourism events, attraction development, our culture, and our spiritual values, delivering positive messages is extremely important. Regarding theaters, sporting events and museums and events, the tourism industry should strive to ensure maximum service quality.
Teodóra Bán BBJ: Where will programs and attractions be staged for the Christmas markets? TB: Both Budapest Festival and Tourism Center and Szabadtér Nonprofit Kft. are organizing Advent and Christmas fairs.
Business | 7
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The main places for those events are Vörösmarty, Fővám, and Deák squares and City Park. This is a series of festive cultural events that are of major international interest and are also popular with the townspeople. Among these events, the one on Vörösmarty Square has a prominent position. The square has been completely refurbished since the capital’s management succeeded in completing a complete infrastructure renovation of it last year. BBJ: What can we expect from the Christmas fair there this year? TB: The evening hours feature decorative lighting that emphasizes the special structures and style of the square. I have also designed a new pavilion around the Vörösmarty statue, which will make this look even better. We planned the traditional Christmas market around this pavilion. It also means new tools and new types of lighting solutions, while keeping the old ones as well, of course. The slogan of this Christmas fair is actually “Tradition and Innovation”. The term “tradition” encompasses our spiritual and architectural values, as well as crafts and the making of holiday gifts, objects and gastronomy. The term “innovation” concerns the new visual appearance of Vörösmarty Square, which includes the new streetlamps and the new pavilion. Besides all that, more than 240 cultural programs will be held at these four locations over 45 days.
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Budapest Business Journal | December 13, 2019 – January 16, 2020
Should an Operating Company own Real Estate? If you have a company that produces or sells a product or service, two questions often arise: should a company own the premises or real estate that it occupies (e.g. offices, warehouse, factory, etc.); and, if so, should it be owned through a separate entity. Les Nemethy and Sergey Glekov look at the options.
The Corporate Finance Column business, should there be reasons for selling them separately. If an operating entity and real estate are in the same company, the situation may become complicated if a buyer wants one but not the other. In such instances, the real estate will probably need to be transferred to another entity, triggering capital gains and land transfer taxes. These tax effects may be substantial, particularly where the real estate has appreciated in value over decades. (While de-merging a corporate entity is a theoretical possibility, in most jurisdictions this takes six months or longer, thereby adding unacceptable delay to the timeline of a transaction.) This is an important element of exit planning.
Most hotels do not own the properties they manage. The Four Season Hotel Gresham Palace Budapest is currently owned by the State General Reserve Fund of Oman. Should a Company own the Premises it Occupies? As with most questions, there are pros and cons. Owning the premises can
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give some strength to your financial statements, and provide collateral to banks, should you need it. But, most importantly, owning the premises in which you operate may have important strategic benefits for your business, such as ensuring that you can stay there as long as you want, without the danger of a landlord terminating or not renewing your lease. There would also be less restrictive covenants than in a lease, thereby providing greater freedom of activity. Some businesses simply do not have the financial resources to invest in their premises, or believe that they can obtain a much higher return on investment by investing into their core business, rather than into real estate, which typically produces a low but stable yield. For example, many of the world’s largest hotel groups do not own the underlying hotels they operate, believing that they can achieve larger, steadier and more measurable returns without also owning the real estate. Should a Company own Real Estate in a Separate Entity ? Once you make a decision that your company should hold real estate, there are a number of reasons why a separate entity may be a superior solution:
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• Limited liability. Should anyone sue your operating entity, if the real estate is owned in a separate entity, the real estate will probably not be the subject of litigation. • Ease of accounting. Where the real estate and the operating company are in separate legal entities, the financial performance of your operating entity is not distorted by effects of owning and operating real estate. • Ease of exit. It becomes easier to sell the real estate or the operating
In our opinion, there is really only one advantage of putting real estate and an operating business into the same corporate entity, namely a certain amount of cost savings, by not having to incorporate and maintain a second corporate entity. For smaller, simpler businesses, this may be an important factor. But where a business has scale or is likely to scale, it is worth considering the investment. Of course, where your operating entity uses premises owned by a separate non-arm’s length real estate entity, care must be taken to ensure that the two entities enter into a lease based on market rents. This will help avoid possible issues with the tax authorities. One final piece of advice: where you have an operating company and a real estate company, you may wish to create a holding company which owns both of them. While this creates an extra level of expense in creating and operating yet another legal entity, it also has a number of advantages: • Tax benefits: In many legal jurisdictions, should you sell a subsidiary (either the operating company, or the real estate entity, or both), this may be a tax-free transaction. • Accounting: You can produce a set of consolidated financial statements at the holding level that reflect the combined strength of multiple entities. • Maximum flexibility upon exit: You can sell the holding, (which owns the subsidiaries) , or one or more subsidiaries separately.
Les Nemethy is CEO of EuroPhoenix (www.europhoenix. com), a Central European corporate finance firm, author of Business Exit Planning (www.businessexitplanningbook. com) and a former president of the American Chamber of Commerce in Hungary.
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7/8 SZÉCHENYI SQUARE 1051 BUDAPEST TEL.: +36 1 377 6737 WWW.DRROSE.HU
Romania Sends a Message
Like Hungary in 1956, one symbol of Romaniaʼs December 1989 revolution was the national flag with a hole in the middle where the communist emblem had been cut out. Photo by Mircea Moira/Shutterstock.com
KESTER EDDY
is “extremely positive”, according to an Anglo-Irish entrepreneur living in ClujNapoca, central Transylvania. “The recent Presidential elections pave the way for parliamentary and local government representatives to be transformed away from old school, 1980s-style leaders. It does depend on a high voter turnout in the 2020 elections, but a new political elite is emerging; it’s dynamic and with strong ethics, committed to a better Romania,” my long-time contact said. Naturally, the country is not all sweetness and light. Graft, my contact says, is “still endemic” in infrastructure, healthcare and education (sound familiar?), and near-monopoly operations such as utilities remain “overpopulated with communist-style employees, making the services very difficult to engage with or to make things happen.” But the business environment in particular has been transformed in the last two years, with a new, fast track law for start-ups, an extremely favorable tax regime for micro companies (at 1% of revenues) and 16% profit tax for larger companies, along with a 5% dividend tax across the board, all boosting growth and innovation. Young Romanians are “entrepreneurial”, typically multi-lingual and hard-working. Property rights are secure, and “generally speaking, its is safe to live and bring up a family”, says my contact, who speaks from experience. Three decades after a kangaroo court sentenced the former presidential couple to death on Christmas Day, Romania boasts a GDP per capita (ppp) of USD 28,200. That’s still a chunk behind Hungary, at USD 30,670, but the message to Budapest is clear: Watch out! Your former impoverished neighbor is catching up fast, and who knows, could perhaps teach you a lesson or two in successful transformation. They’ve certainly done more of it.
It was just before Christmas, around 10, when the phone rang. A Hungarian friend was on the line. “Have you heard? They’ve kicked out Ceausescu,” she said. It was 1989, and we had a revolution next door. For a journalist, the message was clear: Get in the car. Romania in 1989 had a bad international press. Little wonder. I remember the road into Oradea, the first town over the border from Hungary. Past a dark, giant aluminum plant, a tangle of pipes, hissing valves and piles of ore, and then into a communistera housing estate. Block after block of flats, with most, like the street, in darkness: Whole swathes of Romania suffered from power rationing every day. After a fitful sleep in a freezing car, my photographer and I drove on. Astonishingly, at 5 a.m. and still deep in the countryside, we passed scores of people, simply walking to work in the darkness. Few had cars, even fewer had petrol. In the course of the next four days, in the cities of Hunedoara and Sibiu, we witnessed crowds burning books by the deposed dictator Nicolae Ceausescu, a gun battle between the army and a “terrorist” nest, and the near lynching of a suspected Securitate (secret police) agent. In between we ourselves were arrested at gunpoint, spending Christmas Eve detained as “terror” suspects in an army barracks. We also viewed the dead civilians, 156 of them, in Sibiu hospital, on Christmas Day. As we left, the 157th was carried in. Unlike Hungary, which by the 1980s typically surprised visitors for its relatively high standard of living, life in Romania was nothing short of misery for the majority; a country of rich agricultural potential where citizens suffered from vitamin deficiency. In 1990, it had a GDP per capita of USD 5,270 at purchasing power parity. In Austria the comparable figure was USD 19,440 (source, The Bottom Line is a monthly column written World Bank). The first available estimate for by Kester Eddy, a long-standing and well Hungary is USD 8,310, in 1991. respected Budapest-based business and economic journalist, who has written for Fast Forward the Financial Times and many regional But fast forward 30 years, and the progress publications. The opinions expressed in is impressive. The economy expanded the column are not necessarily those of the by 4.7% last year, following a spectacular Budapest Business Journal. To comment on 7.6% surge in 2017. It’s currently on course this column, or on anything else in the BBJ, for 4.2% growth and the general mood email the editor at robin.marshall@bbj.hu
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Budapest Business Journal | December 13, 2019 – January 16, 2020
PRESENTED CONTENT
Hotels: A Good Investment, if you Know What Youʼre Doing Hotel investments are the darling of the real estate sector in Budapest and other key cities across the CEE. Marius Gomola MRICS, managing director of Horwath HTL Hungary and founder of HOTCO talked to Budapest Business Journal about the drivers of investor interest in CEE hotel markets. BBJ STAFF
BBJ: Why do hotels continue to attract investment attention, what is behind their popularity? Marius Gomola: Hotels are popular investments in key cities, including Budapest, as the business fundamentals they are built on are solid. Tourism is steadily growing globally irrespective of economic cycles, with such a neverbefore-seen pipeline of travellers needing a place to stay, demand is fueled from five continents in the CEE as well. BBJ: How is a hotel different from other asset classes? MG: Acquiring or developing a hotel is only one part of the equation, as the asset value lies within the operating business. The asset is priced on the basis of the operating profit that is generated so a specialized operating company is a must. Owners and developers in addition to generating healthy operating profits, will benefit from the uplift in property values when exiting at the right time. No other real estate class can provide such upsides. BBJ: What makes a hotel investment successful? MG: The ability to define your exit before you start. While this is a simple goal, it is a rather difficult exercise. Most developers start with the notion of building a hotel for the operator as per their standards and requirements, so that the hotel company would be happy to buy what is built for them. That is mistake number one. Hotel companies and operators do not buy hotels. They are not in the real estate investment and ownership business, but in running hotels. Once the developers determine their exist strategy, then advisors can give proper guidance on next steps. What should be the positioning of the hotel, what size rooms are required what facilities and services need to be built and what should not be built. These decisions are driven by the location, market conditions, demand and the competitive environment. The next key decision-making milestone is the operating model and whether to have a brand or not. Most developers want a lease as they can understand that best. Under management agreements, the operating results are typically more favourable for the owners, but they take more risks. Alternatively, the owners can operate
Company ///news Magyar Telekom to axe 450 jobs Telecommunications company Magyar Telekom will let go 450 of its employees in the first quarter of the next year, while increasing the wage of non-managerial employees, according to a report by news site hrportal.hu. The company says it expects the costs related to severance payments to amount to HUF 4.9 billion. Most of this will be booked in Q1 2020, the report says. From April 1, 2020, employees in non-managerial positions will receive an average wage hike of 5%. “Thanks to the above-mentioned actions and other accepted changes in the allowance structure, the personnel costs of the parent company, excluding severance pay, will decrease by approximately 3% in 2020, compared to 2019,” Telekom said.
Audi Hungaria Starts Serial Production of Mild-hybrid E-vehicles
Marius Gomola themselves. All options are available, and driven by an exit strategy, which can be altered by the dictum of the financing bank. BBJ: What is HOTCO and how can a real estate developer and investor benefit from participating? MG: HOTCO is an event that was established to boost investment activity in the hotel industry from Vienna to Moscow and from Gdansk to Baku and all places in between. The event stages expert discussions relevant to the hotel investment and operations climate based on global trends, the big picture as applicable in this region. For the fourth time in January 2020, HOTCO brings top industry players and experts to discuss financing, branding, regional economies, operator contract negotiations, distribution channels, cybersecurity, blockchain technology, AI and innovations in construction with development guidelines for successful exits, and revealing the highestinvestment return countries for hotel investments. HOTCO will again stage 50-plus experts in addition to featuring CEOs and the No. 1 European executives from global hotel companies. No other event in this region brings together such high-profile leaders of the hotel industry, and gives the opportunity to have access to their insights.
Hotconf.com. January 20-21, Kempinski Hotel Corvinus Budapest.
The local unit of German carmaker Audi has started serial production of its Audi Q3 and Q3 Sportback models with a so-called MHEV (Mild Hybrid Electric Vehicle) technology, the company told Hungarian news agency MTI on December 5. The Q3 models are Audi’s first hybrids, the company added. “The electric era has reached Audi Hungaria in every area. After our engine production,
we [have] also electrified our vehicle production. We are proud of the history of our MHEV Q3 and Q3 Sportback models: they are the first electricpowered cars made in Hungary,” said Alfons Dintner, Chairman of the Board of Directors of Audi Hungaria Zrt. “We have built the necessary competencies in the field of electromobility for their manufacture, which enables our company to anticipate the challenges of the future,” Dintner added. Audi Hungaria turned out almost 2 million engines and 100,000 cars at its plant in Győr (120 km west of Budapest) last year.
BMW to Start Building EUR 1 bln Factory in Hungary in Spring German carmaker BMW said it will start construction of a EUR 1 billion plant in Debrecen (195 km east of Budapest) in the spring, according to a report by Hungarian news agency MTI. The local council of Debrecen is finishing up groundwork at the site of the plant, BMW said on December 3. BMW will launch a recruiting campaign in Debrecen in the coming weeks and extend it to the whole of Hajdú-Bihar County next year. Michele Melchiorre, managing director of BMW Manufacturing Hungary, said Debrecen was the “perfect choice” for the new plant. The handover of the plant site took place in September.
Hungarian Vegan Food Producer to Enter U.S. market Hungarian startup Plantcraft Innovációs Kft. is set to enter the U.S. market with its vegan food products, after receiving a capital investment of HUF 150 million from X-Ventures Gamma Venture Capital Fund, according to a press release sent to the Budapest Business Journal. U.S. firm Allied Market Research says that the market of meat replacement products will grow at a rate of 8% per year between 2018 and 2025, reaching a turnover value of USD 7.5 billion by the end of the period. Another market research company, Bernstein, argues market turnover will grow to USD 40 bln in the next decade. Plantcraft was founded by Katalin Ohens, who lives in New Zealand but has Hungarian roots, and Csaba Hetényi from Budapest. The startup began product development based on recipes by a Hungarian biotech researcher. Since then, it has received assistance from Berlinbased Proveg Incubator, and CEU InnovationsLab from Budapest. The initial product lineup consists of pâtés, salami, and ham, says Csaba Hetényi. The pâtés are completely ready, while the other products are in the last
Plantcraft founders Katalin Ohens and Csaba Hetényi.
development phase. Plantcraft has developed what it calls secondgeneration meat replacements; its plant-based products contain no soy, gluten, or additives. The press release says that some 5% of the U.S. population is vegetarian, while a further 3% is vegan. “However, they are not the exclusive target group of our products, as we are also aiming at those in the remaining 92%, who want to eat less meat without losing out on the ‘meat experience’,” Hetényi adds. “Some 86% of those who buy meat alternatives are neither vegetarian nor vegan, representing a huge customer base for us.”
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Budapest Business Journal | December 13, 2019 – January 16, 2020
Business | 11
Hungarian Know-how Helping Navigate the way to Connectivity and Cybersecurity and the ecosystems they employ. NNG was recently recognized for its cyber-security excellence and market-ready solutions by Frost and Sullivan and awarded their 2019 Best Practices Award for Technology Innovation. Although smart and self-driving car technology is evolving rapidly, the appearance of ubiquitous self-driving cars in the next decade, say, hardly seems realistic at this point. “There’s still a lot of development and testing ahead, but
With mobile networks poised to transition to fifth-generation technology, pundits expect transportation, like many other industries, to really start to embrace smart and electric vehicles, rewiring how we think about travelling. David Wiernik, president of the Hungary-based multinational navigation firm NNG, talks to the Budapest Business Journal about the future of smart vehicles roaming smart cities. CHRISTIAN KESZTHELYI
International figures suggest that, with the rise in average salaries, older autos are gradually being replaced. While local statistics put the average age of cars on the Hungarian roads at between 12 and 14 years, the country has its fair share of new cars, but importantly the market is expanding. However, only 46% of Hungarian households own a car, according to a survey conducted by Median Opinion and Market Research; that confirms an earlier Eurostat study that reveals that the number of cars per 1,000 people in Hungary is 338, lagging some way behind the EU average of 505. With the expansion of smart car usage, a capital like Budapest could see stunning benefits. “The city could eliminate parking spaces equivalent to
170
football pitches,”
Wiernik tells the BBJ. “Residents could reclaim hours normally spent driving, and as electric vehicle numbers increase, air quality would dramatically improve. However, this is only true if mobility services, like carsharing and public transport, are as good as, or better than, owning your own vehicle. The Hungarian government is supporting such innovation with developments like the Zalaegerszeg automotive test track for self-driving cars,” he adds. NNG started in Hungary as a startup of passionate coders working 12-plus hours a day, aiming to deliver navigation solutions for a market that walked in baby shoes back in 2004, and focused on hand-held devices. Today, the company has grown considerably, reaching out far beyond the borders of this Central Eastern European country, conquering international markets via in-car systems.
Reputational Pride
“We are proud of where we started, and Hungary produces some of the best developers in the world. Our expertise
is recognized by many international brands and we work closely with them via our network of global offices. This gives us a lot of pride and boosts Hungary’s reputation as a location at the forefront of technology. Something which is recognized by more and more countries,” Wiernik says. NNG recently celebrated its 15th anniversary, and with this accumulated experience, the company has very firm view on the local market.
“We are proud of where we started, and Hungary produces some of the best developers in the world. Our expertise is recognized by many international brands and we work closely with them via our network of global offices. This gives us a lot of pride and boosts Hungary’s reputation as a location at the forefront of technology. Something which is recognized by more and more countries.” “Hungary is a unique economy, and from the beginning, we knew that we needed to take our expertise, and industry perspective, international; I think it’s true of all markets that you to need to look at all the opportunities available to you. Here in Hungary, we have a proud history of invention. High levels of STEM [science, technology, engineering and mathematics] education produce
by
2025
David Wiernik some of the world’s most innovative engineers. Our goal is to show it to the world and attract more investors to the country,” the NNG president explains. He says the company works hard on positioning itself globally so it can react flexibly to the current disruption in the automotive industry. “There’s a lot of early interest in cybersecurity, and intelligent integrated interiors in Asia, especially China and Japan. We’re opening new offices in Kazan (Tatarstan in Russia). NNG is still a market leader in global automotive navigation. We’re investing a lot to prepare for the future of mobility, and our expertise in navigation will play a vital role. We’re focused on the holistic relationship between the car and the driver. Many surprises will follow,” Wiernik says. Mobile network providers are expected to roll out 5G services en masse by the
end of
2020
at the latest, and this technology is seen as likely to play a pivotal role in the realization of smart city solutions. As such, 5G is vital for making self-driving cars a reality, not least through the advent of sensors.
Stable Connections
“Smart-cars also need a stable data connection. They need reliability and enough bandwidth to enable secure communication between infrastructure and other vehicles. 5G networking technologies deliver this, but they’re still not mature enough for mass autonomous traffic. Connectivity at this level can present a significant risk to public safety,” the NNG chief warns. This environment fuels the increasing need for cyber-security solutions, to protect all the players of the spectrum: The connected vehicle, its passengers,
we could see at least one global city ban conventional cars. This will be not only to improve the circulation of self-driving vehicles, but also to reduce pollution and congestion as global populations migrate to urban centers,” Wiernik says. How could the development of such technology be nurtured, then? “Much depends on the industry, regulatory factors, and consumer trends. I suspect we’ll see them used in specific, geo-fenced areas, such as highways, to begin with. Then slowly rolled-out to cities as the technology evolves,” he adds.
Jargon Buster: What is the Connected Car? A connected car is one that has its own data connectivity, usually via an embedded sim card or a wireless local area network (WLAN). This allows the car to share internet access and data with other devices in- and outside the car. Such vehicles operate as part of the internet of things (IoT), a phrase that refers to everyday items being connected to the internet with the intention of making our lives easier. Cars offer a wider range of communication possibilities than many other connected devices. As well as granting users access to real-time safety and comfort features, they could enable in-car services such as shopping and entertainment. Connectivity facilitates contact between the car and the dealership, triggering service appointments, and even alerts emergency services if you’ve been involved in an accident.
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Budapest Business Journal | December 13, 2019 – January 16, 2020
Special Report Deals of the Year
M&A Market 2019: Restructured Telecom Sector, Strong State Presence While international economic uncertainties still persist as an obstacle for mergers and acquisitions’ activity, such worries seem to be diminishing both globally and in Hungary. Apart from real estate, which continued to dominate the M&A market in 2019, several other sectors showed vivid activity this year. ZSÓFIA CZIFRA
OTP increased its presence on the High Street throughout the region in 2019 and now has 12 foreign subsidiaries.
Telecoms Market Turned Upside Down The telecommunications sector saw a rather busy 2019, and by the end of the year, the market has significantly changed. Already in 2018, telecom giant Vodafone had announced high-scale acquisition plans in the Central and Eastern European region. In May, Liberty Global, which owned UPC Hungary and also had affiliates in the Czech Republic, Romania and Germany, said that it would sell its operations to Vodafone.
The European Commission had been investigating the transaction for months, but in July finally cleared Vodafone’s acquisition of Liberty Global’s cable businesses for EUR 18.4 billion. With the deal, Vodafone will not just be able to offer the full suite of convergent services to all segments; it becomes Europe’s leading converged player, with 116.3 million mobile customers, 22.1 million TV customers, and a next-generation fixed network reaching a total of 122 million homes and businesses. The transaction brings Vodafone Hungary’s share of the local mobile
market to 25%, while its share of the broadband fixed-line market will
stand at
24%,
and its share of the commercial TV market at around 19%, according to state news wire MTI. News broke just as this paper was going to print that Magyar Telekom and 4iG, an IT company with close links to the Fidesz-led government, had terminated talks about the latter buying Telekom’s subsidiary T-Systems. The parties had announced on July 9 that they had started negotiations on the potential sale. 4iG CEO Gellért Jászai said he wanted to finance the deal by involving institutional investors and issuing bonds, in addition to taking out credit. By October, the company has completed the first phase of due diligence at T-Systems Hungary in a period of three months. The two parties intend to continue exploring cooperation opportunities with the aim of partnering in the field of services sold to the public and enterprise segments, 4iG company said in a statement when announcing the termination of negotiations. Just to create a complete the market upheaval, Hungary’s third large telecom company has also been the subject of a transaction this year. Proving previous rumors right, the Hungarian state indirectly bought into Telenor. At the end of October, state-owned Antenna Hungária announced it had acquired a 25% stake in Telenor Hungary and Telenor Real Estate from PPF Group. A leading telecommunications group in the region, PPF Group had acquired Telenor’s communications assets in Hungary, Bulgaria, Montenegro and Serbia in July 2018. After the recent purchase, a new holding entity has been created and will serve the purpose of a joint holding venture with PPF Group owning 75% and Antenna Hungária taking 25%. Continued on page 14 ► ► ►
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Special Report | 13
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Mokambo Magic Mokambo coffee is now available in Hungary, bringing about the flavor of Italian coffee, offering a creamy-chocolaty taste. The company’s selection of coffee beans originate from exotic countries such as Brazil, Columbia, Costa Rica, India, and Kenya. Caffè Mokambo is a business with a long and remarkable story, founded in early 1972. Available for hotels. www.mokambo.hu
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Budapest Business Journal | December 13, 2019 – January 16, 2020
Telenor is now 25% owned by the state through Antenna Hungária. Continued from page 12 ► ► ►
Banking M&A led by OTP
M&A activity in banking markets in the region has been increasing in 2018-2019 since it bottomed out in 2017, a recent study released by Deloitte highlights. According to the analysis, the high deal numbers in 2015-2016 were fueled by the unfavorable economic situation back then, as less robust banks could not cope with challenges and opted for an exit. This year there has been nine completed deals with six ongoing, and in 2018, the sector saw 16 completed deals. The main reason for the relatively low number of banking deals in the past two-to-three years was the easing pressure on banks’ profitability due to stable macroeconomic environments, lively lending activity, increasing profitability; all these postponed the need of mergers and acquisitions in the banking sector. However, long-term efficiency improvements can potentially be achieved via acquisitions, therefore the appetite of the banks in the regions is increasing again. The banking sector in the region is still very fragmented. In Hungary, of the 40 banks currently operating, only five have a market share larger than 5%, and 25 have less than 1%. The situation is similar across the region, which implies that there is room for further CEE mergers and acquisitions. The most active buyer in the 15 countries in the region analyzed in Deloitte’s study was Hungary’s OTP Group with
8
transactions
completed since 2015. OTP took advantage of Société Générale S.A.’s exit from the region, as OTP
acquired all the banks sold by SG, except in Poland, where Bank Millennium (owned by Banco Cormercial Portugues) acquired SG’s Euro Bank. At the beginning of February, Société Générale announced that it would sell its Moldovan unit to OTP Bank, as the French bank continued its retreat from parts of Eastern Europe, while OTP looks to gradually increases its presence in the region.
News broke just as this paper was going to print that Magyar Telekom and 4iG, an IT company with close links to the Fideszled government, had terminated talks about the latter buying Telekom’s subsidiary T-Systems. SocGen had a 87.85% stake in Mobiasbanca Société Générale, the fourth biggest lender in Moldova with a 13% market share. The deal was sealed at the end of July. Other OTP targets were in Albania and Bulgaria. The bank closed the acquisition of the Albanian subsidiary of Société Générale Group in March, after it had closed the acquisition of SocGen’s Bulgarian unit in January. The Albanian
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subsidiary contributed HUF 1.2 billion to Q2 group profit, and the Bulgarian unit added HUF 4.6 billion. Announced in February and completed in July, the Hungarian lender also bought the Montenegrin unit of SocGen through Crnogorska komercijalna banka, the local unit of OTP, for EUR 35.6 million. OTP said at the beginning of May that it had signed an acquisition agreement on purchasing a 99.73% shareholding of SKB Banka, the Slovenian subsidiary of Société Générale Group, and other local subsidiaries held by SKB Banka. OTP said it had completed the acquisition on September 25. Société Générale Serbia will operate under the brand name OTP Banka Srbija, while its full merger with Vojvodjanska Banka, another Serbian unit of OTP, is planned to be completed in 2021. By the end of 2019, OTP operates a total of 12 foreign subsidiaries.
Media Market Further Centralized Government allies further strengthened their grip on the Hungarian media market this year. On September 30, the pro-government Mediaworks Hungary Zrt. completed the merger of companies owned by the government-friendly Közép-európai Sajtóés Média Alapítvány (KESMA) fund. Some
28 companies
operating under the umbrella of KESMA entered into an agreement on February 21 this year to form an officially recognized company group. Now Mediaworks, which was formerly owned by Prime Minister Viktor Orbán’s close friend, the billionaire investor Lőrinc Mészáros, is at the helm of the group. The portfolio consists of all the country’s regional daily papers, some of its most visited news websites, political and gossip dailies, television and radio stations. KESMA was founded in 2018, and basically redrew the media market by merging a total of 476 media companies.
State Takeovers on the Energy Market The Hungarian energy market has also seen strong state activity in the past
years, and this tendency continued in 2019 as well. State-owned MVM Zrt. has become the sole owner of the country’s national utility company NKM Nemzeti Közművek Zrt. As the only shareholder in MVM, the Hungarian state has carried out a
HUF 13.4 bln capital
increase in the company in August. As a result, NKM has become a 100%-owned subsidiary of MVM. The services offered by the new energy holding created by the complete merger of NKM Group covers the entire spectrum of the energy value chain.
On September 30, the progovernment Mediaworks Hungary Zrt. completed the merger of companies owned by the governmentfriendly Közép-európai Sajtó- és Média Alapítvány (KESMA) fund. In another significant energy market deal, E.ON signed a framework agreement with MVM Magyar Villamos Művek Zrt. and Opus Global Nyrt. in October. On September 18, E.ON SE acquired a controlling stake in Innogy SE. Innogy is present on the Hungarian market as the majority shareholder of ELMŰ Nyrt. and ÉMÁSZ Nyrt. On October 2, E.ON Hungária acquired the 27% stake held by EnBW in ELMŰ and ÉMÁSZ. A day later, an umbrella agreement was signed between E.ON Beteiligunger GmbH, the sole shareholder of E.ON Hungária, and MVM Magyar Villamos Művek Zrt. (a shareholder of ELMŰ Nyrt. and ÉMÁSZ Nyrt.), and Opus Global Nyrt. Under this agreement, E.ON intends to acquire the shares owned by MVM in ELMŰ and ÉMÁSZ, followed by a series of other transactional steps. The final elements of the agreement are expected to close in 2021.
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Budapest Business Journal | December 13, 2019 – January 16, 2020
PRESENTED CONTENT
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Westend Shopping Center Continues to Blaze Pioneering Trail Westend remains the premier meeting and shopping place in Budapest and is well positioned to ward off the challenges of growing e-commerce, says Ioana Ion, the woman charged with running the facility. ROBIN MARSHALL
Ion became general manager of Westend Üzemeltető Kft., the operating company for Westend Shopping Center, at the beginning of 2019, but has worked for Granit Polus, the ultimate owner, for almost eight years. “I still have a couple of other positions in the company, but my major focus is Westend,” she explains. The role comes with major responsibilities, given the facility’s status as the flagship property for Granit Polus, the development company founded by the late Sándor Demján. “We can see Westend as a pioneer in many aspects,” Ion says. It was the first mixed-use development on the Budapest (and therefore the Hungarian) market, boasting retail, leisure, office and even hotel space.
Special Report | 15 the building, attracts them; it is the experience that will keep them. “We have the boomers, Generation X, Z, the Millennials; this place gives space to all of them,” she says. The future for malls is talking to each of those generations, using digitization and innovation-led advances to provide an experience that is personalized in the most attractive way for each in turn.
“The mall has seen 400 million visitors since opening, with 1.5 million per year being tourists. That makes Westend the most visited shopping center in Budapest.
“The mall has seen 400 million visitors since opening, with
1.5 million per year
being tourists. That makes Westend the most visited shopping center in Budapest.” All those visitors mean turnover generation, which “makes us the most valuable building in Budapest”, she adds. Westend is where brands first stepping into the Hungarian market have historically wanted to debut. The likes of Nike and Samsung, for example, have their flagship stores in the mall. And that is still happening today; GUESS will open a new store concept in the mall in December. “We will have the first opening in Europe of the American Eagle brand at the beginning of this month.”
Renewed Look
Some of the statistics the shopping center generates are more surprising than others. The site features a roof garden of three hectares, and it is
not surprising (but no less impressive) that it has more than 400 stores. The owners marked the 20th anniversary of Westend by announcing it is to be given a major overhaul and a totally new look in the next three years. A key element of that is an iconic new “wave” logo, which has already been unveiled. It encapsulates the progressive communal thinking Westend represents: keeping track of the latest trends, attracting people with personalized experiences in a robust retail and entertainment environment, creating a hub that puts community in the center, Ion says. Central to the future look of the center will be its function. One of the reasons most often cited for the lack of any new shopping center development in Hungary since the financial crisis is concern over the threat to traditional retail from e-commerce. That, in part, is based on Western European experiences. High Streets in the United Kingdom, to give just one example, have seen a string of historic names disappear into insolvency.
The shops and the shopping experience will continue to be important, but so will following the latest digital trends. It means expecting, for example, that some people may want to visit a store to try on an item before ordering online. Why not do both from Westend? “Experience”, “convenience”, “availability” will become key watchwords reflecting visitors’ own values. Westend has launched its own app that will help visitors find what they want
Location, Location, Location
But Ion insists Westend is different for a number of reasons. “Physical space remains a vital pillar in consumer experience, although reinvented and reimagined, adapting to social and technological change by introducing a dynamic mix of non-retail uses to compliment the retailers offer,” she says. “But people do not just visit Westend to shop, they come also for the experience and the atmosphere. They meet friends; they go to the cinema; they eat in restaurants or food courts.” She adds, “Westend stands for another city center; it is the shopping and meeting place for everyone.” That is not likely to change anytime soon: it currently draws
21 million people
per year, a figure that is projected to increase still further. The location,
Ioana Ion quicker, along with personalized special offers, and strives to incorporate environmentally friendly practices, cashless possibilities, mobility centers and environmental sustainability. Tourists are catered for, too, with transportation partners at the airport and luggage drops for suitcases once they get here. The information desk and the app will be able to tell them, in their own language, where the VAT free shops can be found. A dedicated stop was even added this year for the Hop on-Hop off sightseeing tours, under the slogan Hop and Shop. Westend continues to blaze its pioneering trail.
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Special Report
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Budapest Business Journal | December 13, 2019 – January 16, 2020
2019 Legal Deals of the Year The Budapest Business Journal asked some of the leading lawyers in the capital to reflect on the 2019 legal year, and also to look into their crystal ball for 2020. ROBIN MARSHALL
BBJ: What was the biggest Hungarian legal deal of 2019 and why? Csilla Andrékó (Kinstellar): It is difficult to pick one deal and say that it was the “biggest” deal of 2019 because biggest could mean a lot of things: size, deal value, complexity or novelty. I would say that we have seen and been involved in several very high value deals and complex transactions, mainly in the energy and real estate sectors during this year.
Csilla Andrékó Zoltán Hegymegi-Barakonyi (Baker McKenzie): Among the myriad large scale deals in Hungary this year, the most significant investment into the economy came from BMW, one of the biggest car manufacturing companies in the world, which established a plant in Debrecen. The deal was worth EUR 1 billion, amounting to the biggest foreign investment in Hungary in the past five years. Anikó Kircsi (CMS Budapest): I would definitely mention Advent International’s acquisition of Zentiva as one of the highest value M&A deals announced in the region this year, and in which Hungary is also involved. We are advising global private equity firm Advent International and its portfolio company, Zentiva, on its acquisition of the CEE business of global pharmaceuticals manufacturer Alvogen. The transaction is the latest in a series of acquisitions for Zentiva, part of its strategic development and growth campaign. Apart from this, I would also mention another deal: the sale of UPC Direct to the M7 Group. This transaction was again multi-jurisdictional
and led to a change in the telecoms sector in Hungary as well as in the region. Zoltán Nádasdy (Noerr): Out of the many significant transactions, we would consider the Indotek acquisition of Klépierre’s shopping plaza portfolio one of the most significant in the property sector, its significance being both the transaction value and also the fact that Indotek has moved into a “different league” through this purchase of such a major commercial asset class. István Réczicza (Dentons): The biggest deal on the Hungarian market in 2019 is definitely Vodafone’s acquisition of UPC, the country’s largest cable operator. The merger accelerates the availability of converged fixed, mobile and TV services in Hungary, and enhances market competition and the development of innovative service providers. Perhaps not the biggest, but the most complex deal was defiantly the merger of the two largest online retailers in Hungary, Extreme Digital and eMag. The merger set up one of the largest online retail networks on the CEE e-commerce market. This was a very challenging transaction from a legal and merger filing perspective. Dentons and our joint venture partner Impact Advisory advised Extreme Digital and its shareholders in connection with the merger and provided seamless legal and financial advice. BBJ: What was the biggest deal you were involved in? CA: From the closed matters (because a few really large deals are still ongoing and will be finalized before the yearend) I would pick the probably largest real estate M&A matter of 2019, the sale of French real estate group Klépierre’s shopping mall portfolio to Indotek. Kinstellar represented Klépierre on the sale of four shopping and entertainment centers in Hungary: Duna Plaza and Corvin Plaza in Budapest; Győr Plaza and Miskolc Plaza. The transaction was structured as a share deal and involved the sale and purchase of six Hungarian entities owned by Klépierre. The buyer is the Hungarian-American real estate investment fund Indotek Group. Klépierre is an important client of Kinstellar; earlier this year we advised t on the sale of another two shopping malls in Hungary.
operate its plant, including the reclassification and sale of 400 hectares of land to BMW. We were very also pleased to advise China Railway No. 9 Group Corporation Limited on its construction arrangements for the Budapest-Belgrade high-speed railway project, one of the largest infrastructure projects in Central and Eastern Europe in recent years. In addition, we deployed of a team of corporate, transactional, employment, real estate and contract lawyers to assist Brunswick Corporation on the international implementation aspects of the spinoff of its Life Fitness business, which was sold for approximately USD 490 million and included Protokon Kft., a Hungarian steel and electronic equipment manufacturing company with a staff of more than 400.
Anikó Kircsi AK: While we have advised on many exciting deals this year in Hungary, our capital markets team has been quite outstanding, assisting on two of the three takeovers that took place on the Budapest Stock Exchange this year. As part of the global transaction involving E.ON group’s acquisition of the Innogy group, we have advised on the two mandatory takeover bids in which E.ON Hungária Zrt. offered to purchase all the outstanding shares of ELMŰ Nyrt. and ÉMÁSZ Nyrt. Both takeovers recently closed successfully, with the E.ON Group acquiring directly and indirectly more than 83% of the shares in both of the aforementioned listed companies. We are also advising on another part of the same transaction, which involves a complex intra-group restructuring of the Hungarian entities in preparation of the mandatory divestment set out by the EU Commission. ZN: One of the biggest deals the Budapest office of Noerr has been involved in is the sale of the KIKA-companies portfolio (altogether 22 stores in four CEE countries) by Signa to XXXLutz.
Zoltán Hegymegi-Barakonyi ZH-B: Baker McKenzie is proud to have worked on numerous deals that represent significant growth in the Hungarian market. On the aforementioned BMW deal, we advised the Municipality of Debrecen and the Hungarian state concerning the greenfield development for BMW to establish and
IR: We were involved in many large deals in 2019, further to the already mentioned merger of Extreme Digital and eMag, another monumental deal for our office was the sale of Vascular Plazma Group, probably the largest deal in the Life Sciences sector in Hungary this year. Dentons advised Vascular Plazma and its shareholders on the legal and transactional aspects of the sale of Vascular Plazma Kft. and its subsidiaries to Swiss-based Shire International GmbH, a global innovator in specialty biopharmaceuticals, while our joint venture partner Impact Advisory was the lead M&A advisor in the transaction.
BBJ: What are your expectations for next year? CA: For next year, we expect that the trends and tendencies we’ve seen in 2019 will continue. We’d predict real estate to stay relatively strong, where we have a number of current or pipeline deals, particularly in the hotel sector. Capital markets deals and project finance work will continue to grow. We also expect we will continue to represent local, state owned M&A players, either in Hungary or abroad, in the energy sector. We are seeing continued interest from Asian capital, looking for geographic diversification, particularly in energy assets, and often forming joint ventures with local players who offer on the ground knowledge of the industry. ZH-B: We are optimistic that 2020 will see ongoing growth in the Hungarian market as innovation and economic investment continue. However, the impact of international trade developments on the Hungarian economy remains uncertain, particularly in relation to Brexit and the U.S.-China trade war. AK: We can see that optimism among dealmakers for the future of European M&A has faltered somewhat since last year. The TMT, consumer and Life Sciences and Healthcare sectors are expected to deliver the most deal activity during the next 12 months, while we also expect that restructurings and distressed M&A will increase in number. Further, many expect financing conditions to become more difficult in the coming year. Although the market is subdued, there is still an appetite to invest if the right deals come up. Buyers are becoming more particular about the transactions they will do, favoring deals in rapidly growing sectors that have upside potential, but also some cushion against downside risks. I believe this trend will continue in the near future with the challenges of digitalization, which is key when considering future M&A deals.
István Réczicza ZN: We expect a slight slow-down of growth across the board, if all the global forecasts prove correct; however, we are convinced that the strong basis of the Hungarian economy will ensure that our clients will continue to grow and consolidate their business and we will be able to support them in 2020, too. IR: Regulated industries, such as energy, infrastructure, telecommunications, media and technology will remain our key areas in the next year, while as regards transaction types we will primarily focus on M&A, private equity, real estate, banking and data privacy matters. Automation is developing at an accelerated pace these days, resulting
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Budapest Business Journal | December 13, 2019 – January 16, 2020
in the emergence of new technologies in our daily life. We will pay particular attention to robotization and technological developments. BBJ: How would you characterize the legal market in 2019? CA: We have seen a real boom in transactional work, especially in the M&A, banking, real estate, and energy sectors. I think we continued to see a dominance of local capital in both real estate and regular M&A; in the latter case particularly in the energy sector. Private equity deals continue to be sporadic, with a shortage of good quality assets creating challenges for regional PE players and also a shortage of sufficiently large assets, meaning large PE deals are few and far between. We’ve seen a real push from the National Bank of Hungary to promote activity on the capital markets. The tendency that large international law firms with expensive overheads leave Hungary and the region continued somewhat this year, although those few international law firms who remained and that have invested heavily in their local offices in the last decades will probably stay and manage their Budapest offices as hubs for the region. Despite the larger number of deals, the Hungarian legal market is still very competitive, therefore quality, flexibility to adopt to new challenges and strong local/ regional clientele are key for law firms to remain on top of the competition. We had very strong growth in revenue for the second consecutive year and could also increase our average billing rates, which
still vibrant and there were some significant big deals this year. We saw a great deal of activity in solar energy projects, and BMW’s ongoing greenfield investment is also a marvelous project for Hungary.
Zoltán Nádasdy demonstrates that clients are ready to pay for high quality service when it comes to complex larger transactions. ZH-B: Thanks to a strong global and local economy, we saw a thriving legal market characterized by high volumes of work and persistent growth. The market was, nonetheless, fiercely competitive as clients sought high quality service, value for money and innovative solutions in an increasingly cross-border and technology driven economy. AK: H1 2019 statistics seem to indicate that both in overall deal value and volume, M&A activity somewhat fell not only in Hungary but in almost all of Europe compared to 2018. However, we can see that this year was still a good time to do deals with low interest rates and plentiful financing; the market is
ZN: The Hungarian market has shown signs of consolidation and a healthy balance between international and more domesticfocused law firms. It appears that the global legal market trends apply in Hungary as well, meaning the larger and more broad-based the service offering of a law firm, the more likely it can produce growth and attract talent to achieve critical mass in core service areas. We regard Noerr as an example in terms of making slow but sure progress in expanding our services through extended offering such as in the area of banking and finance, state aid law advisory, amongst others. IR: In recent years, the Hungarian M&A market has mainly been driven by larger state-backed transactions and as a consequence, the government has become a major buyer of legal services. In terms of energy there is currently a solar power boom in Hungary. We are involved in several major solar power development projects in the country, including MET Group’s first and one of Hungary’s biggest solar power plants, in Százhalombatta. In the real estate sector, overall demand for new developments, as well as for existing commercial buildings in prime locations, is growing. Law firms have been retained by major real estate funds and companies, both in sale and purchase transactions. The Hungarian state has
Special Report | 17 invested heavily in the real estate sector in the past years; consolidation of these companies is underway and the potential future partial sale of them could generate significant work for law firms. In 2019, GDPR was still one of the most talked about topics, as it profoundly changed the way in which enterprises treat data. In the TMT sector there is a trend towards major transactions and ownership restructurings. The National Media and Info-communications Authority of Hungary (NMHH) recently launched 5G frequency tenders, which will dominate the telecom sector over the next few months. Big Data is also very much in the minds of our clients in Hungary, as data is changing their business models.
Our Legal Panel (listed in surname order) • Csilla Andrékó, managing partner, Kinstellar Budapest • Zoltán Hegymegi-Barakonyi, managing partner, Baker McKenzie Budapest • Anikó Kircsi, partner and head of corporate/M&A practice, CMS Budapest • István Réczicza, Hungary managing partner, Dentons Budapest • Zoltán Nádasdy, partner, co-head Budapest Office, Noerr LLP
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Budapest Business Journal | December 13, 2019 – January 16, 2020
Commercial Property Investment Continues to Thrive in 2019 Deals have been concluded in the office, retail, industrial and hotel market sectors, with analysts forecasting that the total volume of transactions for the year could amount to around EUR 1.5 billion.
into
2020,
GARY J. MORRELL
With demand for investment assets far higher than supply, asset owners have the option of holding onto their products so that they are able to exit at a time of their choosing with multiple bids from a wider diversity of both international and domestic investors. In response to market demand, developers are delivering higher quality, better-specified buildings that meet the requirements of high-end investors. Fundamentals are strong in the office, industrial, retail and hotel sectors with rising rents and strong projected demand. “The bottleneck appears to be the undersupply of institutional grade stock,” comments Bence Vécsey, head of capital markets at Colliers International Hungary. Adorján Salamon, CEO of Eston International, argues that rising construction costs will help prevent the markets in Hungary from overheating on the supply side. On the demand side, companies need to plan far ahead in order to secure contiguous, well located office, industrial or retail space.
Office Overview
Skanska sold the 14,000 sqm Nordic Light Trio office building to JRAMC, a South Korean real estate investment trust. This is first office investment in the CEE region by this particular
the vendors on the transaction, describes it as a “new landmark deal”. He commented that a combination of local capital, Korean investors and traditional German capital has been chasing one class “A” office asset that was recently available to developers. In another deal by local developers and investors, Erste Real Estate Fund purchased the 20,000 sqm Advance Tower from Futureal, the second transaction between the two companies after the Vision Towers deal, also in Váci út. Competition between Hungarian capital and international investors is expected to hot up. “Domestic investors are building a considerable shareholding of commercial property in Hungary. Not only the three mainstream retail fund managers, but also closed-end funds and private partnerships have made a major venture into real estate. Going
Nordic Light Trio investor. Asian investors have become increasingly active in the Czech Republic and Polish markets and this interest has now moved to acquiring assets in Hungary. “More than 50% of capital deployed in the first three quarters of 2019 has come from continental Europe (including CEE), with 25% of the total volume coming from CEE investors alone. Asian Capital, particularly from South Korea, has also been active with a share of around 16%,” said Kevin Turpin, regional director of CEE research at Colliers International. In another office deal involving a foreign investor, the German closed-end fund, Warburg-HIH RE purchased the LEED “Platinum” rated 21,500 sqm GTC White House in the Váci Corridor business district, for around EUR 80 million, the complex was completed in 2018. Tim O’Sullivan, head of capital markets at CBRE Hungary, who acted for the purchaser on the deal, says the fund represents new German money entering the Hungarian market. Total supply in the Budapest office market has reached about 3.6 million sqm according to the Budapest Research
GTC White House
Forum (BRF), consisting of CBRE, Colliers International, Cushman & Wakefield, Eston International, JLL and Robertson Hungary. From this figure a little more than three million sqm is defined as Class “A”. Vacancy has fallen further to close to 7%, one of the lowest levels yet recorded in the Budapest office market. CBRE estimates that around 500,000 sqm of office space in Budapest is currently under construction. Atenor has sold different phases of its 130,00 sqm Váci Greens office projects to Hungarian and Central European investors. In parallel with development of the final phases, the developer has undertaken work on the speculative phased 85,000 sqm Aréna Business Campus that is currently available to investors. In another major phased development in the Váci Corridor, HB Reavis is constructing the 136,000 sqm Agora Budapest. This first 60,000 sqm phase of the project is due to be completed next year and is being marketed to investors. In a significant letting for the Budapest office market, BP has taken 22,000 sqm of space at the complex. In what is described by GTC as the largest deal in an office building that is under construction, ExxonMobil has signed a 27,000 sqm prelease for the whole of the Pillar office center, located close to the Váci Corridor in District XIII. As the sole tenant in the building, ExxonMobil was involved in both the design and construction phases of the LEED “Gold” accredited project, penned by the ZDA – Zoboki Design & Architecture studio. Pillar is due for delivery in the first quarter of 2022, and is emblematic of a market where developers are now able to conclude preleases or built-to-suit deals in a market with strong demand and limited supply. The established yield threshold has been broken with the purchase of the recently refurbished, 27,000 sqm Roosevelt office building, in a prime location on Széchenyi tér, by the Hungarian OTP Real Estate Fund with GLL Real Estate Partners, a Munichbased fund manager in the Macquarie group, at a yield reported to be 4.9%. Mike Edwards, head of capital markets at Cushman & Wakefield, who represented
we expect a limited composition of domestic investments and should sizeable deals appear, the chances are strong that international investors would be welcome as buyers,” says Bence Vécsey, head of capital markets at Colliers International Hungary. Futureal Group sold the Corvin Technology Park, the fifth office complex at the Corvin Promenade office, retail, leisure and residential complex, to the OTP Prime Real Estate Investment Fund. Following this latest deal between the two groups, funds managed by OTP Real
“Another development I find very interesting is the increased liquidity on the hospitality segment of the market. Not a specific deal but more the number of transactions, which should get close to 10 assets.” Estate Investment Fund Management now own almost 100,000 sqm of office space at Corvin Promenade. The 27,300 sqm Corvin Technology Park consists of two phases: 14,000 sqm and 13,000 sqm. Last year the Hungarian fund purchased all of the operating office buildings at the Corvin Promenade urban regeneration project, in addition to two office centers that were under construction at the time. At the same time, OTP Prime Real Estate Investment Fund also entered a preliminary agreement to purchase the Corvin Technology Park. Local investors have developed long-term relationships with developers and are able to exploit these relationships to react quickly when an asset is potentially available. “The large local pool of investments certainly create liquidity; however, given the long-term investment horizon of most Hungarian buyers, this may jeopardize future supply and churn of investments. Access to assets for local buyers is smoother, combined with the fact that these investors are very well tested and proven, hence any seller minimizing their risk of exit turns safely to local investors,” adds Vécsey of Colliers. A strong local capital base is fundamentally good, as it shows a level of development of
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Budapest Business Journal | December 13, 2019 – January 16, 2020
Special Report | 19
INSIDE VIEW
Gergely Szalóki
Partner
SCHOENHERR HETÉNYI ATTORNEYS AT LAW Pillar office the market and offer a strong local liquidity basis even if the international capital was to leave, Benjamin Perez-Ellischewitz, head of capital markets at JLL Hungary, explains. “At the same time, the market needs to be transparent enough that the level playing field is ensured for all parties, local and foreign,” he says. Salamon of Eston International argues that the change in the perception of Hungary as a market from an investment perspective is that he no longer has to explain the details of the market to international investors. When it comes to market liquidity, he estimates that a recently completed class “A” office development in a prime located could attract as many as five or even eight concrete offers, while a complex in a more outer location could attract 15-20 offers. Tim O’Sullivan, head of capital markets at CBRE Hungary puts office yields at 5.25%, retail yields at 5.5% compared to 7% for industrial and 5% for hotels with long leases. Further compression is expected in the industrial sector while office yields are seen as under pressure. JLL forecasts further yield compression with limited supply in all asset classes and estimate office and high street retail at 5.25%, shopping centers at 5.75% and industrial at 7.25%. Colliers International estimate office yields at 5%, retail at 5.5% and industrial at 7%.
Industrial Overview
The South African international investor JT Ross entered the Hungarian industrial market with the purchase of the Aerozone Business Park from M7 Real Estate
(as part of its M7 CEREF1 fund). The complex consists of 48,000 sqm of industrial space and 15,000 sqm of office space. In a separate logistics deal, an Asian buyer has purchased industrial assets across Hungary from M7. Total modern industrial stock in the Budapest area stood at 2.23 million sqm as of the end of the third quarter according to the Budapest Research Forum. Overall vacancy stood at 2%, representing just 43,000 sqm of vacant space; there is no existing warehouse with an area of more than 5,000 sqm free. The largest deal in the period was a 19,000 sqm prelease/ built-to-suit deal of the new phase of BILK. Leading industrial developers are now undertaking speculative development projects in response to this strong demand and what is the lowest vacancy in Central Europe. CBRE estimates that 90,000 sqm of industrial space was delivered in the first three quarters of the year. Across Hungary,
530,000 sqm was delivered
in the same time period, the majority of which is non-developer led, reflecting the dominance of the greater Budapest area for logistics/industrial park development.
Hotel Overview
In the hotel sector, the HungarianAmerican investment managers Indotek have purchased the famous Art Nouveau, 230-room Gellért Hotel overlooking the Danube. The fund plans to refurbish the landmark building and upgrade the hotel Continued on page 20 ► ► ►
Váci Greens
The government subsidy that once made the home-savings deposit products attractive to clients were withdrawn last fall. Since then, home-savings banks have had to try to find new ways to keep their head above water. Is consolidation the proper response? How can homesavings portfolios be transferred efficiently? The Hungarian Parliament adopted a law on October 15, 2018 that terminated the government subsidy provided to the home-savings deposits. This event significantly changed the environment for the four specialized credit institutions that operated on the market at that time. The home-savings deposits were a popular saving form in Hungary as, together with the government subsidy that accrued on the deposit collected by the client on a pro rata basis, they promised a high yield for the clients; especially in the current interest rate environment we experience nowadays. The termination of the government subsidy for new contracts made these products far less appealing to the clients. As the sale of these products dropped significantly over night, home-savings banks needed to re-evaluate their business models and assess if the size of their current portfolio could guarantee feasible operations. Aegon Lakástakarék, the home-savings bank of the Amsterdambased Aegon Group, being the smallest player in the market that time, concluded that its portfolio should be put on the market. Home-savings banks are specialized credit institutions whose scope of operation is much narrower than that of normal banks; basically their activity consists only of collecting deposits and investing the collected money. The transfer of these
portfolios thus is burdened with heavy licensing requirements imposed by the regulator. Not only is the transfer of the portfolio itself subject to the approval of the National Bank of Hungary (MNB), but the prospective buyers are also expected to have a valid Hungarian license for this special activity. Furthermore, as only a few players are active on the market and the barrier is high for other actors to enter this narrow stage, the assessment of any transfer from a competition law perspective is also difficult. Apart from the licensing requirements, there are many large-scale, complex legal problems arising from the sale of a home-savings portfolio; e.g. the hands of the parties are tied by the provisions of consumer protection, as the clients are private persons exclusively. The same fact means that GDPR must also be adhered to when contemplating how the client’s data should be transferred from one credit institution to another. In the framework of the present article it is not possible to list and introduce all such legal problems exhaustively. To illustrate the complexity of the matter, the provisions of the Hungarian Civil Code on the transfer of contracts, sale and purchase of deposits and assignment of claims will be compounded by the home-savings regulation, which is of a more technical nature, and all of the aforementioned with the terms of the underlying agreements. This requires a thorough due diligence in all cases. The guidelines of the MNB will also need to be taken into consideration when setting up the structure of the transaction, besides the provisions of the banking laws. All of these are complicated by the specific rules applicable to the different areas of law depending on the feature of the transaction (e.g. the aforementioned data protection and consumer protection). The final structure of the transaction is finally realized in the form of separate but closely connected contracts that have been developed to address all of the aforementioned factors and also guarantee the smooth transition of service providers for the clients. The harmonization of such contracts is a particular challenge even at the stage of preparation of the first drafts, but the more difficult part is maintaining balance throughout the negotiations.
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Aegon Sells Home-savings Portfolio to Erste: The Legal Advisor’s Perspective
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Hotel Gellért Continued from page 19 ► ► ► to five-star status, to which end the new owner is looking for an international luxury branded hotel operator. “Another development I find very interesting is the increased liquidity on the hospitality segment of the market. Not a specific deal but more the number of transactions, which should get close to 10 assets,” Perez-Ellischewitz says. CBRE have estimated a pipeline of 23 hotels with 3,200 rooms in Budapest due to be delivered by 2022 with
1,800 hotel rooms
delivered across Hungary in the first three quarters of this year. In Budapest, hotels
had an average occupancy rate of 74% this summer, according to the Central Statistical Office. Cushman & Wakefield have traced seven 3-5 star hotels delivered during the year in Budapest, the largest of which was the 214-room Hilton Garden Inn Budapest City Center.
Retail Overview
In a regional retail transaction Metro Properties, the real estate arm of Metro AG, has sold the real estate of 11 of its Cash & Carry stores in Poland, Hungary and Czech Republic in a sale-andleaseback transaction to FLE GmbH of Vienna, a subsidiary of the French LFPI Group, investing on behalf of an AIF regulated fund.
The transaction was finalized in August with a total investment volume exceeding EUR 250 million plus. Metro and Makro Cash & Carry will continue to operate all the wholesale locations on the basis of long-term 15-year lease-back contracts. “The deal originated in Hungary with three outlets, to which three complexes in Prague and five in Poland were added. The proposed deal attracted both Korean and American investors,” commented Tim Hulzebos, managing director of Colliers International Hungary, who represented the vendors on the transaction. JLL puts total modern shopping center stock in Budapest at 722,000 sqm, which is low by European standards, and represents a total shopping center density of 433 sqm per 1,000 people. The leading centers have waiting lists for tenants and are therefore able to command the highest rents. Budapest shopping center development has been close to zero in the post economic crisis period, with developers wary of the level of consumer spending and the threat of e-commerce. In spite of these concerns, retail has continued to attract investors with several Budapest schemes changing hands and a number of centers undergoing refurbishments and repositioning in recognition of changing demand from retailers and consumers. The KÖKI Terminal shopping center, located adjacent to the Kőbánya metro station, has been purchased by investors for a reported EUR 100 mln. The complex, opened in 2011 is set to undergo refurbishment. With regard to the countrywide retail market, Indotek has acquired a Hungarian
shopping center portfolio of around 100,000 sqm from Kleppierre consisting of two centers in Budapest, one in Győr and one in Miskolc. After this deal, Indotek now operates
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large-scale
shopping and commercial centers in Hungary. Refurbishment works on the Debrecen, Szeged and Szolnok Plaza malls are under way. The deal is both a rare example of investment activity outside the capital and the conclusion of an investment transaction in the retail sector where activity has been low due to the wider concerns over the long-term viability of the retail sector and the limited availability of assets. For the first three quarters of 2019, the CEE region (Poland, Czech Republic, Slovakia, Hungary, Romania and Bulgaria) has recorded an investment volume of circa EUR 9 bln, with EUR 12.5 bln-13.5 bln forecast for the full year, according to Kevin Turpin, regional director of research CEE at Colliers International. Offices dominate the CEE deal flows with a 58% share, followed by a much smaller retail sector at 18%, industrial and logistics with 9%, and hotel at 8%. “There are more developers and more different sources of capital developing and looking to purchase big-ticket prime product in Hungary. The expected circa EUR 1.5 bln total expected volume is limited by low availability of big-ticket items such as shopping centers,” concludes Edwards of Cushman & Wakefield.
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Budapest Business Journal | December 13, 2019 – January 16, 2020
Socialite Sinéad O’Connor: An Incomparable Performer in Budapest David Holzer talks with sometimes controversial Irish singer-songwriter Sinéad O’Connor ahead of her one-night show in Budapest, the second stop of her latest world tour. DAVID HOLZER
The career of Sinéad O’Connor has certainly had plenty of controversial twists and turns. But what’s perhaps most surprising, at least initially, is the sheer affection with which she’s regarded. My research prior to interviewing O’Connor was mainly watching YouTube clips. I came across her performing “Nothing Compares 2 U,” the Prince song she made her own back in 1990 in Ireland at Feile 19. The audience greets the song with a mighty roar and sings along with every word. When I spoke to O’Connor recently, I was grateful that we were talking on the phone so she couldn’t see me wince when I asked about that song and how she felt about singing it almost
30 years
later. She was unphased. “I’ve taken breaks from singing it when I can’t find anything in it,” she told me. “But I always come back to it.” And how does she feel about the obvious affection with which she’s regarded. “I’m thrilled with that. It’s makes me very happy, to be honest. I find it very, very moving.” O’Connor’s Budapest show is the second date on a tour that takes in Canada and the United States as well as Europe. It’s perhaps not surprising that she should be regarded so warmly in her native Ireland but what about the rest of the world? “I find it the same everywhere I go,” she said. I’d suggest that one of the reasons O’Connor is fondly appreciated is that
of her voice. How did she feel it had changed since she recorded the song
aged
24
or so? “I’m 53 so I can’t sing as high soprano as I could back then, but I still feel I sing better now than when I was younger. I think the biggest change is I’m much freer as a singer. Once I start singing in my own accent, I start being myself.” Although she’s best known for that song, O’Connor has made 10 albums and been involved in many collaborations. She also has a large back catalog of deeply personal self-penned songs. How does she write?
Writing Muscle
“I just wait for something to come. It usually isn’t that long. Maybe I’ll wait a year. I write a bit more slowly than perhaps I used to. Touring helps to get the writing muscle in shape again. Once that happens, the songs arrive.” Is O’Connor one of those people who believes, as songwriters often say, that the songs come through her? “No. I believe I’m channeling my true self. Some of the time, songwriting is quite conscious for me but mostly it feels like it’s my subconscious speaking to me.” Talking to O’Connor, I get the sense that she’s honest to a fault. Did she have any kind of career game plan when she started out? “I just had a whole lot of stuff I had to get off my chest. And I was doing that in the form of music. I didn’t really think about anything else. Which is why it was uncomfortable for me when all the other stuff happened. I wasn’t expecting that or aiming for it.” By “all the other stuff” O’Connor means the various controversies she’s sparked throughout her career. The most recent of these is her embrace of Islam. But, talking to her, converting – or, as she puts it, “reverting” – makes perfect sense. “I am a person who’s studied theology since I was very young,” she said. “I left Islam until last because I was quite prejudiced. But once I started to study the Koran, that was it. What I like about the Koran is that it confirms all the previous scriptures, the Judaism and Christianity Sinéad O’Connor. Photo by Donal Moloney. which I find so inspiring. I’ve also been inspired by Hinduism, but I’ve had to leave that slightly behind, although I have Hindu performance. You don’t need a big old when she performs live, what you see pictures all over my house and listen to production around you. You should be and hear is exactly what you get. At Hindu chants.” able to go on in your jeans and t-shirt Feile 19, she took the stage in trainers, To me, it seems that, although and be fire. I can do that and it’s what I shapeless trousers, a hoodie and a hijab, O’Connor’s faith is undoubtedly sincere, love to do.” the Muslim head covering which she’s she really embodies the artist Jean As she says, performing live is what said she wears out of choice rather than Cocteau’s maxim that “Art is not a pastime O’Connor does. “I’m someone that was because she’s obliged to. but a priesthood.” Her devotion to her art born to perform live. It’s the only reason I and her craft are the most important thing On Fire make records,” she said. That’s not to say for her and they should be for us. In these days of singers using things that O’Connor hasn’t made some fantastic like Pro Tools to enhance their voices albums, most notably for me 1994’s or even miming, frantic dancing, “Universal Mother”. Sinéad O’Connor appeared at multiple costume changes, huge video Watching another impassioned, utterly the Akvárium Klub in Budapest screens and pyrotechnics, O’Connor focused, performance of “Nothing on December 9. believes “everyone’s doing big shows Compares 2 U” on Irish TV, I was struck and everything to distract from the all over again by the purity and power
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Budapest Business Journal | December 13, 2019 – January 16, 2020
Festive Furmint Flexes its Wings Furmint is forging ahead as Hungary’s flagship white grape and in common with some of the great white grapes of the world, it can be used to makes wines in a gamut of styles to excellent effect.
40%
Hárslevelű
ROBERT SMYTH
Indeed, it has Riesling and Chenin Blanc’s ability to make wines that are outstanding from dry through late-harvest sweet to full-on botrytized, even sparkling, as well as Chardonnay’s capacity to make complex dry whites (in Burgundy, Chablis and in many of the New World’s most prestigious wine regions) and sparkling wines ( just think of champagne).
(For more on how Aszú is made, see my previous column: “It Absolutely Must be Aszú for Advent!”) Sweet Szamorodni from Tokaj is a fruitier, lighter (typically aged for less time) and a cheaper alternative to Aszú, made in the same way as other great sweet wines like Sauternes (from Bordeaux), with the bunches comprising both regular and botrytized grapes picked together, and then pressed. Oremus’ Édes (Sweet) Szamorodni 2015 is great value at HUF 3,250 from Bortársaság, in which Furmint is complemented by
Christian Forget All are fine articulators of terroir and can express the subtleties of individual vineyards. Indeed, Furmint appears to be of rather noble origin and it has recently been discovered that it has a common parent to Riesling and Chardonnay – none other than Gouais Blanc (now barely planted but boy did it leave its mark behind!), according to Caroline Gilby, Master of Wine.
This kind of makes sense when I think of all the comparisons to that trio I’ve made over the years when writing about Furmint. In the previous edition, I extolled the virtues of that grape for its role in providing the backbone of Tokaji Aszú; a must for the holidays, and once opened the wine won’t spoil for weeks, allowing sparing seasonal sipping.
(also capable of making excellent dry wine: from Somló, Barnabás Tóth’s 2017 is one of my wines of the year), then 15% Zéta and 15% Sárgamuskotály. It has 75 g/l of residual sugar, considerably less than Aszú, which starts at 120 g/l. Dry Szamorodni is sadly dying out but when it’s good, for me it is a thing of brutal beauty. Samuel Tinon, who was born in Bordeaux and, having made wine all over the New World, set up his own winery in Olaszliszka (233 km northeast of Budapest in the Tokaj wine region), is the go-to winemaker for this ultra-rare wine style. His 2009 is made from 90% Furmint and 10% Hárslevelű, given 12 hours of skin contact, fermented by wild and cultured yeast, and then aged for a whopping six years in used oak barrels. It is full-bodied, seriously intense, very nutty (especially walnut) with those botrytis dried apricot and ginger notes, with vibrant acidity
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HOTCO Conference Returns to Budapest in 2020 The fourth annual HOTCO Hotel Investment Conference will open its doors in Budapest from January 20-21. HOTCO 2020 is being held around the key theme of investment and transactions under the slogan “20/20 Vision for Hotel Investment and Deal Flows in CEE, SEE and New East”. The event, organized by Horwath HTL, the global leader in hospitality consulting, is designed to service the Central and South Eastern European, CIS and Caucasus markets and aims to help the real estate development community better understand why all successful players are entering the hotel real estate sector. The conference has proven to be the key event for hotel owners, investors, operators and suppliers, attracting more than 300 attendees from 30 countries each year, 45% of whom are senior executives and owners.
This year’s event looks to build on that success, and will feature a program packed with the key issues facing the industry today and geared toward the specific challenges facing hotel development in the CEE region. The event is being held again at the Kempinski Hotel Corvinus Budapest. Marius Gomola, co-founder of the event and managing director of Horwath HTL, Hungary, said “The success of last year’s event showed that the market in the CEE and SEE was being underserved, and presents tremendous opportunities. We long suspected that investors searching for higher yields on hotel investments would turn from Western Europe to this region. We are sure that this year’s event will continue to confirm the CEE and SEE regions as key development and investment markets.”
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Budapest Business Journal | December 13, 2019 – January 16, 2020
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PRESENTED CONTENT
Bartók World Competition Hailed a Success The unique Bartók World Competition and Festival hosted by the Academy of Music proved a great success once again this year. Held for the third time this September, this musical event has generated enormous interest among audiences over the years. balancing its power. It cost HUF 7,430 from wineloverswebshop.hu.
Festive Cheer
Meanwhile, there are other ways in which Furmint can bring festive cheer. Somló’s Kreinbacher winery has been uncompromisingly committed to the sparkling wine cause, paying remarkable attention to detail in the making of traditional method sparkling wines (where the wine undergoes a second fermentation in the bottle, as is the case with champagne, among others), with Furmint at the forefront of its approach.
Kreinbacher’s sparkling wine was very good from the first moment: I still remember the first sip and my palate being transported to Champagne via Somló. No expense has been spared, both in financial and sweat equity terms, and the results are spectacular. Not only did Kreinbacher bring in Coquard presses and Champagne yeast in from France, they also called in the Champenoise savoir faire in the form of Christian Forget, winemaker of Champagne Paul Bara. Kreinbacher’s sparkling wine was very good from the first moment: I still remember the first sip and my palate being transported to Champagne via Somló. Having completed nine harvests, Kreinbacher now has a whole host of base wines to play with in blending when making traditional method sparkling wine. The grapes now don’t only come from the volcanic basalt of Somló Hill, but also from both sides of Lake Balaton, Etyek and Vashegy; the latter is part of the Sopron wine region (Kékfrankos for the rosé sparkler), from where the winery’s own team manually picks the grapes. Forget is still involved as a consultant, especially when it comes to the art of blending. Nine harvests is nothing in the bigger bubbly picture, and Norbert Bodorkós, estate
manager, recalls a hilarious moment from a blind tasting of base wines when he thought he had got this sparkling stuff sussed. Having believed they had picked out an ideal candidate for a base wine, Bodorkós and a couple of his colleagues were surprised to see that Monsieur Forget had already discarded it. Kreinbacher’s Prestige Brut is 100% Furmint, has dosage of 8.5 g/l and spent a lengthy
24-30 months
on the lees as part of the second fermentation in the bottle. It is really yeasty with lots of brioche and biscuit notes, from the autolysis, whereby the lees integrate with the wine, though there is lots of juicy quince to give real substance and drinkability, on top of that complexity (HUF 5,900 from Bortársaság). Kreinbacher’s Brut Classic (HUF 5,300) allows some of that sparkling wine super grape of Chardonnay into the blend, and – even though a little lighter – can sometimes even eclipse the Prestige. The Brut Classic is particularly magnificent in its Magnum format (HUF 16,000 with gift box), with the smaller amount of oxygen that sits between the wine and the cork, when compared to the volume of a regular-sized bottle, bringing about subtler and slower ageing. Over in Tokaj, the likes of Sauska, Zoltan Demeter and Chateau Dereszla are also making serious traditional method sparklers.
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Stewardship of Bartók’s internationally renowned oeuvre is a major commitment of the Academy of Music, the composer’s alma mater, and this is certainly in evidence at the competition designed to evoke his spirit and heritage. Indeed, Bartók was deeply devoted to Hungarian culture throughout his life, while building bridges between nations and cultures through his compositions. Now, as a global powerhouse in music, Hungary naturally avails itself of this opportunity to showcase his work. The Academy of Music is also committed to introducing the world to the private life of the composer, offering an insight into the mysteries of his relationship with music, thereby making his compositions easier for music lovers to appreciate. The event has been extremely popular with international audiences since its launch in 2017 and is followed with interest inside Hungary as well. The festival, a highlight of the event, features “Bartók’s Budapest” tours of the city on opening day, while our Liszt Kidz Academy offers unique classes for children. The same afternoon, the competition begins with a ceremonial public drawing on an open-air stage at Liszt Ferenc tér to decide the order in which the competitors are to appear on stage. Then there are free miniconcerts to give you a taste of Bartók’s multifaceted output. Anybody who would like to gain a deeper insight into his pieces and enjoy the event even more can hear brief lectures ahead of each round where Bartók’s compositions are to be performed. After moving on from the free elimination rounds and semi-finals, where the set repertoire includes Bartok’s short virtuoso pieces, competitors in the finals play relatively long and difficult compositions. The closing event of the world competition is a gala concert where the international jury announces the winners.
We are honored to receive funding from Hungary’s Ministry of Human Capacities. We are likewise pleased that János Áder, President of Hungary, and Lady Valerie Solti, widow of world-famous conductor Sir Georg Solti, continue to act as chief patrons of the competition. Witnessing the competitors rise to the occasion before a prestigious international jury is a veritable artistic delight for audiences. Indeed, this competition has been announced in a variety of categories: violinists in 2017, pianists in 2019 and string quartets in 2021. In the intervening years, the Academy of Music invites composers to create pieces for musical instruments to feature in the competition in the following year. We are in for yet another real sensation in 2020: the Fourth Éva Marton International Singing Competition, organized again by the Academy of Music. First mounted in September 2014, the contest joined the community of prestigious competitions this year after being elected a member of the World Federation of International Music Competitions. The rounds that are open to the public will be held in the Academy of Music, while the finals will be broadcast live on television and on the Internet, both in Hungary and throughout the world. The biennial event was established by Éva Marton in her capacity as professor at the Liszt Ferenc Academy of Music. The brainchild of the world-famous dramatic soprano grew from her desire to encourage independence and selfconfidence among young singers. The project found an ideal partner following the reopening of the Liszt Academy in 2013 after its reconstruction and following the founding of its Concert Center department, which has become the headquarters for the competitions. The Marton Competition has become a benchmark for singing students all around the world. It is important for those students to enter the international stage, compete with the world’s best young singers, and have their performances judged by a renowned international jury.
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